Monthly Archives: January 2012

Investing like a GSAT kid

The Rigors

 

What does a child studying for GSAT exams and an investor have in common? Many persons would have serious difficulty answering that question. A GSAT student needs to be focused, long term oriented, diligent and have a strong sense of what they would like to achieve in the future. These children experience hours of extra classes to supplement full sessions of school and seemingly never-ending piles of homework which form an intense regime for this ruthless national intellectual showdown.

 

Out of a total of over 60 high schools, only 20 of these are deemed to be ‘Ivy League’ based on The Gleaner’s annual report for academic performance. Out of the 20 Ivy League schools, each student selects the top four or five schools that they personally favour. Each student will have different top five picks, using selection criteria that vary substantially. Some children may want to carry on a family tradition of going to a certain school, others may admire the alumni and academic prowess of the institution and others may simply be drawn to the school for other intuitive reasons. Regardless of choices made, all GSAT students understand that not all schools are created equal.

 

Investors and GSAT

 

Similarly, there are many companies out there which all have the same objective which is to maximize value for the shareholders. There are bad, good and great companies but a wise investor will analyze the atmosphere then select the special picks that are their personal “ivy league” companies. Financial statements, decisions by management, company history, brand strength and future prospects for the industry are tools that differentiate these firms.  Finally, the investor will pick from that “ivy league” batch and focus their efforts on those chosen companies. Investing like a GSAT kid creates a focused, paced, informed, purposeful approach to wealth creation.

 

Knowing your personal picks inside out from doing homework and being patiently consistent in building one’s holdings is a prudent and realistic approach to creating value for the long term sustainably.  These companies, in all their ‘greatness’ will have their good days and days that are not so great but if they come from that personal Ivy League list, built with the help of a licensed financial advisor and affirmed by one’s knowledge, research and intuition then the foundation is set for receiving reasonable returns on a consistent basis. Investing like GSAT kid is linked to the idea behind value investing, a philosophy that has built the wealth of Warren Buffet, Michael Lee Chin, Peter Lynch and possibly you in a matter of time.

Analyst Views

What makes a company good?

Background
In many instances we have different ideas about what makes a company good. Could it be the products? What about customer service? Or is that hilarious ad that comes on with the happy music? Beyond all of these factors, there are key elements that underline successful businesses, regardless of their industries or size. Let’s look into what these could be.

What is the problem being solved?

Profitability is based on the market problem that is being solved. For instance, a bottled water company will receive stronger profits in the summer than in the spring because the lack of bottled water is a greater problem in the summer than in spring. The intensity and size of the market problem being solved sets the background for size and volume of profits a company will receive from it’s activities. Further, a company that is the only solver of a particular market problem will receive monopoly power over the market while those that are “dime a dozen” may end up fighting over tiny profits.

What’s the secret sauce?

The more unique a company is in solving market problem is the stronger it’s profits will be, especially if this unique quality is hard to replicate. For this reason, it’s commonly stated that “people buy difference” because uniqueness is translated into power. Further, a company doesn’t always have to solve new problems but can resort to solving the same problem in a new way. A unique solution can even change the entire industry. For example when BMW released the X6 crossover vehicle, it received mixed reactions from the critics and experts. Mercedes, the first company to successfully use the modern combustion engine went as far as saying that the vehicle was impractical and ugly. By the time the second generation of the X6 was refined and ready for the market, Mercedes created the GLE coupe, an X6 substitute because they couldn’t stand to fall behind and miss out on sales. Today, the originally “ugly and strange” design has quite a common presence on the roads across different regions. BMW’s secret sauce is always about innovating and creating a new lane in their industry through engineering, technology and design. Another example is KFC’s secret recipe. Many persons that line up to have KFC every Friday can cook friend chicken themselves but there is something about the recipe that makes it addictive which is why it’s profits have remained strong for many years.

How is the management team?

The performance of a company is directly linked to the decisions of it’s management team. Choices on hiring talent, financing, marketing plans, pricing and so on are the things that separate bad companies from the good and the good companies from those that are great. When Steve Jobs left Apple Inc, the company lost it’s direction and became tagged as a failing “has been”. CEOs matter as their job is to create attractive returns for shareholders specifically through meeting the targets set by the board of directors. Some are good, some are great and some are merely the founder’s relative so it helps to know your CEO.

