MENU

The Art Of Spotting Great Companies

The Motley FoolWhat was that monkey doing under the fronds of the giant palm tree in the Botanical Gardens?

Actually, you really don’t want to know – it was beyond disgusting.

But why was it even there in the first place? I always thought that the apes that once roamed freely in the famous park on the edge of Tanglin had long been banished to pastures new.

The incident with the sassy simian nevertheless provided an interesting interlude to my wander through the common.

It was whilst watching the monkey that I recalled one of Warren Buffett’s less well-known ditties. He once said: “Someone is sitting in the shade today because someone planted a tree a long time ago.

Words of wisdom

Warren Buffett’s words of wisdom can mean different things to different people.

At its most basic level, it could mean that the benefits we enjoy today are the result of the hard work other people put in yesterday.

For instance, Singapore might be a less interesting country today had it not been for the endeavours of companies such as United Engineers (SGX: U04), Boustead Singapore (SGX: F9D) and Straits Trading Company (SGX: S20) decades ago.

Buffett’s quip could also be interpreted on another level. It could mean that we should try to evaluate the work put in by companies today so that some of us could enjoy the “shade” tomorrow.

Trouble is, we lack patience. We live in a world that is driven by instant gratification. Consequently, stock-holding periods these days are measured in weeks and months rather than years and decades.

A glimpse into the future

Recently, The Motley Fool Singapore was invited to visit one of Singapore’s largest and most successful food and beverage companies, namely, Super Group (SGX: S10).

Over the last 20 years, Super Group has delivered a good return for its shareholders. Since 1995, a $10,000 investment in the company would have turned into around S$70,000 today, if the dividends had been continually reinvested.

But that was then, and now is now. Could the company septuple in size again over the next two decades? That was something I wanted to find out.

During our visit to the company’s site in Johore Bahru, we were able to see for ourselves the seeds of growth that were being planted today for shareholders’ enjoyment tomorrow. They included the company’s impressive research and development facilities and its state-of-the-art Food Ingredient business.

It was quite an eye-opener. It provided us with a glimpse of what the company could look like years from now.

But what excited me even more was the refreshing lack of concern by the managers about the company’s recent share-price movements. That was inspirational.

It reminded me of a quote by industrialist Collis Potter Huntingdon. The shipbuilder once said: “We shall build good ships here. At a profit if we can, at a loss if we must, but always good ships.

Warren Buffett, one of the best investors of our lifetime, said something similar. He told investors: “Time is the friend of a wonderful company, the enemy of the mediocre”.

Here, then, is a lesson for stock market investors everywhere: You can’t build a wonderful company with one eye on the business and the other on the stock price.

Today’s saplings

There are many things that the mangers of a business can influence. These include the company’s efficiency, its profitability and its productivity. These are the things that they should focus on.

As to the share price, investing guru Peter Lynch said: “Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years”.

He added: “In the long term, there is a 100 percent correlation between the success of the company and the success of its stock.

So, the question for you is this: Do you have the patience to wait for the saplings of today to grow into the trees that will provide you with shade tomorrow?

The Motley Fool's purpose is to help the world invest, better. 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.

Like us on Facebook to keep up-to-date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better.

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.