“Tech Investing in Asia” – (Oxy)Moronic or Multibagger?“Technology is just something wedon’t understand, so we don’tinvest...
Snippets From 2006 LA Value Investor Conf. (VIC) Presentation:                “Value”? Buffett on “Growth”/Business       ...
Snippets From 2010 VIC (1): In Asia, Invest in the Horse (Business Model) or the         Jockey (Entrepreneur)? But Consid...
IBM: Recurring Services (36%) & Software-Analytics Earnings (50%)= Lower Product Obsolescence Risk & Stability in Fast-Cha...
Buffett on IBM: “Lion Infrastructure” to Ride Asian Growth!“Buffett said he had gained added insight about IBM by reviewin...
Other Tech Stocks That Buffett Bought                                                                        “I’ve been an...
Wal-Mart: Scaling In a Tough Industry By Technology                                               Kmart was bigger in 70s ...
8
IT Investments “Killed” Kmart (Spent US$2b in 2000/01 - Bankrupt in 2002);  Key Is Discipline and Integrating Technology I...
0                      200                            400                                  600                            ...
One of Our Favorite Questions in Due Diligence for the Asian Entrepreneurs   Most Asian companies are “one-man-shop”operat...
Smartphones in China and Asia                                12
Asia: Monolithic Bloc? Land Mass/Mess for Tech Companies?                               China: Efficient localized copycat...
China Will Have More E-Shoppers Than U.S. By 2015                                                    14
Every 60 Seconds on the Chinese Internet                                           15
Grand Strategy of Chinese Government In Technology                                                    RMB appreciation ren...
Pitfall in Asia: Chinnovation ≠ Value-Creating Sustainable Multibagger   Due to massive subsidies, China now exports 95% o...
Tech Copycats = Hyena or Lion? Made-in-China Vs Invented-in-China?                                                        ...
Copycat Models in China               Categories                  US             ChinaSocial networking services (SNS)    ...
China Social Media Players                             20
Efficient Localized Copycats = Multibaggers? Tencent?             Tencent’s Pony Ma ripped off Instant Messaging (IM) serv...
Tencent: 55-Bagger in 8 Years to >US$50B Mkt Cap                                                   22
Lee Kuan Yew on India or Why Tech in India Is Difficult to Scale    Q: Why is Renren (China’s Facebook) possible in a ling...
Timing Entry? Tech Breakthrough Can Breakout During Breakdown Times!                                                      ...
Singapore’s PM Lee on What He Would Do If He Were 25 All Over AgainWhat would you do if you were 25 all over again?Asked t...
Snippets From 2010 VIC (1): In Asia, Invest in the Horse (Business Model) or the         Jockey (Entrepreneur)? But Consid...
Snippets 2010 (2): (Distorted!) Incentive Structure in Asia:           Neglect of Knowledge Accumulation In Core Business ...
Snippets 2010 (3): Mungerian IO              = Incentives (Why?). Opportunities/ Mechanism (How?)                 1. Easy ...
Snippets 2010 (4): Set-Up Stage 1 Companies       1. Enticement       and Earnings               2. Exercise Not!         ...
Snippets 2010 (5): Opportunity/ Mechanism (How?):            Propping & Tunneling via Related Party Transactions (RPT)    ...
Snippets 2010 (6): So You Think You Are Safe If You Invest in                 Asian Stocks Listed on Western Exchanges? P...
Snippets 2010 (7): Western Investors Should Be Familiar With ShellGames (Reverse Mergers): Returns Around Merger Consummat...
Lion Entrepreneurs X Lion infrastructure X Lion Shareholders = MultibaggerLion Entrepreneurs X Lion Infrastructure X Lion ...
Investing in Lions vs Hyenas                     The Lion                                              The Hyena Commitme...
The Final Twist: So You Won the Booby Track Race Betting on the Right      Jockey & Right Horse. Can You Collect the Winni...
No Alternative to Knowing the Company …(1)We must know the company and management for a long time(2) If so, we can only bu...
Qualitative Analysis Must Complement Numbers…(1) We must not only rely on quantitative numbers in Asia.(2) We must have a ...
