Compound growth company

[Thriftville]

Hey buddies,

Buffett has done a great job of compounding his investment at average of 20% per year. To mimic his success, we need to spot companies with high growth potential. Anyone has spot such company? Please share your insights!

[Musicwhiz]

Hey buddies,

Buffett has done a great job of compounding his investment at average of 20% per year. To mimic his success, we need to spot companies with high growth potential. Anyone has spot such company? Please share your insights!

Methinks that even if someone could find such a great company, the relevant question is whether it is selling at a cheap price?

[Thriftville]

Yeah MW, that's true! But at least need to identify them first.

[karlmarx]

companies in US have a larger growth potential due to its huge domestic market, especially during the early 20th century where the number of big businesses are small. the buy and hold (for 5 to 10 years) strategy worked because there is a market huge enough to absorb a small-medium company's growth.

the case is different on our sunny island. IEsingapore has tried very hard to encourage SMEs to go regional but only with little success. our markets are too small. there are numerous good businesses but there is no room for growth. little growth means little share price appreciation. i will only buy and hold stocks that are cyclical, distressed, selling at a significant discount to book, or selling at low PE.

[Musicwhiz]

companies in US have a larger growth potential due to its huge domestic market, especially during the early 20th century where the number of big businesses are small. the buy and hold (for 5 to 10 years) strategy worked because there is a market huge enough to absorb a small-medium company's growth.

the case is different on our sunny island. IEsingapore has tried very hard to encourage SMEs to go regional but only with little success. our markets are too small. there are numerous good businesses but there is no room for growth. little growth means little share price appreciation. i will only buy and hold stocks that are cyclical, distressed, selling at a significant discount to book, or selling at low PE.

I do agree Singapore companies are generally much smaller and incapable of expanding internationally as they lack the scale and reputation. This means that it's tough to identify a Peter Lynch-type "multi-bagger" which can go 5x or 10x. However, there is still a very good chance of obtaining decent returns, and I've seen cases where you can double or triple your investment within 3-4 years.

I think one should not just restrict oneself to share price appreciation. Total returns consist of capital appreciation + dividends as well. For those companies in distress or selling at a discount to NAV, one must also query the underlying reasons and it's not a simple case of an obvious discount which makes the purchase attractive. As for cases of low PER, there is usually some justification for it, unless it is during periods of extreme pessimism or economic turmoil.

[karlmarx]

yes, i agree with you on both counts.

it is certainly possible to achieve 20% p.a. over a 10 year period, or even double your capital every 3-4 years. i have no doubt that the stocks listed on sgx can give good returns when bought at a good price, unless you manage a 9 digit portfolio which will reduce your selection.

if i only use valuation ratios to pick my stocks, my entire portfolio will consist of s-chips (and not even the good ones)! thankfully, i don't. definitely, we must do our due diligence. i think 80% of my portfolio is producing dividend, but at the end of the day, i'm still looking for capital appreciation (if not, how to double capital in 3-4 years, right?). one other criteria that is important to me is the sustainability of the company's business model. if they are deemed able to survive/thrive (not limp along) for the next 5 years, coupled with manageable debt and attractive valuations (big discount), i will buy them. i don't pay too much attention to richly valued stocks, at least not until they become cheap enough for me to decide to do some research.

of course, if you have time, you could research all the stocks listed and value them accordingly. so you won't have to split hairs on what to buy when the market crashes.

[Thriftville]

Yeah, I feel that we may need to work together to read up on any potential companies...
I was studying TEPCO months ago, it really need a lot of time to understand the business and financial data.

Any buddy has idea on how we should collaborate?
Perhaps we can have a poll to pick some of the potential companies?

[VIChris]

Sounds interesting.