What are you buying today?Posted on November 13, 2013
One of the most common questions I get from strangers or people I barely know is “What are you recommending at the moment? What are you buying?” It is also the question I dislike the most. It hasn’t always been that way. I used to love the question, since I’m a boring finance nerd who loves to talk investment for hours. There is reason I work with investments. I started to dislike the question since it often led to awkward conversations of a couple of types.
1. The labeler
This guy wants to boil you down to one thing. He doesn’t believe for a second “we work with dozens of partners and we can invest in hundreds of different things” despite it being the truth and that “it depends on the client” really is the best most professional answer to his question.
2. The inside track
Some people want free advice. I don’t mind talking about individual stock or strategies I like, however some strategies we don’t share. It’s part of our competitive advantage. Asking for this for free is a little odd.
3. The weekend expert
The most annoying is the fellow (and it is ALWAYS a fellow) that is the know-all Despite the study, post graduate degrees in finance and decades in the investment industry and good client returns, he is sure whatever you say is nonsense and he is here to prove it to you. Usually listening for a bit before edging for the door is a safer course.
4. The share fan-boy
They want your opinion on their favourite stock. Apple used to be the share fan boy of choice. Apple shares were a classic example of newspaper investing. This point I want to make a special mention of since I think it encapsulates an important bit of industry wisdom.
Headlines mean sell
If it is on the front page of the newspaper, it is usually a time to sell. Gold got most of its headlines at its peak. The US was wallpapered with people discussing “how to flip houses to a fortune” and the like, in 2007 just before the crisis. There is the tale of a Wall St stock broker who sold his shares in 1929 just before the crash because “I knew it was time to sell when my shoe shine boy was giving me tips”.
What aren’t we buying is a better question
A present example that springs to mind is the shares of Twitter and Tesla. Both are on the front pages. We don’t own either and have no plans to either. We aren’t going to short sell them, since shorting individual shares is a tricky sport, particularly on volatile stocks like these. We are just avoiding them. Still, we think they are obviously expensive.
It is on the front page and the market cap has zoomed 400% this year to almost $20 billion (that’s with a B) despite it selling only $400 million (with an M) worth of vehicles. It doesn’t make a profit. A rough rule of thumb, and I mean rough since it varies a lot between industry, is that a companies’ value shouldn’t be more than it’s annual sales. Certainly not twice. Tesla is worth 50 times sales according to the market. Wow! That’s a confident market right there.
Compare Tesla to GM
If you aren’t convinced yet, consider another car company with a similar market value. General Motors is worth around $50 Billion (only 2.5 times more than Tesla). It’s annual sales are $150 Billion (with a B) – roughly 375 times larger than Telsa’s. Even GM’s profit of $4.5 billion is about 11 times larger than Telsa’s entire sales. We can’t compare profits since Tesla doesn’t have any. We aren’t buying GM necessarily, but it is considerably cheaper and less risky than Tesla.
Tesla’s growth priced in for the next decade
So yes, Tesla is growing quickly. But it will need to keep growing quickly at better than 50% p.a. for more than a decade, without any problems just to reach it’s present value. And that is a very risky bet. Competition is bound to spring up in the next couple of years. There is no chance, in our humble opinion, that a decade will get by without competition. Still, Tesla is getting all the headlines and GM gets ignored or brickbats. This doesn’t mean we are buying GM. It certainly means we are avoiding Tesla.
So ask us what we aren’t buying.
Often that question is far more interesting and enlightening and usually an enjoyable conversation.
About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area. This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China. Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business. Owen's interests are tennis, running and his wife and two children. He speaks fluent Chinese, first arriving in China in 1997.
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