Relentless pursuit for the perfect company
I have been interacting through e-mail with many of our fellow countrymen from as far as the United States, Europe, Australia and the Middle East as well as with our compatriots in nearby Singapore. This is, however, my first time to interact with countrymen from Hong Kong, especially through a radio-show broadcast.
Our review of stock evaluation methods and investment styles has apparently caught the interest of a former business reporter in the Philippines who has moved to Hong Kong in 1987 to work mainly as a financial editor/writer. He, with a female partner, is also hosting “Pinoy Life,” a Sunday radio broadcast from 4 p.m. to 6 p.m. for Hong Kong’s 200,000-strong Filipino community. He is Jun Concepcion and his program is aired on the Hong Kong government-run Radio Television Hong Kong’s Radio 3 or RTHK-Radio 3.
According to Concepcion, the Filipino community in Hong Kong is composed of about “50,000 professionals (architects, engineers, bankers, financial and IT professionals, entrepreneurs and entertainers) and about 150,000 domestic helpers, about 80 percent of whom are either college graduates or with some college education.”
We conducted a 20-minute telephone interaction with listeners on Sunday, Aug. 4. Hopefully, the radio broadcast sparked fresh interest in stock investing and trading that, in turn, could help further boost the development of the Philippine capital market.
As explained in economics subjects, the capital market “plays an important role in mobilizing resources toward productive activities that lead to economic growth.” The capital market also acts as a conduit that enables retail investors to benefit from the wealth of the nation. Thanks to Concepcion, for this first and interesting experience to promote wealth development through the capital market.
Overseas Filipinos have grown to be a formidable driver of growth and development in the country, earning the official designation of overseas Filipino investors (OFIs), through remittances, buying properties and creating businesses.”
Peter Lynch
A deliberate value investor who also applies the growth investing approach is Peter Lynch. He managed Fidelity Magellan Fund from 1977 to 1990, and had the best overall fund management record in the 1980s. His record is described in the following excerpt: “13 years to the day he took the job, a $10,000 invested with Lynch’s Magellan when he began would have grown to over $280,000 at his departure, for an average annual return of 29.2 percent.”
His success rested mainly on the strategies he was known for: “Niche investing and relentless pursuit for the perfect company.” Added to these is the strategy to “look where others won’t.” He said, “to make money, you must find something that nobody else knows, or do something that others won’t do because they have rigid mind sets.”
Incidentally, this was also his trading dictum, for as he said, “once you know why you bought it, you’ll also know what to do when its price fluctuates.” He further categorized stocks to know the type of company he was investing in, for as he observed “companies move from category to category over time.” They could be what he calls slow growers, stalwarts, cyclical, fast growers, turnarounds and asset plays.
Slow growers are usually large, old and/or highly regulated companies like electric utilities. Stalwarts are large and old companies but are “still growing strong.” Cyclical companies are those that rise and fall with the economy like airline and steel companies.
“Fast growers are small companies that grow 20 percent or more a year. Turnarounds are good companies that have been beaten down. Asset plays are companies with something valuable that Wall Street missed.”
According to Lynch, the perfect company should be simple enough that “any idiot could run it.” Never mind if the “name of the company is boring or ugly and something about its business turns people off.”
Lynch likes to tell about the company he invested in and became a 100-bagger (market price rising 100 times). It was engaged in sewage and toxic waste.
He also recommends looking for fast-growing enterprises inside a slow-growth industry or, “better still, a no-growth industry.” As he observed correctly, competition is nil for “everybody thinks they can make money in Silicon Valley, few think they can make money in the funeral business.” He did.
His favorite are niche companies, or those that could own something unique or dominate a tiny market that competition is hard put to muscle inside, as well as companies that “have a product that people need to keep buying.”
However, no matter what type of company it is, he insists on investing in companies with a lot of cash and little debt. “Companies with no debt can’t go bankrupt,” he points out. Also, he suggests that you also invest in companies whose stocks are bought by their managers and employees, along with companies that buy back their own stock. To him, “this is a show of faith in the company’s future and it also decreases the number of shares in circulation, thereby increasing their worth.”
He caps his technique with the philosophy that “private investors can develop a number of advantages over the professional if he or she applies common sense with a little research and sticks to companies they know about.”
Bottom line spin
The local market was down 129.72 points or 1.99 percent last week on four days of thin trading. Friday was declared a holiday in observance of Eidul-Fitar (end of Islamic month of Ramadan). Investors seemed to have been spooked by the advent of the Chinese “Ghost Month” which started on Aug. 7. It is very likely that this trend of the market will prevail up to the end of the seventh lunar month in the traditional Chinese calendar on Sept. 4.
(The writer is a licensed stockbroker of Eagle Equities Inc. The Market Rider can be reached through [email protected] , [email protected] or at www.kapitaltek.com)
