Last Sunday, as The Motley Fool Singapore’s David Kuo was speaking about mini-skirts and the share market at the INVEST Fair 2014, we got to talk to a few Foolish folks after the session. One good question, which came about, was about sources of information about companies. The underlying assumption of the question may have been that more information, or specialized information, leads to better decisions. Seen another way, the question could be interpreted as – what’s our investing edge against a market full of other talented people? The answer may not surprise the most Foolish investors….
One good question, which came about, was about sources of information about companies. The underlying assumption of the question may have been that more information, or specialized information, leads to better decisions. Seen another way, the question could be interpreted as – what’s our investing edge against a market full of other talented people?
The answer may not surprise the most Foolish investors. The edge comes with a simple element.
My colleagues have written extensively about how time in the market, as opposed to timing the market, might increase your chances of having success in investing. The differences can be stark, as noted by Ser Jing here:
“Measuring returns at the start of every month from 1988 to August 2013, if the [Straits Times Index (SGX: ^STI)] was held for a year, there’s a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses.”
The good news is that there are more benefits to holding for the long term when it comes to obtaining better knowledge and information.
Investing for the long term can also mean that we will be accumulating information and knowledge over long periods of time, across many economic conditions, and different business cycles. The information accumulated over years, or even decades, often times might lead to better investing decisions.
For instance, by studying a company like Sarine Technologies Ltd (SGX: U77), the astute investor may have noticed that the business model for the company has gradually changed over the last four years.
In the fourth quarter of 2009, the supplier of diamond-manufacturing equipment sold their first Galaxy system. The notable difference was that the system came with a new business model, which included usage fee charges based on utilization of the equipment. The new business approach (Sarine’s old model had been based on one-off sales of equipment) has been a success so far, and the contribution of the new recurrent revenue has been growing.
The development of the recurrent revenue is summarized in the table below:
|Year||% Recurrent Revenue of Overall Revenue|
Source: Company’s Annual Analyst Presentation
This growing percentage can play an important role in keeping the company afloat during leaner times. Tough times were seen in 2008, where Sarine experienced a 10.7% drop in revenue and a drastic 80.1% drop in profit as its customers stopped purchasing equipment. This makes the trend of growing recurrent revenue all the more important.
Currently, the company has a dividend yield of 2.5% with a payout ratio of 86%. The rising percentage might give the investor increasing confidence that the dividend can be maintained. That said, Sarine trades a lofty trailing price-to-earnings ratio of 34.4 as of market close yesterday. That’s in stark contrast to the PE ratio of 14 for the SPDR STI ETF (SGX: ES3), an exchange-traded fund that tracks the Straits Times Index and thus represents the market average. So, Sarine might not excite the conservative investor looking for lower valuations.
At the Motley Fool Singapore, we are lifelong students of the investing game. Investing for the long term can mean more than holding a company’s share alone. The opportunity is there for the investor to continue to learn about the company over long periods of time, and come out better for it. With decades of knowledge gathered on his or her side, that’s how the Foolish investor can gain an edge.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.