A troubled industry can offer investment opportunities.
In 2010, the Icelandic volcano Eyjafjallajökull erupted after laying dormant for 180 years.
As volcanic ash filled the air, over 100,000 flights were grounded, leaving over 10 million passengers stranded.
In response, investors sold off shares of Booking Holdings (NASDAQ: BKNG), formerly known as Priceline, sending the stock down by over 30 per cent in a matter of months.
With air travel cancelled, investors reasoned that hotel bookings, which are Booking Holdings’ bread and butter, will suffer.
But I disagreed and did the opposite, picking up shares when it fell in 2010.
I reasoned that vacationers can still get around by trains. Or a bus. Or simply taking a longer drive in their cars.
In hindsight, I am glad that I found the courage to buy shares at US$199 per share a decade ago. Those shares, which I still own, are worth around 10 times what it was back then, performing far beyond my expectations.
Hotels, flights, cars and more
Booking Holding owns hotel booking sites such as Booking.com, and Agoda.com.
Over the past decade, the company has grown beyond its roots to offer a wide range of travel-related services, including car rentals, flight search, and restaurant reservations.
Booking Holdings has also extended its reach past its European home ground to buy stakes in fast-rising companies such as Trip.com Group (NASDAQ: TCOM), Didi Chuxing and Grab.
Today, Booking Holdings is a behemoth with more than 28 million accommodation options listed on its site, stretching to over 230 countries in total and delivered in 40 languages.
Late to the winner’s party
Prior to my purchase, shares of Booking Holdings had already risen by more than five times since the start of 2002.
In short, even when I bought in 2010, I had missed out on a large part of the stock’s past gains.
I didn’t get the lowest stock price in 2010 either. In fact, the stock price proceeded to fall more than 10 per cent after I bought shares.
But all of the usual hand-wringing over stock entry prices didn’t matter in the end.
Your investing moves can never be perfectly timed. The returns that I got demonstrate that even sub-optimal stock entry prices are able to deliver vastly satisfying returns.
Clearly, the quality of the company matters more.
Disruption for good
Today, many industries are facing disruption.
But the term ‘disruption’ is a misnomer, in my view.
Disruptive companies often succeed if they bring a better way of doing business that is better for consumers too. In the process, they move the industry forward to a better place, far from being ‘disruptive’.
This is the case for Booking Holdings.
Booking.com is widely credited for popularising the agency business model where hotels get to set their own pricing and travellers pay only upon check-out.
Prior to that, online travel agencies preferred the merchant model, where consumers had to pay up-front. Hotels, on the other hand, had to offer big discounts to the online sites.
In simple terms, if you were a traveller, which would you prefer? To pay upfront or to pay upon checkout? I wager that it would be the latter.
Breaking the rules
In many ways, Booking Holdings defies common investor beliefs.
For instance, some investors believe that big returns are only possible from small companies that are relatively unknown.
In my book, nothing could be further from the truth.
When I bought shares of Booking Holdings, it had a market cap of over US$8 billion, far from being a small company. And with a popular site like Booking.com, the company is neither hidden nor unknown.
In short, Booking Holdings has shown that big returns can come from large companies that are well-known.
Today, Booking Holdings is worth over US$80 billion dollars. That’s huge.
But context matters.
The size of the worldwide hotel bookings market is estimated to be US$1.7 trillion. To put things into perspective, Booking Holdings processed around US$95 billion in hotel bookings over the last twelve months, accounting for less than 6% of its total addressable market.
In effect, its business is still small in relation to the size of its industry.
Learning about a company does not end after you buy its stock.
Over the past decade, my knowledge of Booking Holdings has deepened considerably.
For instance, I learnt that Booking.com is recognised as the industry leader in converting traffic into sales, doing it two to three times better than the industry average.
I also appreciate the company’s culture. Booking.com is intent on letting data decide on the best way to serve its customers. In the process, the company explicitly discards what it terms as HIPPOs (highly-paid person’s opinion) which it has proven, through data, to be not as effective.
Today, I continue to learn new things about the company. You should do the same, with the stocks that you own.
When the wheels come off
Disruptors are often keenly aware that while they start off as disruptive to the incumbent — they can, in turn, be the ones being disrupted as they take the lead in the industry.
The travel industry continues to evolve as new companies come up with new ways to improve customers’ experience.
AirBnB, for instance, is showing that alternative accommodations, such as homes and apartments, can offer a different option for travellers to stay and experience a country.
Meanwhile, electric-based Blue SG cars in Singapore offer a car rental model based on minute-by-minute usage rather than the traditional day-based rental model.
As investors, we have to be aware of the changes happening in the industry where today’s disruptor can become tomorrow’s disrupted.
Get Smart: A Seat in the Front Row
A side-benefit from investing in disruptive companies is that you earn a front row seat in seeing how an industry changes over time.
Learning more about the Booking Holdings is hardly a chore for me as an investor, as the changes that the company brings to the industry and cities around the world are often exciting and positive.
So, whoever said that investing had to be boring?
My experience informs me that you can earn handsome returns while enjoying a ring-side seat to the world’s most interesting, market-beating companies.
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Note: An earlier version of this article appeared in The Business Times. Chin Hui Leong owns shares of Booking Holdings.