Tech Investing = Feel Younger!                                             “A person investing in                         ...
Summary1. Jockey, horse, race track. But is the winning ticket collectable? Management, governance etc.2. As discussed, in...
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Omaha Value Investor Conference May 2012: “Tech Investing in Asia” – (Oxy)Moronic or Multibagger?

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Omaha Value Investor Conference May 2012: “Tech Investing in Asia” – (Oxy)Moronic or Multibagger?

  1. 1. “Tech Investing in Asia” – (Oxy)Moronic or Multibagger?“Technology is just something wedon’t understand, so we don’tinvest in it.” – Buffett, 1988 Nov 2011: US$10.7B (US$167) for 5.4% when mkt cap is US$208B 2004: Gates joined Berkshire board 14-Bagger Coke: US$1B for 7% in 1988 when mkt cap was US$10B, now US$140B Logy No Tech Asia 7th Annual Value Investor Conference, Omaha, May 2012 1
  2. 2. Snippets From 2006 LA Value Investor Conf. (VIC) Presentation: “Value”? Buffett on “Growth”/Business The Security I Like Best (Dec 1951): GEICO“Charlie showed me in the direction of notjust paying for bargains, as Ben Graham had Premiums Policy Yeartaught me. This was the real impact he had Written Holderson me. It took a powerful force to move me 1936 $103,696.31 3,754on from Grahams limiting view. It was the 1950: Strong growth in the 1940 768,057.86 25,514power of Charlies mind. He expanded myhorizon; Boy, if I had listened only to Ben, past = Sell into 1945 1,638,562.09 51,697 strength?would I ever be a lot poorer; I became very 1950 8,016,975.79 143,944interested in buying a wonderful business at 2008 12.7 billion! 9 million!a moderate price.” “…would have turned- Warren Buffett down if the asking price [for See’s Candies] is a “Of course the investor of today dime more [than $25 does not profit from yesterday’s 1988 million]… that is how silly growth. In GEICO’s case, there is every we were..” Price-Book: 5x reason to believe the major portion of PE: >15x growth lies ahead.” “… the first time we - Buffett, Dec 1951 1972 paid for quality” Price-Book: 3x - Charlie Munger 2
  3. 3. Snippets From 2010 VIC (1): In Asia, Invest in the Horse (Business Model) or the Jockey (Entrepreneur)? But Consider the (Booby) Track First! Jockey: Entrepreneur Track: The Asian Environment China is a big track: Shanghai has the world’s third largest stock market by market capitalization at around $3 trillion in its $3.2 trillion economy, a tremendous growth from $380 billion since the Non- Tradable Share Reform announced in April 2005. Shares worth $5.01 Horse: Business Model trillion changed hands on the Shanghai Stock Exchange in 2009, compared with $4.07 trillion on the Tokyo Stock Exchange 3
  4. 4. IBM: Recurring Services (36%) & Software-Analytics Earnings (50%)= Lower Product Obsolescence Risk & Stability in Fast-Changing Industry? Apr 93: Lou Gerstner Mar 02: Sam Palmisano 4
  5. 5. Buffett on IBM: “Lion Infrastructure” to Ride Asian Growth!“Buffett said he had gained added insight about IBM by reviewing thecompanys regulatory filings, and said he had been "hit between theeyes" by the advantages the company enjoys in finding and keepingclients. In addition, he had discussed the company with the informationtechnology departments at several of Berkshires subsidiary companies,and drawn upon his own expertise from decades ago, when he had triedto market competing technology to companies, only to be told that "noone had ever gotten fired" for selecting IBM as their supplier. "Its acompany that helps IT departments do their job better," Mr. Buffett said."It is a big deal for a big company to change auditors, change law firms,"or for IT departments to move away from using IBM, he said."There is a lot of continuity to it." As the company retains existingclients, they are growing substantially around the globe, he said,allowing IBM to report double-digit growth in 40 countries. Mr. Buffett Price/Book Valuesaid he admired IBM in part because they have laid out clear long-termgoals and then met them. "Theyve done an incredible job" in laying out = 11.7xa roadmap for the future, Mr. Buffett said on CNBC. "It was something Ishould have spotted years earlier," he said. Mr. Buffett said executives atIBM were unaware of the purchases, and that he had never spoken tothe companys outgoing chief executive officer, Samuel J. Palmisano.”- New York Times, 14 Nov 2011 5
