I've always wondered why everybody likes to invest in tech shares. They can be multibaggers, but returns from non-tech shares are many times just as good, if not better. Most importantly investors in older, staid companies usually don't have to worry about product obsolescence as much - or as quickly - as in tech companies (think Blackberry and HTC).
An example is Taiwan. It has some of the most cutting edge and best tech companies in the world. Almost everybody I know in Taiwan is somehow involved in it. However returns from non-tech shares have many times been higher as I show in the re-posted article below.
The article below was originally published on Quamnet.com in February 2015, but it has since been removed from their site. It's one of my better observations and one that I don't want to lose sight of. I've written in the past that profitable investments are typically found where others are not looking and this is in the same vein (see here).
The reminder that I wrote this came from a recent Quartz article that points out that since they both went public in the summer of 2004, non-tech Domino's Pizza has returned 2,400% which is a bunch more than tech high-flyer Google's 1,555% (see here).
Finally, here's the article:
I was in
Taipei the week before the Chinese New Year. I’m a big fan of Taiwan. Nice
people, clean cities, good infrastructure, and I can practice my bad Mandarin
on unsuspecting taxi drivers.
I can
also talk about Taiwanese stocks with locals who closely follow the market. Most of this centered on which Taiwanese
companies will do well by supplying to Apple. Several felt that TSMC will take
core chip supply contracts from Samsung. Others speculated on how much of
Apple’s new products will be manufactured by Hon Hai/Foxconn. Not many were talking about UMC on the latest
trip, but around 10 years ago it seemed like it was all about the two fabs (i.e. the two large semiconductor manufacturers in Taiwan- United Microelectronics and Taiwan Semiconductor Manufacturing).
Nobody
mentioned some of my favorite Taiwanese companies – Hotai Motor, Giant
Manufacturing and Taiwan FamilyMart. I’ve
been a fan of them since my 2005 research trip to Taiwan when equities there
were not so expensive. At that time, very
few people were looking at these companies and I could easily arrange
management visits and factory tours.
All of
them operate fairly straight forward businesses. Giant manufactures and sells some of the
world’s best value bicycles, Hotai distributes Toyota and other vehicles, and
Taiwan FamilyMart owns and runs convenience stores throughout the island.
They all
had pretty similar characteristics when I looked at them in 2005. Good dividend yield, a net cash or low debt
balance sheet, a simple shareholding structure with organic rather than
acquisition-led growth. They fit into my
people, structure and value model that I’ve been developing over the last
several years (although looking back they were a bit more expensive than what I
typically like).
None of
them are tech companies. None of them were followed by more than a handful of
analysts. None of their CEOs or owners
were in the press. None of them had
secondary or overseas listings.
However returns
of all three of these low-tech boring companies have outperformed the
highflying tech and electronics firms that were so popular back then. Hotai’s
10-year total CAGR was 32.1%, Giant’s was 26.1% and Taiwan FamilyMart’s
was 19.5%. The average CAGR of the three was 25.9% which means that an investor
would have doubled their money every 2.8 years by holding an equal weight in these
stocks and collecting dividends.
Holding three
of the more popular and biggest companies in Taiwan 10 years ago would not have
led to as good returns. Holding a basket
of TSMC, UMC, and Hon Hai and collecting dividends would have left one with an
average CAGR of 8.6%. This means that an
investor could have made 17.3% more every
single year on average by holding the boring stocks rather than the
exciting, cutting-edge ones.
In
addition to their low-profile management the three companies share another
classic characteristic. All three
directly sell to end consumers. This is
in contrast to many high-tech firms that sell their products to other
manufacturers or branded product companies.
Apple’s customer ownership and very high margins means that their
suppliers operate on thin margins.
Taiwan equities
today are not as inexpensive as they were in the mid-2000s. While Taiwan is not as expensive as other
countries in Asia such as Indonesia and the Philippines, there are few
companies in these later two that are trading at valuations I consider attractive.
It’s fun
to read about and imagine the wondrous things that high-flying, cutting-edge
technology companies can do for us. But
– as for profitable investing in Taiwan and elsewhere – it pays to look where
others don’t.
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