In today’s world where we have mountains of information and statistics at our fingertips, the challenge for all investors is deriving insights from information. At PCM, we want to look beyond mere data points; to identify the trends that are being formed when data is taken with the appropriate time horizon. Our experience of investing across different companies in different economies gives us an advantage when identifying emerging trends which leads to actionable investment insights.
Why are meetings with the senior management of target and invested companies paramount to our investment process? Asia is a competitive and challenging region where the operating environment can change a lot very quickly. So when we meet companies, we want to know if they can deliver on what they have planned for. Is the company dynamic enough to adapt and solve problems that arise? Is it in a position to ride out inevitable economic downturns? What do they do to fund growth and where the business model may go wrong?
Interacting with the company and, equally crucial, with its peers in the industry then provide us insights of the common opportunities and challenges faced from which we can form our investment thesis. In a calendar year we meet as many as 250 companies, almost one meeting each business day. This diligent approach has been crafted into the DNA of our company, as we say
Investment Phillipsophy #8
Investing for Growth
Asia is undoubtedly a growth region and will continue to dynamically evolve and reinvent itself for decades to come. As the region develops, we believe there will be companies that will go from strength to strength and become niche powerhouses over time. With this belief in mind, we formulate how we invest and identify the kinds of companies that will deliver long-term growth to our investors.
Super tankers – companies that deliver steady and consistent earnings (given general market conditions). Like an old faithful, we look to them to form the backbone particularly of income drawdown portfolios. We examine such investments for predictable product leadership, long earnings track record and a defensible industry position.
Momentum earners – there are companies producing unique goods and services which benefit from a spike in demand growth during certain market conditions. We look to take advantage of such under-recognised and transitory opportunities if we see that stock prices have not entirely factored in its growth possibilities.
Tidal wave companies – Secular trends develop over a longer time frame but once apparent is almost an unstoppable force, much like a tidal wave. We try our best to spot the emerging trends and the corresponding ‘trendsetting’ companies and ride the remarkable growth along with them.
Balancing Risk and Reward
As investors, our overarching objective is always to grow capital over time and very simply, we favour companies with clear and sustainable business models, strong balance sheets and a track record of high earning quality. Another investment principle we hold dear is investing only when the potential rewards of an investment substantially outweighs the risk of doing so. Where we particularly thrive is when we discover structural growth companies that encounter temporary problems. After all, news is news – and bad news always sells. Excessive gloom and doom dampens the share price allowing us to buy long term growth at short term depressed prices.
On the flip side, when optimism around a company’s prospects goes beyond what we feel is reasonable, we prefer to sell amidst the euphoria rather than be the last ones left ‘at the party’ when the euphoria unexpectedly fizzles out.
This contrarian approach is the basis for another of our Phillipsophies
Investment Phillipsophy #3
PCM’s investment philosophy is the result of an investment process iterated over the last 20 years of investing in and around the region. And so, whilst the world will continue to change at an ever-quickening pace, we strive to hold firm to our philosophy which has been proven to deliver results to the ones who matter most to us, our investors.