Develop Your “Capacity” to Suffer

Not every day is a sunshine day for investors. There were days where my portfolio look like crap and it is crap for 1 – 2 months. Assuming I did my research, does it mean that the companies I bought are crap? Absolutely not!

The markets are always filled with ups and downs. If you cannot withstand the downs, you don’t deserve to enjoy the ups.

A good friend of mine sent me these photos which he had gotten from Twitter. The photos do not belong to me and I do not claim any credit.

All of us know Facebook. We know Facebook is a multi-bagger that compounded huge value for its shareholders. While that seems really glamourous, how many of us could have the patience and the “capacity” to suffer along the way up? You’ll see, from 2012 to 2017, FB’s value has grown over 350%. What most investors do not notice is, along the way, there were many occasions where the share price corrected 20% or more. For an new investor, that is going to shake the nerves out of him/her. Yet, for those who are convinced about Facebook’s business model will hold on to the shares and enjoyed the subsequent upsides.

Do note that a 10-20% decline is absolutely normal in the stock market, and it does not suggest that your business is deteriorating.

Monster Beverage’s value compounded from 1995 to 2016 in a massive way. It is a 100-bagger. The same story played out. In various time periods, you would see its share price correcting even more than 40%!

Develop your “capacity” to suffer. This applies to companies which you’ve done your research correctly and they fit your criteria for investing.

How about companies? Do they develop their “capacity” to suffer as well? Absolutely!

Check out this Morningstar article written by Larissa Fernand on Tom Russo,

Russo applies this phrase – the capacity to suffer – to businesses too, when they choose to invest in growth which hits profits temporarily. He explained in an interview with Guru Focus a few years ago. When you invest money to extend a business into new geographies or adjacent brands or into other areas, you typically don’t get an early return on this. That means they have to have the capacity to suffer.

I do know that Bursa-listed IQ Group is branching out to create their own branded lightning products to mitigate their dependence of their OEM business. As a direct result of new start-up costs and resources management, the earnings plunged and the share price corrected in a huge way. Its directors and senior management bought back shares into the business.

There were some product delays too. Moving forward, IQ’s own brand, Lumiqs, will be launching a new range of products. They are also shifting their manufacturing facility to China to drive significant savings, boosting their financial performance from FY2020 onwards. Adjustments to IQ’s R&D were made to improve the speed of product development as well.

Can IQ Group choose to stay with their OEM and grow its profits? Sure, but their business would be restricted to a lower-end profitability. To do things different and grow for the long-term, it takes courage, determination and uncertainty. I view their move into Lumiqs as a positive one. It takes time to pan out.

Companies have to develop their “capacity” to suffer too.

To end off, I need to caution against the assumption that everything will be okay. It is important to differentiate temporary investments to grow the company and temporary losses due to market sentiments. You should not believe that things that go down will always come up.

The author has no vested interest in Facebook, IQ Group or Monster Beverage.