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Value Investing Summit 2017: Interview with the Intervarsity Stock Research Challenge Finalists
It is never too young for one to start investing. Or at least, it is never too young for one to do his “homework”.
The Intervarsity Stock Research Challenge was held for the first time in this year’s Value Investing Summit hosted by 8I Holdings, with the mission to promote the study of value investing and to foster intelligent research on hidden stock champions in Asia.
We have interviewed the four finalist teams for this contest. Read on to find out their choice picks and roads to discovery.
Third Runner-up: Bobstein Konsulting
Team Members: Darren Ong, Lim Yi Chang
Company Chosen: Nippon Flour Mills Co., Ltd
Rationale: The team chose a consumer staples company due to the familiarity of its products and services. A Japanese company was chosen with the consideration of the positive brand image of Japanese products. The team found the shares of Nippon Flour Mills inexpensive and trading cheaper relative to its size as compared to its industry peers. They also saw it as a company run by quality management with strong fundamentals in multiple segments of the food industry, which can produce highly differentiated products through innovation in research and development, thus giving it its competitive advantage.
Interview with the Team Members
Q: What do you like about value investing?
A: What we like about value investing is that it forces you to do in-depth research, to understand its key moats, its drivers as well as its potential future growth, before making any investment decisions. Value investing will definitely widen your perspective about companies and their operations.
Q: How did you get to know about the intervarsity stock research challenge and what motivated you to take part in it?
A: We got to know about the intervarsity challenge through an email sent out by a CCA club in our school, which provided us with a link to sign up for the competition. What prompted us to sign up for the competition was the fact that both of us are value investing enthusiasts. Having a background in Banking & Finance (Darren) and Accounting (Yi Chang), both of us were exposed to the investing world as early as when we were in our Polytechnic days, which triggered our interests in the areas of value investing.
To talk about how we got each other to sign up for the competition is quite funny. In short, we met each other at SMU’s Koufu one day after such a long time, where we sat down and talked about investments. Shortly after, we signed up for the competition together.
Q: What are some of the challenges that you have faced?
A: A challenge that we faced was the tight schedule that was given, which we had to manage on top of our personal and school commitments. Both of us had to juggle this with our school activities to meet up and discuss our investment thesis.
Another challenge that we faced would be the difficulty in finding much vital information on our company and its industry since many companies would not disclose too much information about themselves to protect themselves against competitors. One example of such would be the various production capacity of flour milling operations, which we took quite a substantial amount of time to discover and piece all of the information together.
Q: What is your biggest takeaway(s) from this challenge?
A: The biggest takeaway for the both of us was the experience to present our investment ideas to a crowd of 1,500. But most importantly, we were getting our works critiqued by top investment analysts and professionals, who highlighted issues and shortcomings which we had not previously thought of.
Q: At the end of the day, what do you feel that you could have done better?
A: We were told that our presentation was overloaded with information, which made it hard for the audience to capture the essence of what we were trying to deliver. In future, we are looking at repackaging our presentation materials and improving our talking pace to make it more digestible for our audience.
Q: Any advice or words of encouragement for fellow young aspiring investors?
A: Start young and read a lot. This ensures that you are kept up-to-date with the latest news in the market. If you have done your due diligence, be confident with your stock picks, ignore “outside noises” and be patient. You will enjoy the fruits of your labour.
Second Runner-up: Alpha Taurus
Team Members: Edison Hon, Joel Tan, Teo Chuan Hoe
Company Chosen: REA Group Limited
Rationale: The team first sourced out sectors which they felt had huge growth potential or showed good historical growth, and then narrowed down to the logistics and technology sectors. After studying the market leaders and value chain in the abovementioned sectors, they selected REA Group, a global advertising company specialising in property.
Furthermore, the team found that REA Group did well at fulfilling the below three key criteria:
Healthy financials with no suspicious accounting and no bad debt
Having a strong and competitive business model that will allow the company to maintain their local leadership and even grow to be a global leader
Having an excellent management team with clear vision and mission, and focuses on growth over wealth preservation and profits.
The team also considered REA Group, backed by a stable key market (Australia), well positioned to double in value over the next three to five years with aggressive expansion into markets with huge potential. REA Group’s strong management team also leads the company to integrate its horizontal value chain, giving it a strong edge over competing platforms.
Interview with the Team Members
Q: What do you like about value investing?