  6. 6. Other Tech Stocks That Buffett Bought “I’ve been an admirer of Andy 3Q11 $85m Mkt Cap: Groves and Bill Gates and I wish I’d 4Q11 $140m $7.9B translated that admiration into Shareholders’ Equity action by backing it up with money. But when it comes to Microsoft and –$98M Intel, I don’t know what the world Mkt Cap: will look like ten years from now, and 3Q11 $250m $139.1B I don’t want to play in a game where 4Q11 $308m P/BV 3x the other guy has an advantage. I could spend all my time thinking about technology for the next year 3Q11 $195m Mkt Cap: and still not be the 100th, 1,000th, or 4Q11 $933m 10,000th smartest guy in the country $33.1B analyzing those businesses. There are people who can analyze Shareholders’ Equity technology, but I can’t.” –$3.1B – Buffett in OID, Sep 24, 1998"Even though Apple may have the most wonderful future in the world, Im not capable of bringing any drink to thatparticular party and evaluating that future.“ – Buffett, 21 Mar 2011 (AAPL $330) 6
  7. 7. Wal-Mart: Scaling In a Tough Industry By Technology Kmart was bigger in 70s and 80s.1975 100 $340M Busy acquiring Furr’s Cafeterias of Texas, Bishop’s Buffet chain, pizza-video parlors, Payless Stores Sales Drug Stores, the Sports Authority, and OfficeMax as outlets for its retained earnings. IBM; Electronic By the end of 80s, Kmart was at least ten years cash registers; $1B behind Wal-Mart in its operational capabilities.1977 Electronic order Sales in 1979 As Kmart fell ever further behind, its need for from supplier outside-of-the-core growth platforms became a self-fulfilling prophecy. Wal-Mart now collects more data about Bar codes; stores $10B consumers than anyone in the private sector.1983 were networked with satellite Sales Wal-Mart mined this data into actionable business intelligence to ensure that consumers have the products they want, when they want them, and at the right price. $100B For example, they have learned that before a1992 Retail Link Sales in 1995 hurricane, consumers stock up on food items that do not require cooking or refrigeration. 7
  8. 8. 8
  9. 9. IT Investments “Killed” Kmart (Spent US$2b in 2000/01 - Bankrupt in 2002); Key Is Discipline and Integrating Technology Into Biz Model to Achieve MasterySam Walton: “…we as a company have been ahead of mostother retailers in investing in sophisticated equipment andtechnology. The funny thing is, everybody at Wal-Mart knowsthat I’ve fought all these technology expenditures as hard as Icould. All these guys love to talk about how I never wantedany of this technology, and how they had to lay down their lifeto get it. The truth is, I did want it, I knew we needed it, but Ijust couldn’t bring myself to say, “Okay, sure, spend what youneed.” I always questioned everything. It was important to meto make them think that maybe the technology wasn’t as good 融汇贯通 – Achieve mastery through a comprehensives they thought it was, or that maybe it really wasn’t the end- study of the subject.all they promised it would be. It seems to me they try just a 宋· 朱熹《朱子全书· 学三》: “举一而三反,闻一而知十,乃学者用功之深,穷理little harder and check into things a little bit closer if they think 之熟,然后能融会贯通,以至于此。”they might have a chance to prove me wrong. If I really hadn’t Wal-Mart shared its info withwanted the technology, I wouldn’t have sprung the money supplier in exchange for greaterloose to pay for it. By the late 60s, we were ready well discounts to integrate with its EDLPpositioned for serious growth. We had a retail concept we business strategy, whilst Kmartbelieved in, the core of a professional management team, and simply “invest” and “collect data”the foundations of systems which would support growth.” without a purpose! 9
