Who would have thought that stock markets in 2019 would have turned out the way that they did?
Instead of being on the back foot, as many had predicted, most shares around the world ended the year higher than at the start. That is despite persistent expectations of a global recession caused by a pointless and un-winnable trade war between America and China.
Prophets of gloom
If there is one thing that we have learnt from the sorry episode, it is that trade wars are not easy to win. Admittedly, China’s economic growth rate has slowed. But so too has America’s, which emboldened the prophets of gloom.
What’s more, many risk-averse investors, have been tempted, if not badly advised, to jump in and out of the stock market on the flimsiest of news. Analysts call it a risk-on, risk-off strategy. They have a catchy name for just about everything.
Hunting for grubs
But investors would have been better off ignoring the unreliable White House tweets and focus instead on the things that matter. That means continually looking for good companies to invest in.
Warren Buffett said that games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. That is something that my column in The Business Times believes in, passionately.
Over the course of 2019, it has looked at a couple of hundred companies in nearly a dozen different sectors. They include airports that cater to the growing number of global travellers, hospitals that treat the infirmed, defence contractors and even pawnbrokers.
Looking for gems
Point is, the stock market can be an exciting treasure-trove for those who are prepared to spend time to do some digging around.
Of course, not everything that we unearth is a gem. But as Peter Lynch pointed out, searching for companies to invest in is like looking for grubs under rocks. If we turn over 10 rocks, we might find one grub. But if we turn over 20, we might find two. Consequently, one of the most important jobs of any private investor is to continually look for interesting companies both here in Singapore and overseas, too.
One of the more interesting “grubs” that we dug last year was Airports of Thailand. Every $100 invested in the airport operator would have turned into $125. A 25% return in one year is hardly trivial.
Perhaps it has been the increase in the number of durian-loving Chinese tourists travelling to the Land of Smiles, or maybe it has been the increase in the number of inbound Indian tourists that have helped to boost the performance of the airport company.
Whatever the reason, Thailand in 2019 has exceeded last year’s record for foreign tourist arrivals. That has enabled the airport operator to continue delivering double-digit returns on equity. It has also outpaced many of its peers in delivering above-average revenues on every dollar of asset that it employs in its business.
Going for broke
Another sector that has done well this year has been stockbrokers. That is not entirely surprising, given the way that stock markets have behaved this year.
The increase in stock-market volatility has, understandably, led to increased trading activity. And every time we buy and sell a share, brokers earn a bit more commission from us.
Some of the best performers in the stockbroking sector this year have been Chinese brokers. They have delivered total returns of between 30% and 60%, which is remarkable.
But that is perhaps a sad reflection of the way that many Chinese investors treat the stock market. They think of the Shanghai and Shenzhen stock exchanges as giant casinos.
Run of the cards
Speaking of casinos, many Macau-based gambling resorts have had a good run in 2019. But that was not the case until China praised the former Portuguese colony for its patriotism towards the motherland.
That gave the likes of Wynn Macau, SJM Holdings, Galaxy Entertainment and Sands China a welcome fillip towards the end of the year. It probably also means that China could encourage more mainland tourists to visit the city at the expense of shopping trips to Hong Kong.
Looking for pawn
Wherever we find casinos, pawnbrokers are often not too far away. They exist to provide short-term financial assistance to people who face immediate cash-flow problems.
Pawnbrokers had a good year in 2019, with Singapore’s three listed lenders, namely, Maxi-Cash (Catalist: 5UF), ValueMax (SGX: T61) and MoneyMax (Catalist: 5WJ), delivering an average total return of around 11%. Intuitively, we would expect pawnbrokers to only do well in economic downturns. But they can do well regardless of economic conditions.
That is something we should be aware of as investors. Many companies can perform well in both good times and bad. So, as we look forward to the new decade, we should learn to put our trust into good managers rather than dubious politicians.
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A version of this article first appeared in The Business Times.
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Disclosure: David Kuo does not own shares in any of the companies mentioned.