Sunday, July 4, 2021

What Are The Characteristics Of Your Portfolio?

I have been away for a while AGAIN. Many things happened. Basically, a lot of energy are spent elsewhere when baby turns toddler. When she gets older, I get older too. So, when it comes to writing, I just cannot get myself to do it.

Anyway, recently, I was able to free up some time and space in my mind to write this article.

Nevertheless, during this period, I have not stopped reviewing my portfolio and finding the 100x company since my 10x to 100xframework post.

I realise that focusing on 100x made me become focus more on the share price, than the company – which deviate my focus away from some opportunities that I will have taken in the past.

It made me think if this is a correct way of looking for companies to fit into my portfolio.

That’s when it struck me that maybe I was wrong to focus on achieving 100x because that is based on share price. I realise I should be focusing on the CHARACTERISTICS of the companies instead of the 100x share price.

Over this exercise, I also found out what are the characteristics of the companies that I look out for. Furthermore, I also thought of how each character will be placed within a company and how it will affect the company.

This resulted in the flow chart below:


  • The starting point is always a UNIQUE product / proposition. Being unique will also tend to reduce COMPETITION.
  • Then this will also depend on how MANAGEMENT execute the current and future PLAN of promoting/marketing the product.
  • A well-executed plan technically will eventually lead to REVENUE GROWTH. But that could also be limited by the TAM the business is in.
  • After that, a consistent revenue growth will potentially lead to positive FCF. FCF, on the other hand, is restricted by the capex spending of the business. Thus, it helps if the business is ASSET LIGHT and has a STRONG BALANCE SHEET.
  • A strong FCF will potentially led to more R&D spending on INNOVATION. Because in the new future, innovation is key.
  • With more innovation, there will be more unique products/proposition from the company, pushing the company to greater heights. However, it is always important to understand what are the greatest RISK the company will encounter – because all business/investment has its risk.
  • Finally, as a Fundamental Scorecard co-founder, I will tend to score these characteristics as well. That is proprietary and I am still trying it out. So far it is working for me.

Conclusion

It is definitely good to understand the characters of the company you are actually looking for.

It helps me mapped out or screen companies that I may be interested for, reducing my screening time – and possibly could 100x in my point of view (or at least make a significant return!).

This does not mean that I will not be looking at Fundamental Scorecard anymore. In fact, after using the above screening method, I will still use the Fundamental Scorecard as a validation.

If both of them gives a good conclusion – then I believe this will be a great company to own in my portfolio.

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