When I first started working, I met a much older family man from a different department. Let’s call him J. J is extremely frugal and is mindful of how he spends his money. In fact, he even dissuade his wife from going to the shopping malls during the weekends. J did mention about his hope of ultimately purchasing a resale condominium. Not sure how is he doing now – have since lost contact or any news about him.
Actually, over time, after I have invested money in Singapore Shares, I became intrigued about how each of the companies I researched on, are doing. This is especially so if I have invested money in them. Investing money in something, is a sure way of making me interested in it (like the time during the FIFA World Cup, when I bet a small amount on a particular team. I would read deeper into the strengths and weaknesses of the team and its competitors). Investing in a company is a lifelong & never ending endeavor (news about the company or the macro economy occurs every day / week / month / year). This is unlike the FIFA World Cup which only comes once every 4 years.
In investing, the “scuttlebutt” technique is often coined.
“Every time you shop in a store, eat a hamburger or buy new sunglasses you’re getting valuable input. By browsing around you can see what’s selling and what isn’t.” Peter Lynch
The more I research into the listed companies in Singapore, the more I looked forward to the weekend trips to shopping malls, supermarkets, family recreation areas etc. True, we would sometime spend more on food in restaurants or buy stuffs / food, when there could be cheaper alternatives like cooking at home, eating at hawker centres, buying less… (eg. be like the older man I mentioned earlier). However, I do not believe in scrimping on everything. This is contrary to what J believes.
However, what really interests me more (as compared to what my wife thinks) is the chance to look at all the products out there. I look forward to going to new shopping malls, to new attractions, places of interest – where masses of people flock to during each weekend or public holiday. Consequently, the companies that I read about became more than words in news articles or annual reports. I see Osim (OSIM, GNC, TWG), Japan Food Holdings (Ajisen Ramen, Kura, Botejyu, Keika), Breadtalk (Toast Box, Din Tai Fung, Food Republic), Sakae Sushi, Neo Group Ltd (Umisushi), Supergroup (Owl Cafe), Eu Yan Sang etc. In supermarkets, I check out which brands are selling out fast, placed at prominent locations or having promotions. We were at Plaza Singapura and Vivo City during the recent Hari Raya Puasa holiday, and it was madness.
Every so often I see new tenants replacing the former tenants, new products occupying the former space of old products. Such is the competitive nature of the retail & F&B industry here. While my wife is shopping, I am in fact doing an impromptu visual Business SWOT Analysis (a structured planning method used to evaluate the strengths, weaknesses, opportunities and threats involved in a business venture). 😛 In fact my wife is my walking critique – although most of the time she doesn’t know it (when you are invested in something, you tend to be more bias towards that company or its products).
I am sure most of people who invested in Apple shares would have liked or have been impressed by their products. To me the shopping malls and supermarkets are one big battlefield, where new brands / concepts come and go.
“The value of a company selling a trendy product, such as television shopping, depends on the profitability of the product, the product lifecycle, competitive barriers, and the ability of the company to replicate it’s current success.” Seth Klarman
Then after a while I began to look beyond the hype. After all, a popular brand is just one part of the equation. There are many companies that appear to be doing well, but when you read their financial annual reports & quarterly results, it is a different story (eg. Epicentre Holdings, OSIM, Japan Food, Breadtalk etc). Yes – Read the Annual Report or Quarterly Results before you invest! The effort to fend off competitors or maintain their competitive edge is just too much eg. eating too much into the profit margins. I am also looking for growth, and not looking for the ‘has-been’, or the one hit wonder. First-hand observations and anecdotal evidence are a great start, but all great ideas need to be followed up with smart research.
“Investors should remember that excitement and expenses are their enemies.” – Warren Buffett in a letter to shareholders, 2014.
In addition, isn’t investing about the 2nd level of thinking:
First level thinking says, “It’s a good company; let’s buy the stock.”
Second level thinking says, “It’s a good company, but everyone thinks it’s a great company, and it’s not. So the stock’s overrated and overpriced; let’s sell.”
If I can see multiple F&B outlets or bakery shops by Breadtalk sprouting everywhere, I am sure everyone else does as well. So I really need to ask myself:
- Do I have insight into this investment that someone else doesn’t?
- What is my edge here?
- What do I know that the market doesn’t?
Maybe I am just thinking too much… Could this company be the next Walmart or MacDonalds (Lynch mentions that Wal-Mart was a 10-bagger — i.e. its stock rose to 10 times its initial price — 10 years after it went public. Even if you had gotten in after waiting a decade, though, you’d be sitting on a 100-bagger.)
“I don’t try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over.” Warren Buffett
Sometimes, the permutations are just too many. So instead of thinking about this, I take the “route less traveled”. I look to Peter Lynch’s principles of searching for good investments:
- a company which operates in a boring, or preferably, disagreeable sector.
- a company operates in a niche that would be difficult for other companies to penetrate.
Like I said before, the notion of Growth in investing is a very difficult concept to master (read here). In fact the idea of paying a fair price for any wonderful company is itself a long thesis that not everyone would agree (I am glad I don’t get much comments querying about my stands on each company I blog about – there is really no right or wrong sometimes). However, I generally focused on fundamental variables like the debt/equity (and debt/cash) ratio, PEG, intrinsic value (earnings per share growth rate), and free cash flow.
Numbers do stick to me (esp. in times of panic when market crashes).
These numbers are especially useful in Fast-Growers stocks (Small, aggressive new firms with annual earnings growth of 20% to 25% a year). Narratives / outlooks are important and help to reinforce my belief (but they tend to be more subjective). Some people learn by reading, some learn by listening, some learn by writing… I think I learn more when I write.
For cyclical stocks I tend to rely more on narratives and outlook as the numbers / figures are not that straight forward here. However, having said that I find it really hard to master cyclical stocks (probably the riskiest investments I can make), it takes extreme patience and conviction esp during long down cycles. However, it did make Mr Peter Lim very rich (eg. Wilmar).