  10. 10. 0 200 400 600 800 1,000 1,200 1,400 1,600 30/03/1992 30/05/1992 30/07/1992 30/09/1992 30/11/1992 16-bagger 30/01/1993 30/03/1993 30/05/1993 30/07/1993 30/09/1993 30/11/1993 30/01/1994 30/03/1994 30/05/1994 30/07/1994 30/09/1994 30/11/1994 Bay 30/01/1995 30/03/1995 30/05/1995 NZSE 30/07/1995 30/09/1995 30/11/1995 30/01/1996 30/03/1996 Baycorp: Technological innovation in traditional industry; 30/05/1996 30/07/1996 30/09/1996 30/11/1996 30/01/1997 Baycorp Advantage 30/03/1997 Bradstreet, and Became 1997: Acquired by Dun & 30/05/1997 30/07/1997 East or West, It’s About Long-Term and All-Season Investing 30/09/199710 30/11/1997
  11. 11. One of Our Favorite Questions in Due Diligence for the Asian Entrepreneurs Most Asian companies are “one-man-shop”operations with the founder making all thedecisions; the willingness to build a team andinvest in a system to cascade decision rightsthroughout the organization is an importantsignal that the founder desires and cares to scaleup the company in a sustainable manner by nothoarding knowledge. Technology is an importanttool in empowering the employees and in givingthem an informational advantage in theirrespective roles and responsibilities at work.“Once we had those scanners in the stores, we had all thisdata pouring into Bentonvile over phone lines. I like mynumbers as quickly as I can get them. The quicker we getthat information, the quicker we can act on it. What I likeabout it is the kind of information we can pull out of it on amoment’s notice.” – Sam Walton 11
  12. 12. Smartphones in China and Asia 12
  13. 13. Asia: Monolithic Bloc? Land Mass/Mess for Tech Companies? China: Efficient localized copycats; 300m smartphone users; Group buy websites bust Japan: Predecessor of iTunes (2004) = DoCoMo (1998) (US$80B mkt cap) India: Call centers, BPOs, disdain for hardware manufacturing, and 5 years behind China? 72m internet users; 752m mobile phone users Singapore: Launchpad into Asia US is Asia is Homogenous = Indonesia: Largest Heterogeneous More Scalable BlackBerry & Facebook population ex-US 13
  14. 14. China Will Have More E-Shoppers Than U.S. By 2015 14
  15. 15. Every 60 Seconds on the Chinese Internet 15
  16. 16. Grand Strategy of Chinese Government In Technology RMB appreciation render low-tech exports uncompetitive Foreign companies account for >80% of the high- tech exports from China Rising cost pushing manufacturing to ASEAN State ensure that it is both the buyer and seller in key industries by retaining ownership of customers and suppliers Consolidate resources into National Champions eg massive interest-free or low-cost loans to Huawei Acquire foreign technology Force foreign companies to JV with National Thus, even if China’s wireless and 3G mobile Champions and transfer technology in exchange fortelephone standards, WAPI and TDSCDMA, will current for current and future biz opportunitiesnever become global standards, they give local Allow Chinese companies to circumvent westerncompanies an edge and are hurdles in the path patents and royalty by issuing product standardsof foreign equipment manufacturers and specs that force suppliers to develop special versions for China 16
  17. 17. Pitfall in Asia: Chinnovation ≠ Value-Creating Sustainable Multibagger Due to massive subsidies, China now exports 95% ofits solar panels, and Chinese companies control half ofGerman market and a third of US market Germany’s Q-Cells slid from operating profit marginof 16% in 2008 to net loss 60% of sales in 2009 Pyrrhic victory: Domination of global silicon waferpanel biz, but Chinese solar companies are NOTmultibaggers! 17
  18. 18. Tech Copycats = Hyena or Lion? Made-in-China Vs Invented-in-China? 18
  19. 19. Copycat Models in China Categories US ChinaSocial networking services (SNS) Facebook RenRen, Douban, Qzone, Kaixin001Microblogging Twitter Weibo, Sohu, QQInstant messaging MSN QQMessage boards Yahoo Message Boards Tianya, MopBlog hosting Tumblr DiandianMobile chat WhatsApp Feixin, WeixinVideo sharing YouTube Youku, TudouPhoto sharing Flickr Bababian, BabidouOnline music Spotify Xiaomi, Top100Wikis Wikipedia Baidu, HudongQ&A Quoro Zhihu, Tianya, ZhidaoReview Yelp Dianping, FantongCheck-in Foursquare Jiepang, Digu, K.aiDeal of the day Groupon Meituan, Lashou, ManzuoOnline trade eBay Taobao, 360buyProfessional social networking LinkedIn Ushi, Tianji, Wealink, JingweiE-commerce Amazon Dangdang 19
