Tuesday, January 28, 2014

Buying the company on the streets (Part 1) - Discovery stage

Introducing the company on the streets

Everyday we go to work, we go to school, we hang out with friends and we go shopping. What if i tell you that you can actually own the shopping malls you go to, own the restaurants you patronise, own the retail outlets you buy clothes from, own the hospitals you visit, own the bus and MRT you ride everyday and even own the airlines you travel on? It is possible through a financial intermediary called the stock market. 

When a company is listed on the stock market, it becomes a public company. Many shareholders collectively own a part of the company and are entitled to a share of the income through dividends distribution. It is no longer a private company once it is listed. The surprising thing is all these companies on the stock market are actually all over the streets which we walk on. Well, maybe not so surprising to people who already know but it is to people who live everyday without knowing. 

Many people ask how do i know which company to invest in if i want to start investing? Do i look through the SGX website and scan from A to Z? The answer is no. You don't have to do that. You just have to open your eyes to see it on the streets. 

Which are the companies on the streets?

Imagine how you would live your daily life. You get out of your house and take the bus. It's a sbs transit bus. This company is owned by comfort delgro. 

You reach the MRT station and transfer to take the MRT. The MRT is operated by SMRT.

You buy a straits times newspaper and proceed to read the daily headline news. The newspapers are published by Singapore Press Holdings(SPH).

Your mobile phone rings and you pick up a call. This service is managed by either of the three telcos in Singapore, Singtel, Starhub and M1. 

You reach your office and make your daily favourite 3 in 1 coffee. The coffee sachet has the word super on it. This coffee is manufactured and produced by Super group Your company is kind enough to buy you some curry puffs for breakfast. Those are from old chang kee.

During lunch time, your company catered buffet from Stamford catering. This catering service is provided by Select group.

After work, you meet your friends for dinner at Din Tai Fung. This company is owned by Breadtalk.

You go shopping at G2000 and Uniqlo after dinner. These 2 companies are owned by Wing Tai.

You're at the newly opened Bedok Mall. This shopping centre is owned by CapitaMalls Asia.

You're so tired after a long day and hailed a taxi to go back home. The taxi is called comfort and it is again owned by comfort delgro, similiar to the morning bus that you took.

Does this life sound familiar to you?

Throughout just that one day, you had used the service and products of the following 10 companies:

  • Comfort Delgro
  • SMRT
  • SPH
  • Singtel/M1/Starhub
  • Super Group
  • Old Chang Kee
  • Select group
  • Breadtalk
  • Wing Tai
  • CapitaMalls Asia



That's it. You have just found 10 companies without even looking at the stock price on SGX or any stock screens on your computer or TV. 
The good news here is: You can own a part of all the above companies. In just one day, you would have discovered 10 listed companies in Singapore if you had looked carefully enough. Some people would even have used the services and products of more than 10 companies in a day.

Think about it, wouldn't it be good that you can receive a part of the expenses you spend on back into your pockets? This is just like having rebates and discounts for the things you buy. In actual fact, when it is done correctly, you can even enjoy the things free of charge for many years to come. But hold on, you don't just go back and buy the company through your stock broker immediately. There's more to it. We'll get to it later. 

This is the power of investing. You can own a part of your everyday life!

Is it possible to get free products and services for many many years?

This idea of investing by looking at companies on the streets was introduced by Peter Lynch in his book "One up on wall street". He wrote about how his wife was commenting on how good a departmental store was and later on this company's stock price went up many many times. 

Let's look at some companies in Singapore which you might potentially have free stuffs for many many years if you've bought their stocks.


This is a company we're familiar with. I first heard of it as a bread that talks. They were rapidly expanding and more and more stores opened up. When the company was first listed on the Singapore stock exchange in 2003, its offer price was 24cents. Now the price is 90cents which means it has increased by almost 4 times. Putting it in numbers, this means a $5000 invested in 2003 will become $18,750 now. This is a profit of $13,750. How many breads can you buy with this money? The answer is around 9000 breads if each bread cost $1.50 on average.

Breadtalk Chart

Comfort Delgro

This company owns the popular comfort taxi, the comfort driving centre and 75% of the SBS buses that we take. What you may not know is this company not only operates transport services in Singapore but also other parts of the world. This includes, UK, China, Australia, Malaysia, Ireland and Vietnam. If you had bought their shares in 2011 at the low of $1.10, now you would have made almost double your money. A $5000 investment in 2011 will become almost $10,000 in 2013. This $5000 profit would have more than offset the many fare increases over the years. Maybe if everyone had invested in the transport operator and got dividends as well as profits, they wouldn't have complaint on the fare increase.

Comfort Delgro Chart

Old Chang Kee

Who would have thought that a small store selling curry puffs can be so successful today? They are literally seen everywhere in Singapore now. Don't you agree? Its share price in 2011 was 19cents at the low. Now, its share price is worth 80cents. That's a 4 times increase in about 3 years. A $5000 invested in Old Chang Kee in 2011 will become $20,000 today. That's a profit of $15,000. Curry puffs getting more expensive? Not to worry, that $15,000 can buy you many many curry puffs for many years ahead. Not forgetting dividends are still paid every year which means more free curry puffs. 

Old Chang Kee Chart

Wing Tai

As stated earlier, Wing Tai owns G2000 and the Uniqlo retail outlets. To be exact, Wing Tai owns 45% of G2000 and 49% of Uniqlo. It's shares was trading at a low of 73cents in 2011. Currently the price is around $1.80. That's a 2.5 times increase. The profits from the investment can buy you lots of office wears for work, winter clothes for your holidays and even your everyday casual wears. 

