The Best Way To Cut Through Information Overload In a Volatile Market

Before coming to Portland, I was initially quite apprehensive as the news featured incidents of shootings and a rising population of homeless people.

When I finally arrived, I realised it wasn’t half as bad as what the media has been portraying it to be.

In fact, Portland is an incredible city to live in. The locals are friendly, the neighbourhood has beautiful greenery, there’s a ton of great food, and everything is very accessible.

This reminds me of how investors can be easily misled by reading headlines, instead of digging deeper to figure out more.

Back in 2020 when people were restricted to dine out due to covid-19, we thought our software company focusing on quick-service restaurants (QSRs) would be hurt badly. The assumption was that most of its customers (Carl’s Jr, etc) would see a significant decline in revenue and, as a result, would not be able to fulfil the software payments.

It was only when we visited US that we realised how different it is from Singapore. The QSRs in US have a lot of curb-side pick-ups or drive-thrus. These modes drive more sales compared to walk-ins. This meant that our original thesis was wrong. Those QSRs were doing well and sales were not hurting as badly. The stock promptly recovered, aided by easy monetary policies, and the stock went up by >300%.

On this trip to the US, we visited one of our companies that fell more than 50% in the latest stock market correction. Comparing what we observed on-site at the company versus what investors were describing the business on the internet, we saw huge differences. While admittedly there were some concerns, the situation wasn’t as bad as what was illustrated on the web.

So clearly, making assumptions and outsourcing due diligence is incredibly dangerous. They cause us to make wrong mistakes such as selling too early or buying the wrong stocks.

On this topic, we’re also concerned about how people are affected by inflation. The USA government published the inflation rate as 8.5%, but how exactly are they measuring it? Or what kind of numbers do they want to show to the public?

Most people in the US we spoke to felt that prices were increasing by 15-20% instead. Car gas is a big factor in the US. Unlike Singapore, they do not have a robust transportation system. Most people drive to work, with some travelling long distances. This cost would add up over time. It’s probably a contributing factor as to why most people in the US are less inclined to return to the workplace, preferring to work from home instead.

I also joked with other investors about how Costco is trading at crazy price multiples of 44x price-to-earnings ratio, while a dominant technology company like Google is trading at less than 20x.

It’s not hard to understand why. When things are getting more expensive, more people will compare prices to save money. One of the places where you can get a bargain for your money is Costco. This means that more people will pick Costco to shop at over the others during this inflationary climate. 

During this period where macro-economics brings so much uncertainty, Costco is certain because it is a consumer staple business. Everyone is crowding Costco. That’s how the crowd is thinking.

But whether or not Costco is truly a good purchase for long term compounding, I have my doubts.

Overall, Portland is a wonderful place to visit and we made many new friends. I would love to come back again.

My team and I are currently in the U.S. to attend a very special event, held only ONCE a year! We’ll be connecting with investors from all over the world at this event, and visiting the CEOs & management of some companies we’re researching into.