The title may look daring and arrogant, but it is backed by years of experience. If you are a novice in stock investment, today is your lucky day. Today I’ll share with you on a long-term winning strategy of stock investment backed by the experience of a renowned investment gurus: Warren Buffett. In some of my earlier articles, I had discussed on wonderful companies such as Breadtalk and Super Coffeemix. I had also produced Warren Buffett’s top 10 holdings as at Aug 2007. Actually, these articles had indirectly pointed out this long-term winning strategy.
There are many approaches/theory exist today on stock investment strategy. But the simplest method tends to work in all situations. This method that I am talking about is to invest in a company with strong brand name. This is an extremely easy investment strategy that will always work in any stock market; in any country and for any kind of investor as long as you believe in value investing. I learned it from Warren Buffett, I tried it and now I share it. With this approach, you are only required to do two things:
1) Identify household/consumer products/services with strong brand especially those that meet people’s basic needs.
2) Determine if the company that offers these products/services is undervalued and with growth potential.
Let me elaborate these two points. Warren Buffett’s top holdings are mainly products/services that people used frequently, if not daily. For example shavers, toothpaste, soft drinks, coffee etc. A product/service that has a strong brand will lead to consumers’ loyalty and as a result, enjoy recurrence sales. You can see it in the supermarket, or even right at home. You will be surprised to know that sometimes people buy a product without actually making a choice. This may be due to “follow the crowd” behaviour, or subconsciously they just pick up the product because they heard the brand too often. I am sure that to identify this kind of products/services is a simple task even for a primary school boy. There is still another way to test which product or service has strong brand name or I call it “brand power”. You do a test among your friends randomly by giving them an article and they are suppose to say whatever comes out of their mind within split second. Yes, that is a test of their sub-consciousness. For example, you can give them:
- Fast food
- Soft drink
- Car
- Computer
- Sports shoe
- Insurance company
- School
You collect these data and you will know the popularity of each of them. Anyway, I don’t expect you to do this unless you really have nothing better to do.
After you have identified such a product, assuming that the company selling the product is listed, your next job is to determine whether the company is undervalued and with growth potential. This requires analytical skills and gut feeling. Yes, I say gut feeling. If you read analysts’ report regularly, you will know that everyone of them has a secret formula to derive a company’s value so as to recommend a “buy”, “sell” or “hold” etc. One thing for sure, you won’t know how they come up with these “magic” figures, and therefore, their recommendation. Let say even if you know, as a retailer, I don’t think we want to do this. I mean you don’t expect me to do a “discounting cashflow”, “free cashflow”, “return on investment”? I will only if someone pays me high salary to do it. Besides, different analysts with the same formula with come out with different answers, I guarantee. And then the next question is, who is correct? I say forget it. In my opinion, for a retail investor, an idiot-proof method is simply to compare a company’s share price with:
- Share prices of a competitor selling about the same product/service
- Compare the PE with the industry/competitor
- Compare with the company’s asset backings especially CASH!!!
- Determine the company's market share.
There are many approaches/theory exist today on stock investment strategy. But the simplest method tends to work in all situations. This method that I am talking about is to invest in a company with strong brand name. This is an extremely easy investment strategy that will always work in any stock market; in any country and for any kind of investor as long as you believe in value investing. I learned it from Warren Buffett, I tried it and now I share it. With this approach, you are only required to do two things:
1) Identify household/consumer products/services with strong brand especially those that meet people’s basic needs.
2) Determine if the company that offers these products/services is undervalued and with growth potential.
Let me elaborate these two points. Warren Buffett’s top holdings are mainly products/services that people used frequently, if not daily. For example shavers, toothpaste, soft drinks, coffee etc. A product/service that has a strong brand will lead to consumers’ loyalty and as a result, enjoy recurrence sales. You can see it in the supermarket, or even right at home. You will be surprised to know that sometimes people buy a product without actually making a choice. This may be due to “follow the crowd” behaviour, or subconsciously they just pick up the product because they heard the brand too often. I am sure that to identify this kind of products/services is a simple task even for a primary school boy. There is still another way to test which product or service has strong brand name or I call it “brand power”. You do a test among your friends randomly by giving them an article and they are suppose to say whatever comes out of their mind within split second. Yes, that is a test of their sub-consciousness. For example, you can give them:
- Fast food
- Soft drink
- Car
- Computer
- Sports shoe
- Insurance company
- School
You collect these data and you will know the popularity of each of them. Anyway, I don’t expect you to do this unless you really have nothing better to do.
