Global Opportunities Beyond the Radar

Building Your Bridge to Investment Success

 

The Arapuni Suspension Bridge wobbles a little as you cross it.

Look down, 54 metres below, and the waters of the gorge foam beneath.

I’m relying on this piece of 1920s architecture, shipped from Britain, to get me and my two kids across to start an adventure on the Waikato River Trails.

 

Source: Outdoor Kid Guidebooks

 

It’s enlightening watching small humans.

My kids run on to the bridge without a care in the world.

My son wants to throw a large stick off the edge, which involves him reaching over the barricade. This I put a quick stop to. And I realise they have complete trust in the structure and no fear of the height at which they’re suspended. 

I wish I could say the same, but exposed heights prick my fears. I can still feel the hesitation when I worked at oilfields and had to climb tanks. When my friend took me out in his small aeroplane over the Channel Islands on a windy day. And even a balcony in Singapore, 40 floors up, with a low barrier. 

But this is why you get out in nature and explore. Away from the office. Away from trading screens. In a place where the real lessons of life can be learned. That’s vital for an investor.

 

 

The generation that backed themselves

 

The more I explore, the more I can’t help but marvel the generation of Kiwis that built the early infrastructure of this country.

The Arapuni Power Station, just below the suspension bridge, is a fine example. 

Commissioned in 1929, it is the oldest hydroelectric power station currently generating, and the largest single power station on the Waikato River. 

During the Second World War, it had to be protected. Our ingenious forebears used masses of foliage, camouflage paint, and smoke generators to hide it from potential Japanese air strikes. 

When the medals came out at recent Anzac parades, I felt a pride in this generation that backed themselves and this country. My grandfather was one of them. 

This lesson applies to investing. It applies to any activity where you must do your research, make up your own mind and have a conviction.

Back yourself. 

Unfortunately, the pioneering spirit that built the Arapuni Dam and much of this country is under threat.

You hear it and feel it when people say things like: 

You can do anything you put your mind to. Even if you must cross some high, wobbly bridges to get there.

The enemy is those people who criticise, condemn, and set to limit you. Sadly, in some cases, they may be within your own family. 

What you need to know is that people who put down others generally do so from their own lack of understanding, weakness, and fear of losing control. 

Indeed, it is those that care less about what others think who are more likely to be successful: 

It never bothered me if people disagreed with what I thought, as long as I felt I knew the facts… You need emotional stability.

 —Warren Buffet, rejected from Harvard, net worth US$124 billion

 

Know the facts

 

Successful investing comes down to feeling like you know the facts. 

Note: you can’t know everything about an investment or opportunity. Future earnings of a business can be estimated based on the past, but they’re no sure thing. 

You just need to be sure enough of the facts in a business that will make you want to become a part-owner of that business — which is what happens when you buy shares. 

When it comes to shares, which is what we cover here at Wealth Morning, I get two repeat criticisms:

 

‘You can never beat the market, so why bother picking stocks?’

 

The Efficient Market Hypothesis (EMH) is a theory that states the price of a company’s shares reflects all the available information in the market.

Theoretically, you can’t pick up a bargain about to take off, unless you have inside information — which is illegal. 

EMH is expounded by many financial advisers who peddle index funds and the burgeoning index-funds industry itself. 

There is something in EMH. 

But the facts also suggest that the market is not always efficient. Sometimes it does not price assets correctly, particularly when fear and greed is at play. In those situations, you can do measurably better. 

Although I’ve beaten the market benchmark I follow in my own portfolio for several years, for me, there is a much greater rebuttal to passive investing: I want to own a piece of a small number of businesses that I believe in. Businesses that improve the world, provide jobs and generate growth. 

Plus, I’d like to earn my dividends directly (without the risk of dilution or being spread thinly).

And studies of the wealthy in general show that none of them became wealthy investing in index funds.

 

‘All this analysis over shares – wouldn’t you guys be better off using your brainpower to create a business that improves the health system or something?’

 

Our business directs itself to one of the most freeing functions in life — helping people grow their wealth so they’re not dependent on jobs alone. That is a business in and of itself.

More importantly, sharemarket investors seek to channel capital into the best companies, sectors, and opportunities, where more jobs in an economy can be created.

We actively look for businesses adding people and support them. 

Thus share-price growth and the ability to pay dividends are important arbiters of the success of a business.

 

 

Investing in what you believe

 

Over the years, I’ve seen too many people lost to cancer. The pain of that has rocked me. 

Major pharmaceutical companies not only have provided a strong investment case; they’re also rising to the challenge of cancer. 

Although there’s a long way to go, improved detection and treatment of cancer could be a game changer. It’s one area I’m keen to be a part-owner in through shareholdings. 

It takes a substantial company to have the resources available to invest into this complex area.

One approach I like comes from pharma giant Sanofi [EPA:SAN]

The business has a market capitalisation of over €128 billion, with a dividend yield of about 3.2%. In 2019, it was named one of America’s best employers. 

The company takes an ‘open innovation’ approach to cancer research — ‘partnering with academic research teams, biotech companies and specialized cancer centres to foster innovation in cancer treatments.’ 

Among their current collaborations is a preventative focus in the field of immuno-oncology — understanding how the immune system itself could be boosted to recognise and eliminate cancer cells. 

Of course, there are significant risks in this dynamic industry.

But for now, I’m happy to have a stake in Sanofi. 

It’s a lot like stepping out on that old suspension bridge, high above the gorge. Get the facts. Take a view. Back yourself. And advance confidently in the direction of where you want to go.

 

Regards, 

Simon Angelo
Analyst, Wealth Morning

Important disclosures 

Simon Angelo owns shares in Sanofi [EPA:SAN] via wealth manager Vistafolio.

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