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Investing Lessons From Paula Deen’s Downfall

SS6-30-13For King Solomon, speaking wisely and justly is part of living a prudent life that’s blessed by God. “Remove from thee a forward mouth,” he says in Proverbs 4:24. “And let detracting lips be far from thee.” That’s timeless advice – words worth heeding for disgraced celebrity chef Paula Deen, whose froward mouth has cost her former sponsors millions. But even as Deen’s downfall sends ripples into many areas of the economy, it also offers an important lesson for investors.

The list of corporations and projects that hitched their wagons to Deen’s star reads like a who’s who of American retail. Companies like Target and JC Penney made her the face of whole product lines and promotions, with tie ins to Deen’s shows and magazines. Now, as these companies scramble for damage control, lines such as Target’s Deen-endorsed cookware are being pulled from stores, advertising bearing her likeness is yanked from stores, and investors are running scared.

Deen’s hotly anticipated book deal has also tanked, scotching thousands of dollars in pre-orders and a massive publicity campaign by major publishing house Ballantine Books. According to a new article on The Motley Fool, companies who banked on Deen’s celebrity face losing millions in lost revenue, key investors and their own reputation unless they back away fast.

So what went wrong for Target, Wal-Mart and company in this situation and what’s the takeaway for income property investors? DEen’s sponsors banked big — and exclusively — on her popularity. They named products lines for her, featured her in their advertising, used her name and likeness to promote everything from books to silverware. But when her public persona went wrong, these companies lost billions. Putting massive resources behind a single personality created a house of cards that collapsed in the blink of an n-word.

And for investors? Just like Deen’s sponsors, who poured massive amounts of advertising dollars into a single celebrity spokesperson, an investor who pours all available resources into one market risks losing big if the market collapses.

Jason Hartman sums it up in his 10 Commandments of Successful Investing. “Thou shalt diversify,” he says in Commandment 6. Investing in several different markets with different features not only reduces risk, but also maximizes returns. An investor who puts all resources into a single market that then collapses can face major losses.

Along with that, Jason’s 7th Commandment advises investors, “Thou shalt be an Area Agnostic,” and choose to work with advisors without any bias toward a particular area or type of investment. This avoids a conflict of interest and opens the door to more opportunities for investing profits.

The disgraced food diva’s future is unclear, and it’s anyone’s guess whether she’s learned any lessons from the loss of her reputation due to that froward mouth. But for the companies who lost millions in revenue and time spent repairing damage done to images and brands, the message is clear. All eggs can be broken when a single basket falls. (Top image: Flickr/jronaldlee)

Sources:

Beyers. Tim. “Paula Deen’s Biggest Failure: Not Heeding Warren Buffett’s Advice.” The Motley Fool. 30 Jun 2013

Solomon Success is the complete source for Christian Investors . Read more from our archives:

Groaing Pains for the Bitcoin

King Solomon’s 5 Virtues for Investors

The Solomon Success Team

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