13 Sep 2020 | Eugene Ng | Founder & CIO | Vision Capital
What Investing is not?
Investing is not short-term trading. You are not buying stock ticker symbols. You are not buying and selling because someone tells you to. Investing is not looking at fancy technical charts and some signals pointing to you to buy or sell.
Why we Invest?
Ultimately we invest to make money. Specifically we invest to beat the market, to beat the average.
How we Invest?
Investing for the long-term is one way to skew the odds in your favour (covered in an earlier article, see here). Essentially the longer your investing horizon, the higher the probability of you not losing money. That probability can go up to 90–100%. Yes 90–100%, that you will not lose any money on average in the long-run.
What do we Invest?
Investing is all about owning great businesses. Investing is buying a part ownership stake in a real business and participate in the upside.
In general, we tend to own either of these two types of businesses:
- One that is likely to be great and
- One that is becoming great and going to stay great
Down to it, it is about these three things:
- Revenues
- Profits
- Cash Flows
Specifically we are thinking about the future path, the growth of these numbers, and how big these can be relative to where it is currently right now and its current valuation.
What does a winning company likely to look like?
- Growing revenues rapidly over a number of years
- Growing profits even more rapidly (also implies growing profit margins). If not profitable, the path to eventual profitability has to be clear.
- Growing cash flows (operating cash flows & free cash flows) even more rapidly (also implies growing cash flow margins)
- Strong balance sheet of net cash preferably with little to no debt
- Company is an emerging disruptor with a growing large total addressable market and is rapidly gaining market share versus other competitors, and is supported by a structural multi-year tailwind that is driving rapid growth and adoption.
- Business model where revenues are recurring in nature and has a natural tendency to keep rising over time, are infinitely scalable, have economies of scale and display operating leverage (lower expenses as a percentage of sales)
- Company’s moat or competitive advantage is network effect and high switching costs
- Company is spending lots on R&D and driving new technology innovations
- Generally tend to be smaller in market capitalisation
- Founder owned and led with high insider stakes
- Company has has strong mission, values, culture and employees love working there
- Strong past price appreciation and already beating the market
- Typically have expensive valuations (by all if not most measures)
- The company passes the snap test (if you snapped your fingers and a company disappeared, would anyone notice? Would anyone care?)
- Ultimately the company has to reflect our best vision for our future. The company does not harm our environment and society in the long-term, create products to harm others and feed on addiction. It is a company that we love for it to be around, and the world is a better place with it around, benefiting and helping people.
Amazon (NASDAQ: AMZN) is one such example, where profits and cash flows have grown much faster than revenues, and even the stock price.
Now its past stock price appreciation of +7880% probably does not look that insane.
Would your mind change about Amazon if you see the following charts?
US Retail Ecommerce Sales has been increasing as a percentage of total retail sales, but still only accounts for 15% share.
The multi-year shift to Online Buying will continue for a long time.
Amazon is the top dog in e-Commerce and has the largest market share at 47%, but still only accounts for 5% of total US Retail Sales.
Amazon had been gaining market share and growing faster versus its other competitors despite a stagnant market.
It looks like the shift away from Brick-and-Mortar stores to Buying Online via Ecommerce is a multi-year trend that will continue for many more years to come, and accordingly Amazon will benefit from this tailwind.
That’s why we think and invest long-term, and not let the noise of the markets cloud our judgement.
That’s why we call this new approach to investing, Vision Investing.
And we hope more individuals will start investing directly in companies again, we believe that individuals can beat the market, and we hope to provide them with a good starting point on how to do so.
If you do find such companies and are willing to share it with me, I would be delighted for you to do so, via our website.
Find out more about Vision Capital where we have beaten the market by almost 4X over the last 3 years: https://visioncapital.group/
Above are selected excerpts from our just published book, “Vision Investing: How We Beat Wall Street & You Can, Too!”.
Find out more here if you would like to preview or purchase the book via Amazon: https://bit.ly/vision_investing. It is currently available via two formats, Paperback and eBook.
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