  20. 20. China Social Media Players 20
  21. 21. Efficient Localized Copycats = Multibaggers? Tencent? Tencent’s Pony Ma ripped off Instant Messaging (IM) service, QQ, off Israel’s ICQ in 2000 as a free online download. After burning US$1.1m, the two investors that Ma found were anxious to sell their shares. The company was shopped around for nearly any price to China’s largest portals, but no one wanted to waste money on a company doing IM. If the mighty AOL couldn’t make money off IM, who could? Lucky break? China Mobile decided to share a portion of revenue to third- party companies who could boost the number of people buying data plans. Pony Ma offered IM chat messaging at RMB 6c per month per user. Viola! Tencent started to push anything that a mobile user would pay: ringtones, wall paper, horoscopes. Pennies over mobile phones earned Tencent US$6m sales and US$1.2m profits in 2001. Tipping point came when Tencent offered virtual goods – avatars, outfits, pets, and emperor-kids spend pennies and hours collecting. Naspers paid US$30m to buyout 50% of Tencent in 2005 before its listing and now its 35% stake in Tencent is worth >US$13B. Tencent monetized IM when western giants failed and built chat not as a productivity tool but to be a community for bored kids to hang out. 21
  22. 22. Tencent: 55-Bagger in 8 Years to >US$50B Mkt Cap 22
  23. 23. Lee Kuan Yew on India or Why Tech in India Is Difficult to Scale Q: Why is Renren (China’s Facebook) possible in a linguistically homogenous - and protected - China, but not in India?"Will India have an advantage, some argue,because it’s a democracy and China is not?"asked Charlie Rose."Let me put it this way," replied Lee Kuan Yew."If India were as well-organized as China, it willgo at a different speed, but it’s going at thespeed it is because it is India. It’s not one nation.It’s many nations. It has 320 different languagesand 32 official languages. So no prime ministerin Delhi can at any one time speak in a languageand be understand throughout the country. Youcan do that in Beijing." “Gandhi chiselling the Merlion with Lee Kuan Yew” – art piece by Indian artist Umapathy 23
  24. 24. Timing Entry? Tech Breakthrough Can Breakout During Breakdown Times! 24
  25. 25. Singapore’s PM Lee on What He Would Do If He Were 25 All Over AgainWhat would you do if you were 25 all over again?Asked this question by Michael Oreskes, senior managingeditor of Associated Press, PM Lee told a business summitin Hawaii that he would spend time in three of the mosteconomically vibrant parts of the world:I would spend some time in America, particularly inSilicon Valley where you have one of the brightestconstellations of talents who believe they can change theworld and are trying very hard.I would spend time in China, to understand them andhow they are going to impact on the rest of us from first-hand experience, by knowing the culture, the language,and the people.I think I would spend some time also in India. It has a lotof talent, a lot of energy, and many complicated social andpolitical problems to solve. But learning how they tacklethese problems will be useful in other context.And having done that, I would come back to Singapore,because Im Singaporean and I belong there, and I hopesome of these (experiences) will be useful. 25
  26. 26. Snippets From 2010 VIC (1): In Asia, Invest in the Horse (Business Model) or the Jockey (Entrepreneur)? But Consider the (Booby) Track First! Jockey: Entrepreneur Track: The Asian Environment China is a big track: Shanghai has the world’s third largest stock market by market capitalization at around $3 trillion in its $3.2 trillion economy, a tremendous growth from $380 billion since the Non- Tradable Share Reform announced in April 2005. Shares worth $5.01 Horse: Business Model trillion changed hands on the Shanghai Stock Exchange in 2009, compared with $4.07 trillion on the Tokyo Stock Exchange 26
  27. 27. Snippets 2010 (2): (Distorted!) Incentive Structure in Asia: Neglect of Knowledge Accumulation In Core Business Neglect of knowledgeaccumulation in core business Easy money, property and stocks 27