After you have identified such a product, assuming that the company selling the product is listed, your next job is to determine whether the company is undervalued and with growth potential. This requires analytical skills and gut feeling. Yes, I say gut feeling. If you read analysts’ report regularly, you will know that everyone of them has a secret formula to derive a company’s value so as to recommend a “buy”, “sell” or “hold” etc. One thing for sure, you won’t know how they come up with these “magic” figures, and therefore, their recommendation. Let say even if you know, as a retailer, I don’t think we want to do this. I mean you don’t expect me to do a “discounting cashflow”, “free cashflow”, “return on investment”? I will only if someone pays me high salary to do it. Besides, different analysts with the same formula with come out with different answers, I guarantee. And then the next question is, who is correct? I say forget it. In my opinion, for a retail investor, an idiot-proof method is simply to compare a company’s share price with:
- Share prices of a competitor selling about the same product/service
- Compare the PE with the industry/competitor
- Compare with the company’s asset backings especially CASH!!!
- Determine the company's market share.
- Identify book orders
- Identify corporate actions to expand and whether shares price takes into account such announcements.
That’s what I do for company such as Breadtalk, Super Coffeemix, Aqua Terra, Want Want, Metro etc. With the exception of Aqua Terra which I recommended to a few friends only recently, the rest of the companies had increased the wealth of my friends/colleagues.
If you go through the above exercise thoroughly, you will be able to say something like this, “I think this company’s share price does not reflect its actual strength or progresses”. The word “I think” implies that the power of “gut feeling” has been deployed. Since this is the second time I mention on “gut feeling”, I’ll explain in detail later on. Once you got an answer, the next thing is to determine whether this particular company is growing. The good news is that the exercise you have just completed will more or less give you an answer on growth. You don’t believe? Ok, I’ll briefly repeat my story on Breadtalk again.
When I reviewed Breadtalk’s business again in Dec 2006, I discovered that they have been aggressive in expanding their business. From increasing their franchise outlets, they also bought over “Megabite” in China to compete the food court business there. Breadtalk also brought into Singapore the famous Tin Tai Feng (from Taiwan) and started to slice the cake of local food court business. With so many actions that, in my opinion, will soon be translated into revenue growth, Breadtalk’s share price hardly moves and was rather illiquid. Even if I cannot conclude that Breadtalk is undervalue at $0.23 then, but I can safely say that its price failed to factor in Breadtalk’s progresses. Even if I may still be wrong, gentleman, I won’t be that wrong; we are in a recovery market (and subsequently turns out to be a bull run). And do not forget that another food court operator “Food Junction” was priced above $0.60.
So lots of things are really commonsense. And I shall repeat my lecturer’s quote “commonsense is the least common human attribute”. There is another company with strong brand (household brand) that in my opinion, Mr Market had overlooked. I had recommended a “buy” on this company to some of my friends and colleagues and very soon, we will know if I am correct. I’ll demonstrate how I go through the two tasks: identify a company with strong brand; determine its value and growth potential.
This company is a popular bookstore: Popular Holdings.
To be continue……
- Identify corporate actions to expand and whether shares price takes into account such announcements.
That’s what I do for company such as Breadtalk, Super Coffeemix, Aqua Terra, Want Want, Metro etc. With the exception of Aqua Terra which I recommended to a few friends only recently, the rest of the companies had increased the wealth of my friends/colleagues.
If you go through the above exercise thoroughly, you will be able to say something like this, “I think this company’s share price does not reflect its actual strength or progresses”. The word “I think” implies that the power of “gut feeling” has been deployed. Since this is the second time I mention on “gut feeling”, I’ll explain in detail later on. Once you got an answer, the next thing is to determine whether this particular company is growing. The good news is that the exercise you have just completed will more or less give you an answer on growth. You don’t believe? Ok, I’ll briefly repeat my story on Breadtalk again.
When I reviewed Breadtalk’s business again in Dec 2006, I discovered that they have been aggressive in expanding their business. From increasing their franchise outlets, they also bought over “Megabite” in China to compete the food court business there. Breadtalk also brought into Singapore the famous Tin Tai Feng (from Taiwan) and started to slice the cake of local food court business. With so many actions that, in my opinion, will soon be translated into revenue growth, Breadtalk’s share price hardly moves and was rather illiquid. Even if I cannot conclude that Breadtalk is undervalue at $0.23 then, but I can safely say that its price failed to factor in Breadtalk’s progresses. Even if I may still be wrong, gentleman, I won’t be that wrong; we are in a recovery market (and subsequently turns out to be a bull run). And do not forget that another food court operator “Food Junction” was priced above $0.60.
So lots of things are really commonsense. And I shall repeat my lecturer’s quote “commonsense is the least common human attribute”. There is another company with strong brand (household brand) that in my opinion, Mr Market had overlooked. I had recommended a “buy” on this company to some of my friends and colleagues and very soon, we will know if I am correct. I’ll demonstrate how I go through the two tasks: identify a company with strong brand; determine its value and growth potential.
This company is a popular bookstore: Popular Holdings.
To be continue……
