Friday, March 17, 2006
The Art Of Transcendental Business Projection
We can do all the number crunching and spreadsheet analysis, blah-blah, but will that ever get you the 3-bagger or 5-bagger over a period of 3-10 years. 3-bagger refers to 300% net returns from your initial investment. Journalists or those with 20/20 hindsight vision will always tout the scenario that if you had invested US$10,000 in Genting, Berkshire Hathaway, Microsoft, Intel, etc... 10 or 15 years ago, you'd be ... close to Nostradamus (dead and unbelievable).
Maybe we don't need a 300% return over 5 years, maybe all we want is a stock that will gain 20%-30% a year, even then 2-3 years down the line will see us doubling our money at least. That should be pretty good. But we don't want to do endless homework and research to get there. Well, there is a way, and that is what I call (my creation) Imaginative Investing.We are blessed with faculties to be able to appreciate nuances in behaviour. We can always point to a kid and say with authority, "That kid will grow up to be a brat, useless piece of shit". We form predictive comments in our own sphere of consciousness and deductive powers. This goes on and on, some things we can be good at, others not very much - e.g. If I strike the lottery, I will donate half to charity (ain't gonna happen cause you don't even buy lottery).
Of course, not everyone will be brilliant in using Imaginative Investing technique (send me now US$300 and you will get a money back 30 day guarantee...) as it has a lot do with your basic IQ to start with. I mean, we can only work with what we have, you know.
OK, I jest, here's the more serious stuff... Imaginative Investing is about thinking and filtering companies with the intention of seeing where they will be 2 or 4 years down the road. Sounds simple enough, but just as simple as predicting a beautiful teenager that she will turn out to be a beautiful girl in 5 years time. Our imagination and projection of a company's road into the future will carry with it many factors, which we may not be able to put down on paper, but we can feel it in our guts. It has to do with either the industry the company is in (industry enlarging); its ability to protect its margins or even a cartel-like operation; its cadre of strong, visionary and prudent management; maybe their product will find great acceptance or be the market leader; etc... Naturally these things are the same stuff that analysts will go through when writing their reports, but trust me, somehow, these nuggets get lost along the with the clinical prose, standard recommendation, rows of rows of figures, etc...
As ludricous as it may sound, just gve yourself some space and time as you read through the papers, slow your breathing, close your eyes, focus on the name of the stock, ... of course you must know something about the stock in the first place (I'm not Madam Zathura for heaven's sake) or a market semi-professional (i.e. adept at losing money professionally but given no credit for it)... then try and visualise the company's business, earnings, how the company will be one year down the road, two years down the road... how they will get there, will they get there, what will they be... will they be tripling their net profit then. These imaginative quests has the ability to correct each hypotheses by themselves. If you start thinking of a silly proposition, such as NST doubling its share price in 3 years... your inner voice will laugh at you. Its amazing but if you respect your inner voice, it can tell you a lot of stuff man! These projections are self censoring, it will be able to take in all the news items, corporate announcements, financial tidbits, uselesss financial blogs like this one, etc... to form the basis for censuring projections.
Somehow at the back of our minds, we can see a certain product or business that will continue to flourish, or an expanding market share, or a way forward to dominate their respective markets ... it is harder to justify those visions on numbers projection alone.
I did not examine the financial numbers of the following companies closely, but they all look like 3-baggers or even 5-baggers in 3-10 years time (in my imaginative transcendental portfolio). I will also rate them out of 10 points as an indication of their potential - the higher the better.
Air Asia (9/10)
Pos Malaysia (6/10)
Transmile Group (9/10)
Genting/Resorts World (7/10)
D&O Ventures (8/10)
Wah Seong (8/10)
IOI Corp (6/10)
Scomi Engineering (6/10)
Scomi Marine (9/10)
Keppel Land (6/10)
Hong Leong Asia (8/10)
I somehow know the bulk of my Singaporean readers will crucify me and alert me to their own picks... but these are my Imaginative Investing Picks, do NOT quote research/financials of these companies to me. I just know where they are, I have read about what they do, have been doing, and my assessment of the platform they are on, the ability to leverage and scale up.... in my mind. Maybe some of you would like to share you II picks too.
China Mobile (6/10)
Li & Fung (9/10)
Cafe de Coral (6/10)
Cosco Pacific (7/10)
China Oilfield (6/10)