A reader's insights into Brown-Forman; Interview with the founder and CEO of Joby Aviation; Moody's highlights the risks of investing in private funds; My youngest daughter's college graduation

1) In last Tuesday's e-mail, I updated my readers on struggling spirits maker Brown-Forman (BF-B). Then in Wednesday's e-mail, I shared a reader's comments. Today, I'd like to share what another reader, industry veteran Tom V., e-mailed me about the company:

I worked in the spirits industry for 26 years, 16 years as head marketer of a major spirits company and 10 years as president of a rum company. While I'm retired now, I keep in touch with associates still in the industry.

The spirits industry as a whole continues to trend down as younger drinking age consumers (who influence brand growth) seem to be trending away from spirits and into other stimulants for many different reasons. This affects Brown-Forman of course.

Historically, spirits have tended to always fluctuate between brown goods (i.e., bourbon, cognacs, and other darker spirit cocktails) and light goods (gin, vodka and light rum cocktails) seasonally for six or more months at a time and sales followed. This wasn't unusual for the industry. But today it is quite different as the trend is away from spirits and to other industries. And the effect is worldwide.

Tom then shared his observations about Brown-Forman's marketing and management strategies:

Brown-Forman has always appeared to me to be a conservatively managed company that didn't take too many risks in either developing new brands, acquiring growing brands, or providing much forward thinking in marketing/promoting their own core brands. Most of what they have done in marketing has been evolutionary with core branding and little in new product launches outside their core business (i.e., using the Jack Daniel's name recognition branding as extensions into the grocery sector).

He also commented on the power of distributors and their incentive to reduce pricing:

The spirits industry as a whole today appears to be more in the hands of a limited number of distributors and less in the hands of brand management, following powerful mergers by distributors. The fallacy lies in the fact that once a distributor gains control of any brand at the point of sale by virtue of representing many powerful brands, the leverage with retailers is secure and brand marketing becomes an afterthought, in the three-tier system. Eventually pricing becomes more important to the distributor/retailer in volume sales than the brand's image. The core business and mindset of distributors is to control distribution at retail and reduce pricing to promote volume sales.

But, as Tom points out, lower pricing hurts premium brands like Jack Daniel's:

Distributors do not understand marketing. They fail to realize that image is what consumers are buying. Lose that and the brand diminishes in value to this primary consumer segment and the brand moves next into the volume phase of the bell curve to price-conscious consumers and lower values. It's not just Jack Daniel's – the spirits industry as a whole appears to be experiencing some of this vs. other competing alternatives.

Thank you, Tom! My Stansberry's Investment Advisory team and I will be incorporating your insights into our analysis of Brown-Forman.

(As always, our subscribers will be the first to know if we decide the stock is compelling enough to recommend. If you're not already an Investment Advisory subscriber, you can learn how to become one right here.)

2) In last Monday's e-mail, I updated my readers about electric-air-taxi company Joby Aviation (JOBY). When I visited the company in California in September 2023, I had the pleasure of meeting founder and CEO JoeBen Bevirt ("Joe B." – get it?). So I wanted to share this 40-minute interview he did with entrepreneur and investor Joe Lonsdale: How 200MPH Flying Cars Are About to Change the World. 

JoeBen Bevirt has spent two decades building electric vertical take-off and landing (eVTOL) aircraft, and now he's on the cusp of commercial approval and rollout. Will flying cars be as transformational as the automobile? How will air taxis impact our cities and the way we live? And how did JoeBen achieve this feat of ingenuity?

This week we're joined by the Co-Founder and CEO of Joby Aviation, an American aviation company pioneering eVTOL aircraft for air taxi service. All-electric, virtually silent, and traveling up to 200mph with a pilot and four passengers, Joby is opening new possibilities in the skies above – starting at the price of an Uber Black. The implications for productivity and quality of life are massive, saving the average person an hour or two a day sitting in traffic and unlocking new swaths of land for development...

Joby expects its first passenger rides in Dubai within a year and is working closely with the Trump administration as it nears the final stages of [Federal Aviation Administration] approval. Inspired by SpaceX, Joby is vertically integrated and plans to aggressively ramp manufacturing here in the U.S., backed by a $500 million investment from Toyota (bringing Toyota's total investment near $900 million).

In general, eVTOLs are getting more and more attention – and Joby's work on them in particular. That's why I continue to think the company has moonshot potential, as I discussed in two back-to-back e-mails in January 2024:

• Two potential moonshots (part 1)
• Two potential moonshots (part 2)

3) In my May 21 e-mail, I shared this warning with my readers:

Another way to lose a lot of money quickly is investing in illiquid "alternative assets" like private companies, real estate, hedge funds, etc. – and, unfortunately, the U.S. Securities and Exchange Commission ("SEC") is trying to open up these investments to average folks, as this Wall Street Journal article notes: SEC Chair Signals Investor Access to Private Markets Could Soon Broaden.

I'm not the only one to see the risks of these types of investments... Bond-rating company Moody's (MCO) does as well, as this Wall Street Journal article notes: Moody's Sounds Alarm on Private Funds for Individuals. Excerpt:

Wall Street's push to sell private-equity and private-debt funds to individual investors risks overheating financial markets and backfiring on firms launching the funds, according to Moody's Ratings.

Private-fund managers have turned to individual, or retail, investors to offset a decline in money raised from traditional clients such as pensions and endowments. But in a report viewed by The Wall Street Journal, Moody's warned that selling funds to retail clients will introduce new risks to private-asset managers, including "reputation loss, heightened regulatory scrutiny and higher costs."

What is more, the Moody's analysts wrote, the coming surge might even stress the financial system.

Moody's highlights the risks to individual investors:

• During economic downturns, individuals typically sell their investments and stockpile cash to make ends meet. That will be harder to do if those investors hold stakes in private funds that limit withdrawals.
• A few large private-fund managers now dominate the market and they often invest in the same deals and in each other's funds. This makes it harder for individuals to diversify their investments and "this kind of interconnectedness can amplify systemic vulnerabilities."
• Some of the investments "funneled" into retail funds may be leftover investments from funds previously sold to institutional investors who wanted to get out. "That raises questions about alignment, transparency and product integrity."

My advice remains the same: The vast majority of investors should avoid alternative assets and funds heavily invested in them.

4) My extended family and I were at Carleton College in Northfield, Minnesota over the weekend to celebrate my youngest daughter's graduation. This is what I posted to Facebook:

CONGRATULATIONS! You are a spectacular young woman: poised, confident, smart, beautiful, athletic and beloved by all because of your big heart! We're thrilled that you're coming back to NYC and will be a third-grade teacher at Trinity in the fall – and living with us (we can't wait to be reverse empty nesters)!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.