  28. 28. Snippets 2010 (3): Mungerian IO = Incentives (Why?). Opportunities/ Mechanism (How?) 1. Easy 1. RPTs Money Easy to 2. Asset Transfer/ expropriate How are Injection and don’t Incentives Opportunities2. Wedge assets have to be (Why?) / Mechanism expropriated? held (How?) 3. accountable Laddering in IPO Expiration 3. “Easy” Secondary 4. Delisting Issues 28
  29. 29. Snippets 2010 (4): Set-Up Stage 1 Companies 1. Enticement and Earnings 2. Exercise Not! 3. Expropriate! Management! • Money is raised in the • Money is expropriated secondary market, but (through a mechanism which controlling shareholders we will explain later) and the• Earnings management + usually decline to exercise firm announces that it is notAnnouncement of headline- their own rights because they undertaking the projectsgrabbing profitable growth know it is a bad deal, for the mentioned in the originalprojects funds will be siphoned off. application to regulators to The more power controlling make a rights issue, or/and shareholders have, the more change the use of proceeds likely they are not to exercise to finish a money grab their rights 29
  30. 30. Snippets 2010 (5): Opportunity/ Mechanism (How?): Propping & Tunneling via Related Party Transactions (RPT) Propping via cash sales (vs accrual sales that may draw an auditor’s attention) - Similar to pre-IPO earnings mgmt Accounting 101 check:80% of listed firms in Related lending interestChina were previously rates reported in theproduction units that had footnotes of firms’been carved out from financial statementstheir parent SOEs, which Parent or Listed show that only 16.3% ofserve as the controlling controlling the related loans earnedowners after the listing. shareholder Subsidiaries interest revenue, ofAfter the carve-out and which the averageIPO, the listed interest rate was 0.55%,subsidiaries continue to significantly lower thanengage in frequent RPT the typical bank rates ofwith their parent SOEs Artificial sales! Parent can always tunnel 5-10% per year back the sales by getting loans from the subsidiaries. Related loans are usually NOT paid back by the parent! - Similar to post-IPO tunneling of assets out 30
  31. 31. Snippets 2010 (6): So You Think You Are Safe If You Invest in Asian Stocks Listed on Western Exchanges? Peril may lurk in U.S.-listed Chinese firms – total value of small Chinese firms with sharestraded in U.S. born as Reverse Mergers (RMs) or Special Purpose Acquisition Companies(SPAC) reached $25 billion (Barron’s, 8 Feb 2010) SPACs are shell companies that issue shares in an IPO and then hold the cash collected inan escrow account until a potential suitor for a RM can be found. A SPAC has 18 months tofind a target, or the fund is liquidated and the cash, less administrative expenses, isreturned to the shareholders. After an intended target is announced, the shareholders getto vote to either approve or reject the takeover. SPACs have grown in number from only one in 2003 to 87 in 2007-08. Over this period oftime SPACs have raised more than $25 billion in 173 IPOs, comprising 16% of total newissues 31
  32. 32. Snippets 2010 (7): Western Investors Should Be Familiar With ShellGames (Reverse Mergers): Returns Around Merger Consummation Short-Run is Good! Abnormal average return of 15.4% 30 days before merger Short-Run is Good! date Abnormal average return of 32.7% Long-run is bad! 30 days after Abnormal average return merger date of -35.7% 60-390 days after merger date 32
  33. 33. Lion Entrepreneurs X Lion infrastructure X Lion Shareholders = MultibaggerLion Entrepreneurs X Lion Infrastructure X Lion Shareholders = Multibagger Why do two companies in similar industry with each earning the same absolute profit size differ vastly in their market capitalization i.e. they have different P.E. (“Price/Earnings”) ratio? Why do sales, profit and tangible asset growth not necessarily translate to market cap growth? How can business owners create a unique, innovative and scalable “business model”? Why do “Lion Shareholders” matter in scaling businesses? Oak Tree: Multibagger MNC Shift Gear at Stage 1 to Stage 2 or Risk Acquire original insights: a Blow-Up “Business gets easier as it gets bigger!” “Secrets to unlocking business valuations!” Time (Years) Stage I Stage II Stage III Stage IV 33
