How can one evaluate these qualitative aspects? Experience helps. Afterall, Bin has spent over 20 years speaking to company management and analyzing a company’s worth.
So what are some indicators of companies with foresight?
1. Companies that invest for the future
Bin and team favour companies that continue to invest for their future even though they are currently successful. These projects are often resource heavy but will give them a competitive advantage over their peers. Such projects may reduce earnings in the shorter term but companies with foresight will be able to look beyond that.
2. Investing in technology could give companies a strong competitive edge
Technology is not something nice to talk about, it’s actually becoming a competitive differentiator
Bin believes that investing in technology puts companies in a good spot. He cited the example of how those in traditional industries like TAL Education, a after-school tutoring centre uses technology in its daily teaching activities.
Bin often assess if companies are spending enough on new technology to ‘prepare themselves for the future’. TAL is a good case in point. According to Bin, 20% of its workforce is focused on innovation and technology and shaping the future growth of its business.
Valuation is not everything
If you’ve a long-term view, you will only want to invest in winners.
At times, the valuation of winning companies may not be cheap by conventional standards. However, Bin says that high valuation alone should not be an excuse for choosing a cheaper competitor. He would rather pay for quality and sustainability of earnings of long-term winners.
This goes a long way to explain why our China equity portfolios are concentrated and focused only on best investment ideas.
Bin explains that really exceptional companies are more likely to produce the returns the team is looking for. If the names in the portfolios are too widespread, the return potential will be diluted.
How long does Bin hold on to good companies?
“If companies are good enough, I want to own it forever” Bin Shi explains why.
Perspectives matter. Tune in to our insights.