Investor Quote of the Week

Quote Meaning

Imagine Sarah, a beginner investor, is excited to start her investment journey.

She hears about a hot new tech stock, TechTrendz, from a friend and decides to buy some shares without much thought.

Initially, Sarah is thrilled as TechTrendz's stock price rises rapidly. However, a few months later, the stock price started to drop significantly.

Panicked and unsure of what to do, Sarah realizes she doesn’t really understand what TechTrendz does or why she invested in it in the first place.

Determined to avoid such a mistake in the future, Sarah starts to research companies thoroughly before investing.

Next, she looks into GreenEnergy Inc., a company she’s interested in.

Sarah learns that GreenEnergy is a leader in renewable energy solutions, with solid financials and a strong growth outlook due to increasing global demand for sustainable energy.

She understands the company’s business model, competitive advantage, and future potential.

Sarah’s reason for investing in GreenEnergy is clear: she believes in the long-term growth of the renewable energy sector and thinks GreenEnergy will be a major player.

This aligns with her goal of making socially responsible investments that can grow over time.

Months later, when the stock market experiences volatility, Sarah remains calm.

She is confident in her investment because she knows exactly what GreenEnergy does and why she chose it.

Her informed decision-making helps her stay focused on her long-term goals, rather than being swayed by short-term market fluctuations.

Through this experience, Sarah learns the importance of knowing what she owns.

Nugget of Wisdom

Good companies can make bad stocks.

What!?

You see, in the world of investing, you can have great companies:

High profit margins, big competitive advantages, and high sales growth per year.

However, the company might be a bad stock, meaning that even over the long run, the fundamental value of the company does not correlate with the stock price.

This means you could be holding the bag for a long time, expecting a turnaround that probably won’t happen in your lifetime.

Why is that?

Good companies and bad stocks typically stem from these core factors:

1. Business in a country with a stricter government

2. Majority-owned family businesses

3. Low-float stocks

Let’s go through each of them now.

1. Business in a country with a stricter government

Companies operating and listed in China, Indonesia, Eastern Europe, and other regions

Government policies can be stricter, and international investors may not understand a foreign country's full regulatory landscape or government goals.

For example, a few years ago, the Chinese government cracked down on Chinese e-education companies that were listed.

This rendered their business irrelevant overnight, as the government has the final say on what a company can or can't do in China.

The government did this so that families from poorer households (who can’t afford private tutoring) were able to compete fairly with richer households that could send their children to private tutors.

Here's what happened to a fast-growing company in that industry right after:

The stock got decimated and the company never fully recovered from its previous high valuation.

2. Majority-owned family businesses

These are typical East Asian businesses.

Think of the Philippines, Indonesia, Hong Kong, etc.

The family owns the majority of the shares and has final say over the direction of the business.

Share volume is often low for these family businesses, resulting in investors having big issues offloading shares without moving the stock price in large percentages (even if you invest as little as $500 USD).

The company is public because the family wishes to boost their "status" or simply inform their peers that they own a "listed company."

This can cause stock valuations to drop like rocks.

3. Low-float stocks

These stocks are listed companies, but only a small percentage of their shares are available to the public (i.e., publicly listed shares).

This can cause significant stock price swings, and sometimes insiders who own the majority of these companies (via private shares) will toy with the stock price to trade in and out.

This happens a lot to penny stocks listed in the US, with “fluff” news used to push up the publicly listed shares because of such a low float.

Big companies can also have lower floats, like Sunpower (see below).

Mistakes to Avoid

Listening to analysts.

You would think they knew everything.

But they really don't.

Otherwise, they'd all be retired, flying business class instead of taking the subway to work.

I’ve been around the block long enough.

Always do your own research (DYOR).

Analysts, in my opinion, are usually what I call “followers.”

They “follow” stock prices because they don’t want to be wrong.

They also rarely issue “sell” ratings, only “buy” or “hold,” because they work for a bank that makes money off trading volume from investors.

An analyst's 100-page research report shouldn't deceive you.

It’s usually bullsh*t and a bunch of mumbo-jumbo.

Common sense and quick thinking can sometimes lead to the best investments.

For example, quick thinking got me buying Meta in November 2022 for less than $100 per share. 

It's now over $500 per share.

I never listen to analysts or talking heads on TV. You can put them on mute.

Stock of the Week

Hershey Company (Ticker: HSY)

Company Description

The Hershey Co. engages in the manufacture and marketing of chocolate, sweets, mints and confectionery products. The firm operates through the following geographical segments: North America and International and Other. The North America is responsible for the traditional chocolate and non-chocolate confectionery market position of the company, as well as its grocery and snacks market positions, in the United States and Canada. The International and Other segment includes the combination of all other operating segments, including those geographic regions where the company operates outside of North America. Its brands include Hershey's, Reese's, and Kisses. The company was founded by Milton S. Hershey in 1894 and is headquartered in Hershey, PA.

Profitability Metrics

5-year average EBIT margin: 22%

5-year average net-income margin: 16%

5-year average return on equity: 64%

Growth Metrics

Revenue growth 5-year average (year-on-year): 8%

EBIT growth 5-year average (year-on-year): 9%

Aquarius Investments Premium

I’m starting the Aquarius Investments Premium Newsletter.

I'm investing over $30,000 of my own money.

Why? 

I aim to demonstrate my approach to investing and choosing securities.

Your investment? Just $19.99/month!

You get the following benefits:

• Valuable Lessons from 15+ Years of Experience

• Exclusive Access to a Real $30,000 Portfolio

• Exceptional Value for Money

• In-Depth Investment Strategies

Learn how I allocate the $30,000 to individual stocks as a professional investor and understand the research behind each investment.

This is a real portfolio to show how long-term investing actually works.

If you’d like to subscribe, click here.

Talk soon,

Sam