Are All Large Business Too Complicated To Understand For Investors?

It can be advantageous for investors to keep things simple when investing. So, does this mean that we should shun large companies and focus our energies on only the small ones?

After all, large corporations often have thousands (if not tens or even hundreds of thousands) of employees, complex operating procedures, and businesses all over the world; that sounds really complicated

Thing is, as investors, it’s important for us to differentiate between a complicated business and complicated operations. These things can be size-agnostic. For instance, it’ be highly complex to run the legacy carrier Singapore Airlines Ltd (SGX: C6L), a company with a market cap of S$12.7 billion and annual revenue of S$15.6 billion.

There are strict maintenance and inspection standards to adhere to so as to ensure that flights can be carried out safely. That’s not to mention the complexities involved with the planning of flights for a fleet consisting of hundreds of planes. I think it’s likely that most investors would not know how to run Singapore Airlines operationally.

But, the economics of Singapore Airlines’ business is fairly simple to grasp. As an airline, it ferries passengers and goods from Point A to Point B. It also has an aircraft maintenance, repair, and overhaul arm that’s represented by its majority ownership of SIA Engineering Company Ltd (SGX: S59).

From an operational stand point, Singapore Airlines may be a byzantine maze. From a business standpoint, it’s fairly straight forward; the airline’s business is based on the supply and demand for air travel, especially those into and out of Singapore.

The tiny Aztech Group Ltd (SGX: AVZ), with a market cap of S$33 million and annual revenue of S$326 million, provides us with another view.

Aztech may be a small company, but it has its fingers in many pies. It is involved in contract manufacturing and the retail distribution of networking and other electronics products. It also manufactures LED lightings, has an offshore and marine business, and is supplying building materials and providing construction services. That’s not all. Aztech is also a food products distributor and even manages a handful of food & beverage retail outlets.

An investor who wants to invest in Aztech would have to be able to make sense of all these different moving parts and how they come together. And all that, for a company that’s 300 times smaller than Singapore Airlines.

Foolish Summary

With all the above, we can thus see that the complexity of a business has nothing to do with its size as well as its operational intricacies. As investors, we have to focus our energy on understanding the economics of each business. Understanding the operations of a business might be best left to the managers.

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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 writer Stanley Lim does not own any companies mentioned above.