The Discovery of a Simple Truth
Coming from humble beginnings, both Kelvin & Jonathan were just two ordinary people who tried many different ways to make money. Day trading, options, forex, futures, momentum trading, they have tried almost everything that exists in the stock market.
These methods made fast money for them, but it was unsustainable.
Then they turned to Value Investing, which is what Warren Buffett practices, they discovered a hidden secret that literally… nobody talks about.
While Warren Buffett is known for Value Investing methodology, that is not the complete picture of what he truly practices. In his 1992’s Chairman’s Letter for Berkshire Hathaway, Warren Buffett shared an enlightening view that most people missed out.
“But how, you will ask, does one decide what’s “attractive?” In answering this question, most analysts feel they must choose between two approaches customarily thought to be in opposition: “value” and “growth.” Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing.
We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago).
In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.
In addition, we think the very term “value investing” is redundant. What is “investing” if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value – in the hope that it can soon be sold for a still-higher price – should be labeled speculation (which is neither illegal, immoral nor – in our view – financially fattening).”
Hence, Growth Investing is what Kelvin and Jonathan decided to embark on.
A clear focus to invest in quality companies at a reasonable price with respect to its value. Furthermore, Growth Investing methodology is great for people who have a small portfolio and for those who are just starting out. It is the fastest and safest way to compound your money.
In fact, Warren even said this:
“The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow.
It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”
This shows that it is far easier to grow a small portfolio than a big portfolio. In fact, the highest returns that he got was when he was in his 20s and 30s, when he had only a small amount of capital then!
Growth Investing has changed both our lives and it enabled us to quit our full-time jobs to become full-time investors. Together with our passionate team members, we would like to help more people like you achieve that as well.
Enduring Growth for Generational Wealth
We believe that growth companies must be stable, able to deliver and most importantly, create value for society, which would then compound shareholders’ wealth sustainably over the long term.
We understand that many people have this misconception that high growth is equivalent to high risk. We see it differently because high growth is often desirable because it builds wealth for investors.
Our investment strategy focuses on generating superior returns that outperform the market indices consistently. A successful strategy is one where it is scalable and repeatable. We believe spending time to understand companies deeper instead of spreading ourselves too thinly by covering too many companies. Focus is our superpower.
We select the industries where we believe long term winners can be found and avoid other industries intentionally.
These are the 4 criterias that we are looking for when we invest in high growth companies:
- Value Creation
- Purpose Driven & Capable Leadership
- Holistic Ecosystem Empathy
- Simplicity in Complexity
Value Creation [P.I.E]
Value Creation is further defined by us as Productive, Innovative and Effective [P.I.E].
In order for the value of a company to be growing, the people driving the company must constantly be seeking to address the problems that customers face, to be innovative in creating new solutions that are more effective in solving the problems, and doing it more efficiently, so as to create ever more value for customers & society.
We resonate with Abraham Lincoln and that the best way to prepare for the future is to create it. We believe that massive value and wealth will be created by investing in and partnering with future innovators and creators.
Purpose Driven & Capable Leadership
When we invest in companies, we are not merely investing in any corporate structure or corporate assets.
We are investing in people.
We are tapping into an entrepreneur’s ambition, talent, energy and his ability to bring like-minded individuals on his journey to transform the world into a better place through his business.
Internally, we created a checklist of desirable traits of management teams we like. It includes qualities such as being a visionary, being opportunistic, being relentless in execution, having empathy for others, displaying behaviours of productive paranoia and being a life-long learner.
Our job is to sieve out such incredible people and invest in their listed entities. Some of our favourite management include the Rales brothers of Danaher Corporation, Albert Nahmad of Watsco, Mark Leonard of Constellation Software and Jeff Bezos of Amazon.
These entrepreneurs did not create a business purely to make money. Instead, they are imbued with enthusiasm to make this world a better place.
To this group of entrepreneurs, a problem is nothing more than an opportunity. An opportunity to bridge the gap between potential solutions and the problems. An opportunity to create solutions to meet customers’ needs, and to create value for society. By creating more value to the world, they are rewarded financially. They are problem solvers and they are trailblazers.