A: Joel: I have personally started out as a very technical trader but I began looking more at value investing upon reading more books about investing in general. I find that value investing is very rooted in strong principles, which make it an extremely effective and efficient way of investing compared to other forms of trading in the long run. Another perk I’d point out would be the ability to really sleep at night with a trade you are confident with. On the other hand, with other methods, such as swing, momentum trading etc, you’d worry about unclosed trades a lot.
Chuan Hoe: Value investing is really about looking beyond the short-term gyrations in the stock market and speculative behaviour. We really had to look for a company with strong fundamentals, which could grow exponentially. Also, value investing provides a good basis for sound investment ideas and is easily accessible and intuitive to most retail investors like ourselves.
Q: How did you get to know about the intervarsity stock research challenge and what motivated you to take part in it?
A: Joel: This is actually the very first competition I have taken part in while in university; Edison, Chuan Hoe and I are members of Business Solutions (the same club as the champion team which comprised of our seniors) and joined this competition upon receiving the email blast from the school.
Chuan Hoe: Our objectives for joining this competition was really to pick up analysis and presentation skills that we felt could only be learnt by really picking out the stocks and presenting in front of large audiences. I am glad to say that we learnt a lot from this competition and it has been a great experience learning from the experts in 8I.
Q: What are some of the challenges that you have faced?
A: Joel: I think the biggest challenge we faced was juggling multiple competitions.
Chuan Hoe: It was definitely a challenge juggling school work, my internship, our club commitments and this competition at the same time. We really understood what it was like to pull all-nighters to pull off the presentation for this competition.
Q: What is your biggest takeaway(s) from this challenge?
A: Joel: Perspective. I have learnt to look at companies in a different light after this challenge. Before that, I was really used to looking at companies through numbers but in preparation for this competition, I read Peter Lynch’s book, One Up On Wall Street and started looking at investing with a different perspective.
Chuan Hoe: We really learnt the amount of work and effort that goes into preparing for such competitions. The biggest takeaway is, of course, the learning that we had as part of the process in picking the stock and deciding what factors we should consider in a good yet undervalued stock.
Q: At the end of the day, what do you feel that you could have done better?
A: We think the pick of the company, as well as the preparation for the Q&A session, could have had been better. We definitely did the preparation but we failed to address some aspects of it when doing so, and thus we were unable to answer some of the questions. Also, we should have considered that REA, despite being a company with huge potentials, has a risky strategy that might be too much to stomach for some investors.
Q: Any advice or words of encouragement for fellow young aspiring investors?
A: Read, try, fail, learn and repeat. This is the process most investors go through and eventually you’ll start posting regular returns. Look for long-term returns over short-term gains; just because you did not make a few million over a few months doesn’t mean that you’re a failure! Someone who made a million overnight is not as impressive as the person who made a thousand every month for 10 years.
First Runner-up: The Net-Nets
Team Members: Khinwai, Hui Ling
Company Chosen: Domesco Medical JSC
Rationale: The team finds that Domesco, the third largest player in Vietnam’s flourishing pharmaceutical industry has good track records of being able to grow both domestically as well as in offshore markets. Furthermore, the team finds that Domesco fulfils the 4 key criteria:
Right business focus
Right management
Sound financials
Possessing the resources to take advantage of opportunities
Domesco also has the distinct competitive advantage of being the dominant player in the Special Treatment drugs segment, as well as the ability to leverage on strong support for growth from Abbott, its sole strategic partner.
Interview with the Team Members
Q: What do you like about value investing?
A: Khinwai: I love how value investing has a very simple and logical thought process, with no guesswork involved. If we feel even just a slight uncertainty as to what makes up the intrinsic value of a business, we don’t invest.
Hui Ling: Value investing does not require a constant monitoring of charts, and as a result, one would be less emotionally influenced by market changes.
Q: How did you get to know about the intervarsity stock research challenge and what motivated you to take part in it?
A: Khinwai: I have been actively growing my investing knowledge and network since 2012, having read books like Buffettology and attended investing conferences and courses by BigFatPurse, 8I and Value Investing College over the past couple of years. When I saw this event on my Facebook newsfeed, I knew instantly that this was something I would be interested in and could possibly put the knowledge I have accumulated to the test. It was also a chance to sharpen my stock research skills.
Hui Ling: It was publicised on the Facebook page of NUS’s Investment Banking Club. This competition stood out as it was held during our vacation, so I could devote more time to it.
