Beware of Brand Bias

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I received many responses to my article on music downloading and heard from some very passionate users of Apple's (Nasdaq: AAPL) iTunes, RealNetworks' (Nasdaq: RNWK) Rhapsody, and MusicMatch. I felt like Jeremy Piven in PCU. Alas, not a single reply had anything to do with investing.

My first experience with downloading wasn't meant to be a product review. I only considered writing on the experience after the fact, which from an investor's perspective turned out to offer a much less biased observation. I wanted to download about 20 songs, and it turned out several of the titles weren't available on iTunes or Buy.com but were at Wal-Mart (NYSE: WMT).

Readers wrote that my analysis was lacking, and some suggested trying their favorite brand. However, my naive experience was quite typical of what many Middle Americans have had or are going to have in the near future. A large portion of Internet users still connect via dial-up and shop at a Wal-Mart Supercenter. For many of those people, their first music-downloading experience isn't going to be with iTunes.

I didn't have an enjoyable first experience -- I think many others won't either -- and for the time being, that is going to hold back the entire industry from reaching its full potential. Consider how much simpler digital cameras have become over the last few years and how the market has opened up. But still, the market hasn't been a profitable one for investors.

Don't be blinded by a favorite brand. A respected brand name and great product can be an important factor in stock price appreciation, but it's not the only one.

There are many examples of great and well-loved products that don't make good investments. Apple is trading at 1987 prices, Ford (NYSE: F) is trading near a two-decade low, and General Motors (NYSE: GM) -- hard to believe -- is at a 40-year low.

Conversely, there are many examples of unsavory brands that have made money for investors.

Consider what brand biases are deluding you into holding stocks you shouldn't be or keeping you from holding stocks you should be.

Fool contributor Mark Mahorney doesn't own shares of any companies mentioned.