Tuesday, 10 November 2015

My investing strategy - go in between

I'll admit, I'm a lazy investor as can be seen by my lack of posts. The same thing can be said for my stock selection.

Some people can do deep analysis about which company is going to benefit the most from big global trends such as healthcare and e-commerce or the supposed recovery in the housing market, but I'll be honest in saying that I have no idea.

E-commerce trend
Is Alibaba going to take over amazon? - No clue

Healthcare
Which biotech company is going to come up with the next cancer healing drug? - Dunno, I got B for biology

Property rebound
Do you know which property company is going to benefit from a housing recover? - I honestly haven't the foggiest idea of where Capitaland invest in. All I know is China and Singapore.

Oil prices
Which airlines are going to benefit most from low oil prices? - All I know is that I'm still pissed that flight costs are about the same as before the crash.

Good news is that there is a better way to play the trend, it involves buying what I call the 'in-between companies', or companies that are involved in the supply chains of the trends. Here's a few examples

Chinese market 
Does anyone, anyone know where China is going????

E-commerce trend
Do i know which company is going to survive the bloodbath is e-commerce, no idea. But I do know that there are MAINLY 2 ways to pay. Visa or mastercard (ok there's paypal, but i have no idea whether they will survive that)

I also know there's MAINLY two ways to get the package to your doorstep. Fedex or UPS.

Healthcare
We all can quote the 'ageing population trend blah blah buy healthcare blah blah' But do you know which hospital is better than the other? Which drug company is going to come out with the next blockbuster drug? I don't, and I really don't want to find out. But you can buy PBM (pharmacy benefit managers) that act as the middle-man between drug makers and pharmacies. CVS and Walgreen Boots dominate the market in this sector


Property rebound
I guess you know where this is going. Buy Sherwin Williams instead, it is one of the largest companies (Ok mostly focused in USA) that sells paints and coatings for houses.

Oil prices
Buy Airports of Thailand instead, or Boeing/Airbus, they dominate their markets instead of having to compare which airline is better. Or you can go one step deeper and buy aircraft engine manufactures such as Rolls Royce or PCP (Warren Buffet just bought out PCP)

Chinese market
Insurance companies such as AIA, invest their premiums into (hopefully) high grade Chinese bonds and equities, which is a safer way then chucking it to some S-chips of small tech company in Shenzhen. Another plus side is that it has a stronghold in the Chinese and ASEAN insurance market, where the population is severely under-insured

Another plus point is that you can wave off insurance agents by saving ' I own stock in your company' but that's not nice.

Here's a summary of the advantages of going in between

Its much less work
I don't really need to care which e-commerce firm is going to survive the bloodbath, nor read about the latest drugs. I just need to know that the trend is still there.

Monopoly/Oligopoly
These in-between companies operate in a monopolistic environment. Its going to take a long time to challenge Visa or Mastercard, or Boeing. In contrast, Alibaba/Sia can plummet 5 years from now and you wouldn't even know what hit you.

Stable earnings
As with their monopolistic nature, these companies will give you sleep easy mid-teens, high single digit growth as long as the overall trend still holds. But for Alibaba? Earnings can swing from 20-40% and no one has any clue, SIA/capitaland can swing from profits to loss within a year. I'm not smart enough to value a firm like that, nor be able to capture the next wave.

Conclusion
Of course if you want outsized gains, doing your homework and identifying the winner in these markets would be the best. But if you are
1) lazy
2) lazy and not smart enough to analyze companies like me
3) want companies with 'sleep easy' steady profits 
then its better to go in between.

Disclaimer: (I used/still own stocks in Fedex, UPS, Sherwin Williams, Visa, AIA, PCP) and you pull back the earnings/share chart of these companies you would understand why I love these companies.

Disclaimer 2: I still haven't used the 'I own stock in your company so don't bug me' line to insurance agents yet.

1 comment:

  1. I think I am a lazy investor too! Hahahaha.....

    People tend to compare between Singtel, Starhub and M1, saying one is better than the other.

    Well, I solve the headache by just investing in all three!

    ReplyDelete