Q: What are some of the challenges that you have faced?
A: Khinwai: In the initial phase of the competition, we had a hard time trying to dig for information. We picked a Vietnamese stock, hence most of the information available were in Vietnamese and we had to use Google Translate many times!
Hui Ling: It being a small stock also meant that information was scattered everywhere, and sometimes this information contradicted each other, so we then have to find a third source for confirmation.
Q: What is your biggest takeaway(s) from this challenge?
A: Khinwai: I think the biggest takeaway for me from this challenge would be learning a lot about assessing if a company’s management is involved in corporate misgovernance and identifying if there is fraud in a company. These are skills that take a lot of deep analysis and research and are not widely taught by value investing books and courses.
However, they are essential for assessing the management of a company, which we think is mission-critical to whether or not we want to invest in its stock. To quote Mr Warren Buffett, “In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you.”
Hui Ling: It was probably the feeling of presenting in front of a huge audience. I have always been a nervous wreck before any presentation, but I have managed to vanquish that fear after the finals. I was surprisingly calm, and I guess it’s true that facing your fears is the best way to overcome them.
Q: At the end of the day, what do you feel that you could have done better?
A: Khinwai: For me, I felt that we have done our best given our constraints and information presented to us. I couldn’t have imagined a better outcome than this.
Hui Ling: I think we could have put more thoughts into our presentation structure, with a specific portion dedicated to why we thought it was a hidden gem.
Q: Any advice or words of encouragement for fellow young aspiring investors?
A: Khinwai: Don’t take the shortcut; don’t fall for gimmicks and schemes that promise you easy returns on investment just by placing your money with them. ALWAYS do due diligence and know what you’re investing in. Learn before you earn. I only started investing after learning voraciously about how to invest in stocks for a year and a half. If you follow these principles, you will have a smoother investment journey.
Hui Ling: Read widely and monitor the news for investment opportunities.
Champion Team: Latent Capital
Team Members: Jie Xuan, Kimberley, Lawis
Company Chosen: Keyence Corporation
Rationale: Keyence Corporation offers the broadest product mix in the vision automation industry, and has made remarkable progress on the global front. When it comes to idea generation, the team took a top-down approach, by first analysing the attractiveness and growth potential of different industries, then narrowing down to technology. They then focused on automation as a sub-sector given its attractiveness in terms of growth potential. Finally, Keyence was shortlisted due to its unique business model and its position as a market leader.
Interview with the Team Members
Q: What do you like about value investing?
A: On a macro level, value investors help ensure that capital gets allocated to companies that have the potential to create a meaningful impact on society. This makes the notion of value investing meaningfully for investors as they have the chance to do more than generating returns for themselves. Moreover, value investing essentially implies the need to look for stocks that are undervalued. The process of doing so can be extremely challenging, yet fulfilling at the same time.
Q: How did you get to know about the intervarsity stock research challenge and what motivated you to take part in it?
A: We learnt about the competition through an email from our school which publicised the competition. Having never seen a competition with such an interesting theme (Unearthing Hidden Champions), we decided to give it a shot.
Q: What are some of the challenges that you have faced?
A: The need to find a company that fits into the competition’s theme of “Unearthing Hidden Champion” was arguably one of the challenges we faced while preparing for the competition. This posed additional requirements above the usual financial analysis we typically do in looking at companies – finding one with wide and durable economic moats that generate superior returns on invested capital, and a unique, scalable business model with defensible intangible know-how.
Q: What is your biggest takeaway(s) from this challenge?
A: One of the biggest takeaways from the challenge was the opportunity to present to a panel of professional judges. It allowed us greater insight into what professionals in the industry look out for when analysing a stock and its hidden potentials. Moreover, we were able to see where we could have improved on further.
Q: At the end of the day, what do you feel that you could have done better?
A: We felt that we should have shared more about the management. One big reason for the company’s success is due to its management and the unique culture that it has created. If possible, we would have liked to elaborate more on the topic.
Q: Any advice or words of encouragement for fellow young aspiring investors?
A: For aspiring investors, our advice would be to simply take the leap and learn from mistakes. Often times, we are held back by fears and reservations and one way to overcome that is to simply start. Experience will then be the best teacher.
8I Education will be conducting a 1-day complimentary Value Growth Workshop on 25th Feb 2017 where you’ll get to learn the applications and possibilities of Value Investing.