Christopher Strachey, the founder of the Programming Research Group from the University of Oxford once shared:
“It has long been my personal view that the separation of practical and theoretical work is artificial and injurious. Much of the practical work done in computing, both in software and in hardware design, is unsound and clumsy because the people who do it have not any clear understanding of the fundamental design principles of their work. Most of the abstract mathematical and theoretical work is sterile because it has no point of contact with real computing. One of the central aims of the Programming Research Group as a teaching and research group has been to set up an atmosphere in which this separation cannot happen.”
We believe by having a vision but not executing it, it is no more than a nice dream.
Daring to think differently, being imaginative and having a vision of a better future is commendable. However, the willingness to do what it takes to bring that vision into reality is invaluable.
We want to partner with leaders and management teams who are not only visionaries, but who are willing to create a better future by taking actions to make their vision a reality.
By investing in them long term, we participate in their value creation process.
Holistic Ecosystem Empathy
Holistic ecosystem is an approach of viewing the organization’s assets, talents, partnerships, with the goal of better understanding and serving the needs of the customers and the society.
This is not a purely functional or mechanical approach. Rather, it is driven with empathy at its core. The inherent drive to understand the needs of others, and being aware of their feelings and thoughts, so as to better align all elements of the ecosystem to create a true win for all.
In fact, research has shown that empathetic people are capable of recognizing the pain of others as a problem which is in need of a solution. This is the foundation of Value Creation that lies at the core of all quality businesses.
Out of this empathy framework, we created a “win-win-win” approach.
In any business transaction, the company must win along with its employees and customers.
It is important for a company to make profits to keep its operations running, but it should not sell with a mentality of extracting the last dollar from its customers. This means creating a win for a customer by charging fair prices for the products or services delivered.
A company should be long term. Focus on the happiness of its customers by cultivating lifelong relationships with customers as opposed to one-off transactions.
Businesses who think of the best interests for their customers tend to grow faster because they enjoy strong marketing tailwinds from strong word-of-mouth and customers. The best businesses tend to enjoy such benefits without spending huge advertising dollars because the product sells itself. The value proposition is clear and the customers enjoy it.
Some companies who tend to overcharge customers consistently will face possible backlash by its customers or governing authorities.
It is known that some pharmaceutical companies are charging excessively high prices for their drugs. As a result, they have high profit margins. Is this sustainable?
Investors who value those pharmaceutical companies based on those high profit margins may be in for a rude shock when regulators force drug prices to be lower.
Only by being aware of problems around, then one can begin to make the journey of Value Creation.
Simplicity in Complexity
As Peter Lynch who was a successful fund manager once said:
“Never invest in any idea you can’t illustrate with a crayon.”
We love to operate within our circle of competence. We think it is extremely foolish to reverse the compounding process by operating outside our circle of competence. This adds risk to our investment process.
Mathematically, should our investment go south, more effort is needed to recover its losses.
If we do not understand some companies, we put them into a “too hard” pile. We find that it is perfectly fine to miss out on opportunities that we do not understand. Having said that, we see ourselves as life-long learners who are fueled by our intellectual curiosity to understand the world better.
This ensures our circle of competence gets enlarged over time. It’s extremely dangerous to be the frog in a boiling pot that is oblivious to how the world is changing and sticking with our old lenses in an evolving world.
Over time, we realised the best investment ideas are compelling enough that it does not require too much convincing work to underwrite the investment. The worst ideas are those that require hours of deliberation with no clear conclusions. In this situation, we may end up convincing ourselves because of our sunk cost fallacy arising from our psychological biases.
With regards to macroeconomic news, it is filled with complexity which many investors try to decipher with very little success. We wonder what is the value add to our research process. We deem this as noise. What is useful to us is signals. This refers to corporate developments such as expansions, strategic hirings, new product releases or collaborations with other companies. It is quantifiable to some extent and it signifies pace of execution within the company. As we shift our attention more towards signals, we outperform as investors.
We conclude that seeking simplicity is an absolutely necessity for us to outperform as investors.
Our litmus test to ourselves is whether our companies are creating excitement for the future.
We think that by investing our money with those companies we selected, we are partnering with their management team.
It’s the most rewarding journey of growing our wealth by supporting these transformative companies. We hope to inspire a new generation of investors who will see investing as a vote towards supporting these companies.