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Singing Your Way to Winning Investments

“They’re not the best at what they do; they’re the only ones that do what they do.”

– Promoter Bill Graham referring to the Grateful Dead

Just this morning, I found out that the co-founder of the Motley Fool, David Gardner, loves the quote above about the American rock band, the Grateful Dead. There is an interesting business lesson within the quote, and it is one which I have come to appreciate over time. What’s more, the business lesson might bring us satisfying investing returns over time.

No second player

That business lesson is about having “no second player” – in other words, having no clear competitor to the business which you buy into. For a local example, let’s use vehicle test and inspection outfit VICOM Limited (SGX: V01). The firm has seven inspection centres spread out across the island where vehicle owners are mandated to send in their vehicles for inspection every six to twenty four months depending on the age and type of vehicle. In this case, VICOM has practically “no second player” to its business.

There are benefits to this enviable position. For example: Over time, it is possible for the test and inspection outfit to make a couple of business errors but yet have time to recover on its own terms since there would be no one to step up to take its place immediately. This would be a valuable business advantage.

The home ground advantage would form the stable base for VICOM to branch out into its SETSCO services business where it competes with other firms for specialized testing in a wide range of industries such as aerospace, marine and offshore, biotechnology, electronics, oil and petrochemical, engineering, and construction. The SETSCO segment represents a much larger market opportunity for VICOM when compared to the company’s bread and butter vehicle test and inspection business. This could form the growth runway for VICOM for the future.

The company’s actions have brought benefits to its shareholders as well. VICOM’s sales has more than doubled over the past decade, increasing from $47 million in 2004 to $105 million in 2013. It share price has done even better, increasing by 567% from the end of 2004 up till 3 December 2014. The share price gains from VICOM easily beats the long term annual compounded returns of 8.3% (this includes gains from reinvested dividends) for the SPDR STI ETF (SGX: ES3), a proxy for the share market indicator, the Straits Times Index (SGX: ^STI).

Foolish summary

Here at the Fool, we focus on buying businesses, not tickers. When it comes to evaluating businesses, every bit of perspective helps. This goes from the simple observations – like not having many competitors – to something more elaborate, like figuring out the addressable market opportunity of the company. Whichever way you choose to evaluate a company, if you start by focusing on the business instead of the ticker, you may just have taken the first step in singing your way to investing success.

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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.