It’s been a privilege to see so many new subscribers to this blog, as well as to our flagship publication, the Private Investment Brief. (1) The quality of this group is even more humbling, as it includes hedge fund managers, allocators, and businesspeople around the world, many representing household names of finance and industry. You would think I’d know enough to repay this honor by writing serious posts about serious matters—but you’d be wrong. Out of some perverse impulse to throw away whatever prestige comes my way, I’ve been compelled to write about everyone’s favorite family, the Kardashians. That’s Kim, Khloe, Kourtney, Kris, Caitlyn, Kylie, and Kendall if you’re keeping score at home.

It hurts me more than it hurts you. And yet I can’t help but observe that in the bizarre, somewhat distasteful, and yet extremely competitive world of the “celebrity brand”—in which a person acquires fame by various means, and then monetizes that fame by lending it to companies that want to sell you something—the Kardashians are at or near the top of a very large heap. And they climbed there from quite a low base not nine years ago, without any conventional celebrity merit to speak of beyond a cable TV reality show of modest ratings success. (2) Information about these things is notoriously unreliable, but it’s not crazy to speculate that the family collectively takes in something approaching $100 million per year in gross income. (3) A typical industrial company might have to gross over $1 billion to earn that much in operating income, and a typical hedge fund might need more than $2 billion in assets under management. If like me you like to study business success, then perhaps you should study and even admire the Kardashians, despite the fact that—or is it because?—their pre-eminence is in a much different field than your own.

I also can’t help but observe that many of those who turn up their noses at the Kardashians, especially among the educated professional classes, work at jobs that require them to market themselves and their organizations. Whether we like it or not, in other words, we’re all Kardashians now, so perhaps we shouldn’t be so dismissive. Back in old Europe, young women from good families would sometimes pay discreet visits to their counterparts in the demimonde, seeking some insight into the duties of a new wife. So too should we acknowledge that true expertise doesn’t always with status and credentials. Kim Kardashian may well be a better marketing professor than the ones you find at Kellogg.

Finally, when contemplating the sheer magnitude of the Kardashians’ success and their ability to sustain it, I can’t help but feel that there is more to the Kardashian phenomenon than randomness or the nature of fads or the fact that young people are crazy, which are the usual explanations for these things. Somewhere along the line, it seems to me, the Kardashians figured out what business they are in and became “great operators” at it. Not only that, but I can’t help but feel that they’ve also acquired what I’m almost ashamed to call a “strategic competitive advantage” over all the other celebrity brands out there.

This last part intrigues me most of all. For those of us who occupy the strange middle ground between a venture capitalist and an Ben Graham-style value investor—who might for instance seek to invest in this company in 2005 or this one in 2012—there is sometimes a brief window of time in the life of a young public company that proves to be our witching hour. It comes just as the company is making the transition from “great product” to “great business” and all that implies, but just before securities markets catch on. This is when the massive upside that was once just a gleam in a founder’s eye starts to acquire some measure of certainty. As difficult as it is to find one of these windows, you only need a few in your career as an investor and your fortune is made. You can improve your odds a bit by being willing to think about new business models that don’t have perfect antecedents. You can improve them by being willing to look like a kook for awhile. And you can improve them by practice.

“So convenient a thing to be a reasonable creature, since it enables one to find or make a reason for every thing one has a mind to do.” I’ve just found several reasons to ask myself about the success secrets of the Kardashians. Whether they are the real reasons is something my subconscious may or may not reveal to me in time. But for now, without fear of infamy, I’ll try to answer.

The first secret of the Kardashians’ success, which is no secret at all to anyone under 25, is that their TV show is something of a red herring. While it’s no doubt lucrative, the family doesn’t really live in the world of television and its associated markers of success (ratings, carriage fees, Emmy awards, etc.). Instead, they make their real living in an entirely new medium, whose birth coincided almost perfectly with their arrival on the scene: the medium of mass entertainment via smartphone. When people my age get on the subway in the morning and find themselves surrounded by 50 millenial heads buried silently in 50 iPhones, they tend to think the world is ending. But the basic business model of the modern mobile celebrity is no different than Milton Berle’s nearly 70 years ago: the celebrity commands the attention of the public, and then that attention is transformed into money via some type of advertising or endorsement. The real Kardashian “show” is the one playing out more or less permanently every day on millions of little screens, and when we begin to look at it this way, we suddenly start to see metrics that correspond with their reported earnings:

• Five members of the family are among Twitter’s 100 most followed
• Three are among Instagram’s 10 most followed (Instagram is the Fifth Avenue of Mobile Celebrity Entertainment real estate)
• And last but not least, the Kardashians are the undisputed champions of the DailyMail.com (which is the 57th Street) online newspaper

