I was having coffee with an investment banker friend recently who told me that a fund manager shared with him that we live at a time when it’s really difficult to invest.
Why?
No he wasn’t referring to the stock market turmoil we’ve been seeing in the past year or anything short term. What he said was:
We live in a time when everything is being disrupted. Traditionally bluechip and safe companies to invest in are being threatened by startups or technology that never existed 10 years ago.
While digesting his statement I started listing the type of industries that people twenty years ago would say “You can’t go wrong if you invest in this” and just really anecdotally started looking at how those industries are doing. Note that this is not a research piece but really my personal thoughts based on anecdotal observations and articles I’ve read.
1) Oil and Gas
About 3 years ago my Dad told me to invest some money into Keppel Corp. It’s one of the bluechips listed on the Singapore Stock Exchange and a huge company. It’s involved in some property but it’s main core business is oil rigs. My Dad told me that they pay a good dividend and it’s a really stable stock.
That was 3 years ago. Since then we’ve seen the emergence of shale oil coupled with slow demand ago. The end result… well a little more than a year ago, oil prices came crashing down. From a time where analyst were predicting $150 per barrel of oil down to $28 per barrel this year. Just about every oil and gas company has been hurt by this with mass layoffs and retrenchment going on. If I had invested in Keppel then (or many other oil and gas companies), I would have lost about half my money.
2) Commodities
A few years ago the world experienced a commodities boom. If you had a mine somewhere, a palm oil plantation or was in any of those upstream businesses you’d be making bank. Much of our South East Asian economies are commodity based so the commodities boom created a lot of wealth for some really rich families. Just like oil, today commodity prices are low. I know of people who planted their palm oil trees some few years back and are now getting a lot less of a return than they expected.
Commodity companies are now going through a similar phase like oil and gas companies with no end in sight.
3) Telecommunications companies
There was a time where telecoms were the safest companies to invest in. Each country had licenses limited to a few players. Plus there was growing smartphone penetration. How can you go wrong?
Well it turns out you can. Today many telcos around the world have reached a saturation point in terms of new subscribers and average revenue per subscriber they can pull. Add the increasing competition and it makes their business environment a little harder.
The telcos that have dropped the most in value are in Thailand where the government just auctioned off spectrums (effectively licenses) and a new player had entered the market.
4) Casino companies
“The house always wins”. That used to be the case when we look at casino companies. How can you lose money as a casino. Well it turns out that you can. In Macau, home to the largest average bet per person the Chinese government has been restricting casinos. Cutting down the tables each casino is allowed to open and limiting gambling tourists from Mainland China. On top of that is the huge corruption crackdown that is taking place effectively scaring off a number of high profile gamblers from China. Casino stocks too are down from a year before.
5) Tobacco companies
This is one area that hasn’t really been battered down compared to the rest just as yet. Heck tobacco companies have been making bank for decades (maybe even centuries). Who would imagine that people might slow down with their cigarette buying?
Well in Malaysia I’m beginning to see that. Almost every smoker I know of in my office has converted from smoking cigarettes to smoking vape. All around KL I’m seeing more and more vape stores open and heck even a family member of mine has started an online store that sold vape stuff called Please Vape Me.
When you look at the stock prices from major tobacco companies they don’t seem to show as much of a weakness yet plus I hear that they’ve been getting into vape themselves. But hey… who would have imagined that cigarettes would ever be disrupted.
We live in a world now where “safe companies to invest in” are no longer safe. Market conditions change rapidly like never before and multibillion dollar companies attract disruption in its own industry and I can see why it’s harder and harder to pick the winners to invest in.
I can understand what the fund manager meant by his statement. We live in really uncertain times but if you flip it around… you can also say we live in a time of opportunity. The opportunity to disrupt.
Timothy Tiah – Co-Founder of Colony, Kuala Lumpur Co-Working Space