Author: William Dai

Note: a “Tenbagger” is a stock having increased ten times of the initial value for an investor. The term was created by Peter Lynch, the most successful fund manager in the world.

Nothing is better learning experience than a real story. I bought Tencent shares at around HKD150 per share in 2009 to 2010. After the 1 to 5 share split, my initial buying prices on average became HKD30.59 per share based on the records from my brokerage firm. I sold all Tencent shares at HKD343.04 in Oct 2017, making 11 times of my initial investment from 8 years ago. So it’s actually a Elevenbagger! It was my biggest holding and most successful investment.

Why did I buy it?

When I initially noticed Tencent, it had not created Wechat. At the time, most of people in China, not to mention worldwide, never had heard of Tencent, including myself, but knew QQ well. My guess was that at least half of the population using a PC in China used QQ on daily bases. They used QQ to chat on PCs. Why only half of the population used it? The other half was using MSN messenger and most of them were white collar workers, working in multinational companies in tier one Chinese cities. They even looked down on people using QQ, who worked for local Chinese companies, or worked as blue collar workers, owning less income, living in smaller cities.

Continue reading “My 2nd Tenbagger – The Tencent Story” →

The most recent news in financial world is “Warren Buffett’s Berkshire Hathaway had $111 billion of cash on its balance sheet at the end of last quarter, the most in the company’s history.” This also implies that almost all investors using Warren Buffett’s way of investment have made lots of money in the past few years.

This is surely good news. However, holding so much cash is definitely an opportunity lost and Mr. Buffett knows it very well. That’s BAD news. Obviously, Mr. Buffett and his team have been thinking that everything in the finance market is too expensive. They have been holding on their cash for quite a while. Mr. Buffett said in his annual letter back in February, saying the lack of attractive pricing “proved a barrier to virtually all deals we reviewed in 2017.”

In a way, this is good news for Valuebay. We are not alone at least.

I bought iRobot at $30s and sold about half of the shares hold at over $100. I regret that I failed to sell them all. Even after iRobot’s dropping about 40% from the top, I am still hesitating whether to go back into the game with more investment because I am not sure whether the company can defend their leading position in the long term. It seems that many companies can make a robotic vacuum cleaner now.

Here is an excerpt from a brilliant article that Warren Buffett penned in Fortune in November 1999, “Mr. Buffett on the Stock Market:

All told, there appear to have been at least 2,000 car makes [operating at one time or another in the U.S.], in an industry that had an incredible impact on people’s lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, “Here is the road to riches.” So what did we progress to by the 1990s? After corporate carnage that never let up, we came down to three U.S. car companies–themselves no lollapaloozas for investors. So here is an industry that had an enormous impact on America–and also an enormous impact, though not the anticipated one, on investors.

I won’t dwell on other glamorous businesses that dramatically changed our lives but concurrently failed to deliver rewards to U.S. investors: the manufacture of radios and televisions, for example. But I will draw a lesson from these businesses: The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.

With iRobot’s shares’ PE over 30, the risk is high even in the short term.

There will be an inevitable crash in the Chinese economy. China to exceed America in economic power under current totalitarian communist regime will only happen in the dream of ignorant people. I totally agree with Mr. Buffett that “America’s economic magic remains alive and well.” Buy America. Avoid China.

The following is another chance to learn from Mr. Buffett.

Continue reading “Buy America & Avoid China” →

It was almost end of October, 2002, when I bought the book “One Up On Wall Street” and learned the term of “Tenbagger” which was created by Peter Lynch, the author of the book. I said to myself, “Woo, that’s wonderful.” And then forgot about it.

It was in March 2004, when I noticed a Singapore listed company named “Raffles LaSalle Limited” (The name was changed into “Raffles Education” later), which specialized in creative design education. The Company owned and operated a network of private technical schools that focuses on creative design like fashion, interior, graphic, product and multimedia design with supporting business administration and language classes. The Company had ten schools in Asia with six in China and one each in Singapore, Malaysia, Australia and Thailand. The Company also planned to double the number of schools it operates by 2006 with much of the expansion in China.