Wing Tai Chart

The Stock that went up 50 times

Super Group

This is the company that made the 3 in 1 instant coffee. I've read their success story somewhere before. Maybe i'll write up on its success story in another blog post. Now, this stock went up 50 times which means a $5000 investment in 2011 would have become $250,000 now. Who says there are no 50 baggers among Singapore stocks? 

However, to realised the whole value of the 50 bagger, you'll have to wait for 10 years. If you did not have patience to wait through 10 years and sell beforehand, it would most probability be a 4 or 5 bagger only. Some people may say its already very good!

Super Group Chart

Is it that easy to make money?

The profits listed above are exaggerated. The truth is very few people are able to buy at the bottom and sell at the top. These are just some examples of everyday companies which would have made you lots of money even if you did not buy at the bottom or sell at the high. The fact is investors do not try to buy at the bottom. They accumulate along the way as long as the company's fundamentals remain intact and outlook remains positive. Any weakness in the market itself presents an opportunity to buy more.

We've discussed on how to pick the companies on the streets. We've discussed on the free stuffs you can potentially get. Now the most important question is when do i buy them? Once you discover the companies, you should not just buy them immediately at the current price. The key is in finding the value of the company and buy at a discount to its value. This is what we call the margin of safety(MOS). This I will discuss more in depth after the Chinese new year holidays.

Research is important in investing. I've written a series of post on how to analyse a company based on its economic moats and its profitability. You can read it here:

  1. How to pick stocks (Part 1) - Economic Moats
  2. How to pick stocks (Part 2) - The profitability of a business

I have also written on how to read and interpret company's financial statements. You can read it here:

  1. Understanding financial statements (Part 1) - The income statement
  2. Understanding Financial Statements (Part 2) - The Balance Sheet
  3. Understanding Financial Statements (Part 3) - The Cash Flow Statement

In the next part of this series on buying the company on the streets, we'll evaluate how much a company is actually worth? Is it worthwhile to buy the company at the current price? How to buy the company at a discount? Stay tune!!

Read Part 2 of this series here: Buying the company on the streets (Part 2) - When to buy?

In the meantime, enjoy the Chinese New Year celebrations with good bonding time with your family and friends as well as all the good food. Here's wishing everyone a prosperous chinese new year ahead. May we HUAT(prosper) even more in the year of the horse!!

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  1. Few retail investors can hold winning stocks for very long.

    Read? When a Giant Gain Causes Pain

    So far, I only met one grand old uncle 80+ who held multi-bagger high yield APB for 3X years until it was taken private i.e. forced selling.

    1. Hi Uncle CW,

      You're right. When stock price goes up, we're scared it will drop back down so most people take profit too early. After we sell, the stock goes straight up. Then regret sets in. Lol

      If we can totally ignore the market noise and price movements, then it will be possible but humans are prone to emotions.

    2. Hi Uncle CW,

      Buying during a crash is what most people know and say they would do. But in the end many people don't do that and then regret again. Those who invested a lot during the crash certainly were richer now.

  2. HI SGYI

    A very well informed and articulated article.

    Not forgetting when you draw cash from the ATM from the three Major Banks in Sg ( UOB , DBS , OCBC ) to pay your goods /stuffs/bills. :)


    Small-Time Investor

    1. Hi Small Time Investor

      If we've bought the major banks during crisis, it would have been a very good investment too. DBS used to trade at $6 and OCBC at $2 if im not wrong.

  3. Hi SG YI

    I enjoyed this post very much. It's kind of reminding us we are being surrounded by many day to day companies that are operating within us everyday.

    One thing that can be bad though is that people may buy without doing sufficient FA on the company. For e.g I've heard many people who said that they would buy SMRT simply because it won't collapse. Hmm, so people invests not to make returns but just to ensure that the companies they purchase won't collapse!!??

    1. After X or XX years, Return of Capital via dividends collected (aka payback) and thereafter enjoying the fruits of free capital.

      Bad idea?

    2. Hi B,

      Oh yes, many people jump in to buy without doing sufficient research. I hope I did emphasise enough that we don't buy the stock immediately once we discover them.

      I guess many people do not know how to exactly research on a company. There are just too many financial terms, accounts, management policies to look at. On top of that still have to consider is the company risky in terms of its debt, are they making good use of the debt, is the debt hedged against interest rate or currency risk etc etc. Not many people can comprehend all these and it takes months and years to learn it. Not forgetting we have to analyse the economy as a whole also so knowledge of economics is also needed. With all these, I think most people just rather settle for the easy way out to buy companies that won't collapse ie owned partly by the government.

    3. Hi Uncle CW,

      Somehow its true. A company that won't collapse still pays dividends. If we invest in it long enough, we would have got back our capital. However its takes more than 10 years I guess. The good thing is if we keep on buying at different prices averaging down, the chances of losing money after 10 years is almost 0.

      Another safer and easier way is to buy the index. Straight away own the 30 largest company in Singapore. How to lose money if you keep buying for the past 10 years?

    4. Buying index means outsourcing.

      Outsourcing means paying someone salary as overhead.

      In the long run, does it make more "cents" (sense) for us to DIY and pay ourselves these overheads.

      They said every cents count. No?


    5. Hi Uncle CW,

      That's why its easier. Companies outsource so they don't have to manage the stuff also? Easier means lesser return. DIY harder so more return.

      I guess it depends on what we want. More work, higher return or less work, lower return?