Finding Investment Ideas that suits you


Back when I was a teenager, I remember waking up every morning and zoom into the back of the Straits Times Finance section, trying to see if there is any news I can capitalize on. Internet access was still not prevalent. Newspapers and magazines such as ShareInv become your financial advisors. Teletext and "expert" friends become your source of tips. I grew up with Sharejunction, Valuebuddies, and Hardwarezone with the introduction of network access.

As the years went by, however, things started to change. I found myself overwhelmed with ideas from sources that I never even considered. Instead of going out and looking for ideas, I started to get flooded by them day and night from emails, venture capitalists, fund managers, and business executives. 

While all these "hot" tips always look exciting on paper, it boils down to one problem: they're people who want to sell me on an idea.

Over time, I've become weary to this fact and is fully aware that some of the smartest, most persuasive people out there are people who want something from me, which makes the information they offer less value. Probably that's one reason why you get fewer friends over time because you start building a virtual defensive wall.


So what are some of the advice I have heard? I will list some of them.


Sell in May and Go Away

This is one of my favorite old grandma's tale where the period from November to April inclusive has significantly stronger stock market growth on average than the other months. Stocks are sold at the start of May and the proceeds held in cash. This adage originated in London more than 100 years ago with traders believing they could make more money if they sold their stock holdings in May and bought them back in late September after "St Leger's Day", the start of the British horse-racing season.

The market goes up and down for a variety of reasons. Stock moves are usually fueled by corporate earnings and economic data. This has been statistically proven wrong. Even if you are inclined to sell in May, there is no reason to do so the moment the calendar turns from April to May.


Buy Low-Beta Stocks

For the uninitiated, a stock's beta refers to its sensitivity to market movements.

If a stock moves in tandem with the market, it is assigned a beta of one. If it moves more violently than the market (rising by 10 percent, for example, when the index goes up only 5 percent), it is viewed as having a high beta, exceeding one in value. Similarly, a stock that moves less violently than the market has a low beta, dropping below one in value.

What goes up must come down

2 good examples will be Starhub (beta 500 days 0.619) and CDG (beta 500 days 0.92). Starhub highest peak is $4.35 in FY2015 and CDG is $3.24. I could be proven wrong but you will need a strong conviction to believe that these golden geese will keep laying golden eggs. For once, keeping money inside a biscuit tin sounds like a brilliant idea.


Invest in what you know

The most famous saying of Peter Lynch is "Buy what you know.". Most investors know that Starbucks sells coffee and Mcdonalds sell burgers. A valid argument can be made that these companies bring predictability and help mitigate risk in one's portfolio, however, the fact remains that the biggest gains from stocks typically come from companies in the earlier phases of growth. The "easy" money has already been made. A greater fool theory states that it is possible to make money by buying securities, whether or not they are overvalued, by selling them for a profit at a later date. This is because there will always be someone (i.e. a bigger or greater fool) who is willing to pay a higher price

Typically, big well-known companies cannot grow at the pace they did when they first became publicly traded. Unfortunately, many who read Mr. Lynch’s book, One Up on Wall Street, mistakenly think he was suggesting that people simply buy based on initial clues, such as a popular new store or restaurant in the community. Such readers miss Mr. Lynch’s critical advice on page 42 (paperback edition), where he states:

“Finding the promising company is only the first step. The next step is doing the research.”. I know that most people spend more time researching their new car or holiday than they spend researching their favorite stock (even though the stock may represent a larger investment), just come IN and follow the "experts" cue. I just want to warn against a simplistic approach consisting of buying shares of a company just because you like one of their products. You also need to look at their whole product portfolio, at the valuation multiple, growth rate, etc.


Financial Advisors

The worst advice, which I read and hear frequently, is that you should find a good financial adviser by seeking the recommendation of someone you trust.

The odds of your childhood best friend, the person in the cubicle next to you, or your Uncle Bob referring you to a good financial adviser are slim. It’s the blind leading the blind.

There is no substitute for self-education. Those unwilling to learn are destined to repeat these same mistakes. The financial advice industry is too rife with conflicts of interest for you to enter without equipping yourself with knowledge.

Maybe the best summation is by Dr. James M. Dahle in his book “The White Coat Investor.” He says: “The main difficulty with choosing an investment adviser is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own.”


Grandpa's secret sauce

It has to be software, period. I will give you an analogy. Do you care whether your Netflix show is running on AMD or Intel chipset, or whether it is running off Dell or HP servers? Or do you even care about whether its M1 or Singtel or Starhub network? All you care is my "Billions" show is playing steady and no lagged. 