  34. 34. Investing in Lions vs Hyenas The Lion The Hyena Commitment to - Ethical & Moral Values  Little interest in Ethics & Morals - Winning the Game Honorably  Just wants to win the Game - Excellence  Little interest in knowledge & learning Strong intellect, thirsty for knowledge & learning  Not worked in a “world-class” institution Worked in a “world-class” institution  Has entrepreneurial values, is a “survivor” Has entrepreneurial values, is a “leader” - Short-term focus, Opportunist - Visionary - Works mostly alone - Long-term focus - Treats employees as expenses - Supports partners and alliances - Admire “tactics – resourcefulness – guile” - Treats employees as partners - Admire “strategy – planning – perseverance” 34
  35. 35. The Final Twist: So You Won the Booby Track Race Betting on the Right Jockey & Right Horse. Can You Collect the Winning Ticket?! 35
  36. 36. No Alternative to Knowing the Company …(1)We must know the company and management for a long time(2) If so, we can only buy slowly over a long time(3) And we have to wait for results for a long time. However, time is a good friend to allow opportunities to appear for the value investor to benefit.This buy-and-hold works if we have the first Right, which is the Right Stock. (Following this we will have the conviction to hold, Right Time. And buy more if possible, hence achieving the Right Amount.) 36
  37. 37. Qualitative Analysis Must Complement Numbers…(1) We must not only rely on quantitative numbers in Asia.(2) We must have a huge database of knowledge in other “business models”(3) We cannot invest from afar. We have to understand the “jockey” and “horse”. In Asia, knowing the “track” is extremely critical. 37
  38. 38. Tech Investing = Feel Younger! “A person investing in technology will feel younger”. - Li Ka-Shing, 84, Asia’s richest businessman, in Forbes Interview on 7 Mar 2012Li says it took him only five minutes in December 2007 to decide to invest in Facebook, even though it barely hadany revenues and was seeking investments that valued the young company at a relatively high $15 billion. Theopportunity was presented to him by longtime companion Solina Chau, head of his private technology investmentcompany, Horizons Ventures. Li was immediately drawn to Facebook’s growing number of followers and itsprospects on mobile phones; he quickly approved spending $120 million for a 0.8% stake. Horizons invested inmoneylosing Skype in 2005 a year before eBay paid $2.5 billion for it. Another Li-backed firm, Siri, was bought byApple in 2010 after Li invested $7.5 million a year earlier. More recently he has made investments in music siteSpotify, crowdsourced car-navigation aid Waze and waterproofing tech outfit HzO. 38
  39. 39. Summary1. Jockey, horse, race track. But is the winning ticket collectable? Management, governance etc.2. As discussed, in Asia, due to many reasons, we need qualitative as much as anything else. Accountingand numbers are a challenge at the best of times. We need to depend on assessment on management.We need to trust them but verify. The “on the ground work” is the verification legwork. We have ourway – Lion & Hyena Story. The way of Buffett and Munger surely cannot be of any less critical in thistask.3. Asia is diverse and not homogenous. We use different ways and means to cover this investing terrain.We focus on company IT infrastructure when investing. It is the only way to scale.4. There is a pattern of corporate success and profitability. Mainly it is about the lion entrepreneur andtime (really long term).5. Sometimes it is hard to differentiate the short term survival tactics from the long term strategy of thelion entrepreneur.6. Picture what it takes to up the mountain as the load gets bigger. It should get easier as the load getsbigger. How do we combine these two opposites – seemingly. 39

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