“…so if you step back a little bit and think about the world, technological innovation is driving down the prices of almost all goods. However, there are these rare goods and services that can actually have their prices rise over time and we think in general that their businesses have a network effect and that they’re in industries that are growing faster than GDP. Estee Lauder is a perfect example of that kind of company. The reason why people buy Estee lauder’s luxury cosmetics is for the beauty aspect but they also buy it for the specific brand value. Estee Lauder has created a network of consumers all over the world that strongly associate their brands with wealth, status, and beauty and so basically, people are buying it for social signaling and so as wealth rises over time, you actually have to increase prices or else the value proposition degrades, that’s what we like in Estee Lauder.”
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