Are there long term prospects?

A good company is typically not classified as a “fly by night” project. In this era, each day brings something new to hype about but it is wise to allow the management team to work out the bugs in their products and to pass through the natural troubleshooting phases that come with new technology. Allow the tides of time to wash out fads as they collapse as sharply as they rise and at a point that is fairly unpredictable, which makes taking a stake in them closer to gambling than investing.

Finally, do you understand the business?

Invest in businesses that you understand. If you don’t understand how the company makes money, then you can’t gauge if management is making a blunder or if a CEO hiding something from the public. One doesn’t have to be a Harvard MBA to understand how a business makes money because the simpler the business model is, the better it is for everyone. When firms have structures that are too complicated, management might not know where to start fixing when trouble strikes. Spend some time to know the business and how it creates value for investors and society as whole.

Analyst Views

Sandals Resorts Looking To Build 3 to 4 Hotels A Year. Biggest Expansion In Its History

Sandals CEO Adam Stewart told Bloomberg News that the hotel chain is on an expansion drive and is currently seeking help from international banks to finance this growth. Continue Reading

Business Strategy

Express Catering A ‘Buy’ – JMMB

Analysts at the Jamaica Money Market Brokers Group Ltd have released their analysis on the initial public offer for Express Catering Ltd. Based on their insight, they have put an overweight / buy rating on the offer. Today is the last day to sign up for what is expected to be another oversubscribed offer from Mayberry Investments Ltd.

Based on their analysis

  • They believe the shares are under-priced relative to shares currently listed on the Jamaica Stock Exchange at the offer price of $1.50.
  • They view the company positively as it is a foreign exchange income generator with an exclusive contract to provide its services in a high traffic airport.
  • Plans to expand the offerings to include the Starbucks brand, the international coffee food chain, popular in the United States and Canadian markets, should augur well for continued growth.

Continue Reading

Bulletin

Kier To Exit Caribbean Business. Cites ‘Portfolio Simplification’

Construction firm Kier will take a £73m hit in its full-year results after taking the decision to close its Hong Kong and Caribbean businesses, it revealed late June 2017.

The firm is set to close its Caribbean business following the agreement of a final account with an unnamed client on what Kier called “a challenging project”, which is expected to complete “within the next three months”.

In total, the closure of the Caribbean business will have cost Kier £79m, including £23m last year and £56m this year.

Kier said that the moves to close the businesses fit into a wider programme of “portfolio simplification” that it has undertaken since the middle of 2015. This has resulted in it concentrating more on its regional building, infrastructure and housing projects.

Source: Telegraph

Business Investments

3 New IPOs – PBS, SOS & Express Catering. Are You Going To Invest?

Here is the latest weekly digest (Jul 3rd – Jul 9th, 2017). A quick easy read of this week’s top and most relevant business news. No fluff, just the highlights.

What an exciting time for investing. Within the space of a week we have seen 3 companies coming to the market to raise funds with their initial public offerings – Productive Business Solutions, Stationery & Office Supplies & Express Catering. Continue Reading

Weekly Review

Margaritaville Controlled Express Catering To Raise $491.3m. Valuing Company At J$2.5 Billion

Highlights

  • The company has concession arrangements to sell food and beverages at the Sangsters International Airport in Montego Bay with a number of reputable international and local brands
  • Raising J$491.3m from the sale of 327.5m shares at J$1.5 per share. Valuing the company at ~J$2.5b
  • Would become the 4th largest public company in the Caribbean in the Hotels, Restaurants & Leisure industry
  • Owned by the Margaritaville St. Lucia Inc.
  • Currently profitable. Earned net profits of US$1.1m in 2016 from sales of US$14.1m (compared to profits of US$590k in 2015 and sales of US$13.6m)
  • Recently launched its US$3.5m 7 year preference share to raise funds
  • Recently entered an agreement to operate the Starbucks coffee franchise. Construction to begin within 6 months

Continue Reading

Bulletin

Stationery & Office Supplies Ltd Going Public, To Raise $95m

Local family owned business, Stationery & Office Supplies Ltd is going public. The 50-year-old company, owned by the McDaniel family is a leading supplier of office furniture and related supplies. Continue Reading

Bulletin