Posted on

What to look out for when investing in a pandemic-struck climate

investor

The global economy has been rapidly changing over the past year since the COVID-19 hit. While some companies managed to thrive, others have suffered.

The economy will never be the same again. Most brick-and-mortar businesses are forced to digitalise their businesses, or they face the risk of extinction. Old businesses that have worked in the past 50 years may not be able to survive in the next few years to come.

Kelvin Seetoh and Jonathan Ang, who are founders of The Full-Time Investor, speak out about what investors must look out for if they want to continue to do well in the next few years:

Investors look for value creation

In order for the value of a company to be growing, the people driving the company must be constantly 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 and society.

We resonate with Abraham Lincoln 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 and capable leadership for investors

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 ability to bring like-minded individuals on his journey to transform the world into a better place through his business.

Our role 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.

Also Read: A wave of change: What sets impact investing apart from traditional investing

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 for the world, they are rewarded financially. They are problem solvers and they are trailblazers.

We believe by having a vision but not executing it, it is no more than a nice dream.

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.

Holistic ecosystem empathy

A holistic ecosystem is an approach to viewing the organisation’s assets, talents, partnerships, with the goal of better understanding and serving the needs of customers and 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 thoughts and feelings, 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 recognising the pain of others as a problem that 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 wins for customers by charging them fair prices for the products or services delivered.

Also Read: Why UK is the new global tech capital for Southeast Asia entrepreneurs

A company should take on a long-term approach. 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 influential 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.

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 investments 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 to keep them 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 the pace of execution within the company. As we shift our attention more towards signals, we outperform as investors.

When you treat your investments like partnerships, it will drastically change how you choose to invest. By investing our money with those companies we selected, we are partnering with the best management teams.

Also Read: Investing with gender lens: Proven strategy to achieve 2x+ in returns

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.

Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic

Join our e27 Telegram group, FB community, or like the e27 Facebook page

Image credit: 123rf

The post What to look out for when investing in a pandemic-struck climate appeared first on e27.