Its financial figures were perfect with growth of revenue at 56.7% in the latest half year report and profit growth at 139% respectively. Its ROE were over 40% with no debt. With such high growth, it even gave a dividend with 2% yield in the latest financial year! The operation cash flow was healthy and capital expenditure was about 20% of free cash flow. The stock is not cheap with PE around 50.

Continue reading “My First Tenbagger” →

I always regret that I did not buy Google Shares at its IPO, when it was about $85. It’s now $571, almost 7 times of the IPO price 8 years ago. I was using Google for searching all the time and believed that it dominated the searching business and was doing the right thing on almost all the aspects. The only reason I did not buy is because Warren Buffett doesn’t buy technology companies whose value are difficult to estimate. He also doesn’t invest at companies whose track record is not long enough and whose business not easy for him to understand. While I do understand Google‘s business at the time with my IT background, Google didn’t have much track record and the growth of it business was indeed hard to project. Therefore it’s difficult to estimate its value.

Indeed, it perfectly all right to miss the opportunity to buy Google at its IPO based on Buffett’s way. However, no investor should rule out technology companies from his investment portfolio in this era, because these are the companies which generate high returns and high growth year after year, such as IBM, Google, Apple, Oracle, Microsoft (though slower growth now for some of them) and so on. Certain type of IT business is not too difficult to understand, as the companies I mentioned here. The real challenge is the projection for future growth, which affects the valuation of the stock. Due to the quick change of technology landscape, it’s indeed not only difficult to predicate the growth of a company in this area, but also the success or failure of such company. A good example is Research in Motion which had a serial of very successful products, BlackBerry phones, until Apple’s iPhone came to the market. On the other hand, will Apple continue its success for long? It’s very hard to predict.

Continue reading “Reflection on Buffett Way – Technology” →

Dolby surged 17% on the news of revived Windows 8 deal with Microsoft. It doesn’t really matter whether or when such deal happens. Dolby as a matter of fact, is providing the more effective and efficient solutions than its main competitor, DTS (“Dolby vs DTS Surround Sound”). When there are more devices on the move and more contents delivered via Internet or from the cloud, efficiency, which means delivering same high quality sound with less bandwidth, matters more. No matter what devices people are using, they surely want to hear high quality sound. Dolby is the obvious choice. It’s the user experience matters most in the entertainment industry. And Dolby just has the right product.

Besides the technical advantage on the efficiency, Dolby is also moving ahead at all fronts. Dolby wins naming rights to Hollywood icon only a few days earlier before the date they stroke the deal with Microsoft. Last month, Dolby Laboratories, Inc. (NYSE: DLB – News) and Royal Philips Electronics (NYSE: PHG; AEX: PHI) unveiled Dolby® 3D, a 3D HD format and suite of technologies designed to deliver full HD 3D content to 3D-enabled devices, including glasses-free displays. Dolby 3D is being demonstrated at the NAB Show® (April 16–19, 2012) at booth SU1212. Not to mention Dolby Atom, also announced last month by Dolby, is the most significant innovation in years and represents the future for entertainment sound in cinema.( “Dolby Atmos Is the Future of Entertainment Sound”)

I never doubted that Dolby is one of the ideal companies an investor can find in this world. (“Dolby Lab Is on Sale“) When Dolby’s share price dived last year, I bought more. I thought it will take longer time to bounce back. It now seems coming back beyond my expectation.

We all know the famous story of Levis Jeans. (http://inventors.about.com/od/sstartinventors/a/Levi_Strauss.htm) When the California gold rush was in full swing in 1853, Levi Strauss invented Jeans, which satisfied the demand of miners who wanted strong lasting pants.

Now, it’s the web gold rush. Companies (Apple, Microsoft, Amazon, Google, YouTube, Netflix and etc.) invested billions of dollars in smart phone, Internet TV, web games, cloud computing, video streaming and so on. All these businesses have to deliver their content or services via networks. Cisco predicts that the number of network-connected devices will be more than 15 billion, twice the world’s population, by 2015. In the fifth annual Cisco® Visual Networking Index (VNI) Forecast (2010-2015), the company also said the total amount of global Internet traffic will quadruple by 2015 and reach 966 exabytes per year. With this projection, the industry needs strong lasting networks, which mean scalable, liable and easy to manage networks.

Continue reading “Infinera, the Jean Maker in Web Gold Rush” →