While conceptually the modern mobile celebrity is the same as the celebrity of yesteryear, there is a huge difference in the execution. In the 1940s, a movie star would have to appear in public maybe twice a year to promote a new movie, and that was considered an annoying but necessary burden of fame. Today, the mobile celebrity entertainer must appear in virtual public twice a day at a minimum, or else risk falling to the bottom of a smartphone user’s feed. That is to say, in the new world of mobile entertainment the required velocity of fame is much higher than it used to be. And with the need for more velocity comes the need for more ephemerality: Each appearance by the celebrity on the smartphone screen must manage to be both instantly attention-grabbing and instantly forgettable, so as not to overtax the brain of the viewer while at the same time building up the “mental availability” that is crucial to selling brands, especially in highly fragmented, mass-market product categories like fragrances, mobile apps, and clothing where the Kardashians do especially well. The goal is not to get 40 million people to love you, it’s to get 40 million people to at least think of you when they are buying perfume.

This is the second success secret of the Kardashians: They understand the “instantly attention-grabbing yet instantly forgettable” paradox perfectly well, and while I wouldn’t choose to earn a living that way, they deliver it better than anyone. Indeed, most of the things we hate about them—the narcissism, the shallowness, the thousands of selfies—turn out to be prized assets in the world of the mobile entertainer. To say the Kardashians have “no talent” is to ignore the fact that being able to command the attention of a smartphone user for 20 seconds is as much a skill—and as lucrative—as being able to command the attention of a moviegoer for two hours.

It’s fair to say that each individual Kardashian is a better operator in their particular field than you or I could ever hope to be, and perhaps a better operator than most other celebrities. But they have one final ace in the hole, an actual strategic advantage that puts them even further out front. There are about 17 different versions of how the show Keeping Up with the Kardashians was conceived, but in one of them, family matriarch Kris was listening as a friend described a particular reality show that was doing well in the ratings because its star had a lot of drama in her life. She immediately intuited that if one person’s drama made a good reality show, then ten people, each of who had their own individual drama, would make an even better one.

I doubt she’s ever used this term explicitly, but what Kris was describing is the concept of risk bearing economies of scale, one of the oldest and simplest strategic competitive advantages a company can enjoy—and the third success secret of the Kardashians. Risk bearing economies of scale are the reason movie studios and record labels and insurance underwriters like to be big, because they diversify the risk of individually risky investments and decisions. And they’re crucial in the world of mobile entertainment, where the name of the game is to generate tweets and photographs and stories that become “hits” for that day or hour. One individual celebrity working alone would have a difficult time doing this, but because there are seven Kardashians working full-time to generate hits, and because the success of one rubs off a little on the rest of the family, the probability that Brand Kardashian as a whole will generate at least one hit a day is multiples greater. And if you’re also willing to give them credit for the magnitude of their hits, and weigh it against the probability of not generating a hit—that is to say, if you’re willing to calculate something like a sharpe ratio for the Kardashians’ investments of time and energy (4)—then being a family business is probably even more of an advantage in the world of mobile celebrity entertainment. How ironic that in the most modern part of the economy, the most ancient ties, those of blood, turn out to dominate.

And that’s all I have to say about this silly topic. In the next essay we’ll get back to more serious things. But if one day you should open up the Harvard Business Review and find an article entitled “Success Secrets of the Kardashians,” remember you read it here first.

(1) Which I must urge all of you to subscribe to. The price is reasonable, and unlike the lunatic ravings you’re about to read, the publication has actual investment ideas in it. Contact info@privateinvestmentbrief.com for a special pricing offer.

(2) It’s easy to forget this now that the Kardashians are official celebrity royalty, but when Keeping Up with the Kardashians debuted it was intentionally goofy and even kitsch, a send-up of old sitcoms that nobody watches anymore. When you have nothing better to do, listen to its original theme music and then overlay it, like a DJ in the club, with the theme from the Andy Griffith Show from the 1960s. Upon this rock they built their empire. I’m told there was also a sex tape involved somewhere, but I wouldn’t know anything about that. Let’s move on.

(3) Celebrities usually exaggerate their incomes and the celebrity media is happy to play along. But in this case the unreliability could go the other way: some of the Kardashians’s sources of income are so new that they’re not yet considered legitimate and are therefore hushed up. No one is particularly ashamed when LeBron James happily drinks Sprite during a TV commercial, although strictly speaking he received a massive bribe to do so. But when Kim Kardashian is paid to wear to particular gown to a public event, everyone prefers to keep quiet about it in the name of preserving authenticity, even though it’s exactly the same idea. It may be that the family earns much more of this type of income than the media realizes.

(4) Who said modern portfolio theory is worthless.