Without you realizing it, you are already part of the whole Software As a Service customer. From GRAB, PayNow, Netflix, Office365 and even your very own IN platform, software is the single most important lubricant that ensures the smooth functioning of enterprises. Every single business function, in every industry vertical, uses software to run efficiently. Collectively all these programs are known as enterprise software - and it's a lucrative industry which has made a few companies, that build these programs, extremely rich.

The business model usually involves licensing the software to customers on named or concurrent user for a fixed fee. Revenue is subsequently generated through after-sales services in support (e.g. patches) and subscription upgrades to the software. Typically, the upfront cost of acquiring the software is just 10 percent of the product's total cost of ownership. 

At the center of this phenomenon is the rise and rise of cloud computing, which provides a simple way to access servers, storage, databases and a broad set of application services over the internet. By accessing the “cloud”, companies save money by avoiding large upfront CAPEX and instead turn into an OPEX pay as you go, model, similar to your utility bill. Companies get the ability to access resources in the cloud as and when they need it and pay for only what they use. There are three kinds of cloud services — Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS) as illustrated here

The cloud infrastructure market is estimated at US$30 billion and projected to grow to beyond US$85 billion by 2021 and forecasts AWS’ revenues will grow 30% annually to reach US$68 billion by 2022.

AWS had a 70% share of the market last year, Azure 22%, and Google 8%, among the top US players. The Big Three are being challenged by Chinese giants such as Alibaba Group Holding, Tencent Holdings and Baidu, which dominate the cloud services business in their domestic markets and have built a strong business in Southeast Asia.

The other 3 players in the SaaS space I am watching are Workday, which sells cloud-based finance and human resources software to small and medium-sized firms. Another is finance and tax software firm Intuit, and digital signature firm DocuSign.

If you are watching the space, you would have to know that Elastic, a firm provides open source search software and related analytics and enhancement services to enterprises, almost doubling the IPO price on Day 1. Another IPO company (2019) to watch is Slack. If you work in an office, you’re probably familiar with the messaging platform Slack. Slack has only been around for a few years, but a lot of businesses and offices have started to adopt the messaging platform. As of May 2018, Slack has grown its daily active users by 33% to 8 million since September 2017. In addition to that, the company has grown its paid users to 3 million, up 50% from September 2017.

Slack’s platform allows for an integrated way to communicate and get work done with the rest of your office. There are a variety of apps you can download and use on Slack’s platform to make it easier to do the tasks you need to get done and share documents easily and more efficiently. In May 2018, Slack also announced that it has 70,000 paid teams. User growth is essential to companies like Slack. The company’s ability to grow its paid subscribers is going to be the top priority, and for potential investors, that’ll be a huge factor in if they invest or not.


Some of the best investment advice I ever got boils down to plain common sense.


Until next time

K, tks, bye

Grandpa

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37 likes
19 comments
wongyongjie2

Thanks grandpa on the in depth writing. Can I ask wat are your views on simply investing in Index funds/REITs? considering one has a long investment horizon?

Bobbilipuli

Reply to @GrandpaLemon : The expense ratios of REITs ETF is still high and will eat into your returns and this will be a recurring expenditure every year. Preferable to instead buy them directly but of course exercising due diligence!

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luxcan

If you all are curious how elastic is performing as a search engine, I can say that it has a long way to go.

Recently my company introduce elastic to a big sg brand because google has stop its enterprise search. Feature wise, it still has a long way to go but it still among the best so far in the market.

one company that I am currently waiting for IPO is Swipe. this is the true gem.

luxcan

Reply to @wellhandy : ya, and companies like elastic will in return integrate open sources platform into services (for example elastic is building on top of Apache luence).

Tech related services certainly is the future like grandpa lemon say haha.

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snow_ball

agreed. the competition in applications can be quite keen as the race to build up their ecosystem. Adobe, Salesforce, etc.
or those who compete on new areas/niches like Appian (low code development), Stitch Fix, Docusign
there are alot in US and some in HK also

Evilcrownofthorns

oh hey, docusign also in my watchlist

wellhandy

#bump

good list good pinpoint.
i like slack the software too.

kc2024

Good stuff. What’s your view in the ease/challenge of saas companies retaining their customers?

kc2024

Reply to @GrandpaLemon : Thanks. That’s very detail. I am seeing quite a number of saas companies popping up, so am wondering how big the market is and who are the big players and whether their growth is sustainable.

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Spinning_Top

Grandpa , thank you for the lemon sauce! Nice!

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IAmPatrick

Financial advisor if zhun can consider, this taiwan advisor msg warning to his members on 8th oct before the DJI crash, to exit on the profit.

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clim

Haha, thanks for great article. Whats granpa view on Tencent?

LFO

Reply to @clim : Good ask.. Looking at it too.

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