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How To Find Great Companies

The Motley FoolHow do you go about finding investing opportunities? Are you, for example, a top-down investor who starts with a “big picture” of the world economy and gradually work your way down to see how specific companies may be affected at the micro level?

Alternatively, you might be a bottom-up investor who believes that economic factors and market cycles are irrelevant when looking for investing opportunities. Instead, valuations are more important. So, depending on your particular style of investing, you might focus on yield, growth, value or some combination of each.

Then again you might be a chartist, who believes that the only thing that matters is what a share-price graph is telling you.

What’s interesting about investing is that that there is no right way or wrong way to invest – only what works for you.

Peering down a microscope

But if you want an edge in investing, you may need to look for numbers that are different to the figures that other investors are focussing on. After all, thousands of people are running discounted cash flows and operating various filters, albeit with slightly different assumptions. Consequently, your Excel spreadsheet may not reveal anything significantly different from other investors who are peering through the same lens of the microscope.

That’s not to say that spreadsheets aren’t useful. I use them regularly. However, they may not tell you everything you need to know about a business.

For instance spreadsheets won’t tell you anything about the culture of an organisation. Neither will it reveal customer approval, employee satisfaction or staff commitment.

In my view these non-financial factors can tell you as much (if not more) about a business as its revenues, overheads, gross margins and return on capital can. After all, every business has a human dimension too.

Consider staff turnover rates. It’s not something that you are likely to find in a set of company accounts. However, the rate at which staff join and leave an organisation can provide useful clues about the way that the business is run.

Taking on the giants

Just recently, my colleague Chong Ser Jing and I were invited to visit Singapore’s flagship biotechnology company, Biosensors International (SGX: B20). If I had been invited a couple of decades ago, I would probably have been satisfied with marvelling at the company’s high-tech stent manufacturing capabilities. I probably would have asked some pertinent questions about projected growth rates and the progress of the research pipeline.

biosensors2

But not anymore.

Today, I am interested in finding out how a Singapore-listed biotechnology company can complete with the giant US stent-makers. How could a small local biotech develop a drug-eluting stent that has proved challenging for other scientist?

 

Looking for the North Star

The company attributes its success to luck. But as Sam Goldwyn once said: “The harder I work, the luckier I get”. In the case of Biosensors International, the hard work is reflected in its ultra-low staff turnover rate, which is no mean feat in Singapore’s low-unemployment economy. The Republic’s unemployment rate is an envious 1.8%.

Tom Gardner, the co-founder of The Motley Fool, once told me that a healthy culture is a wonderful North-star guide point for investors to find the organisations that they also should invest in for the long term.

Thomas Watson Jr., a former president of IBM, said something similar: “To be successful, you have to have your heart in your business, and your business in your heart“, which is appropriate for a company whose business is making life-saving stents.

This article first appeared in Take Stock – Singapore.

Click here now for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock — Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.