Passion Investment’s (PI) investment approach has been developed from value investing method, which is widely applied by successful investors including Warren Buffett (Word’s third wealthiest billionaire), Benjamin Graham, Peter Lynch, just to name a few. Our philosophy is grounded in building long-lasting relationships with client as well as achieving sustainable development and maximizing long-term benefits for our clients. In order to maintain a sustainable profit margin for clients, Passion Investment always adheres to the principles of value investing, which include as followings:
- The basic concept behind value investing is that stock is regarded as fractional ownership of the underlying businesses that they represent rather than just a stock itself.
- Profit from stock investment does not only derive from the notorious strategy of “Buy low, sell high“ but it also comes from the profits that businesses annually generated.
- Therefore, PI does not perform stock surfing and focuses on high-growth businesses.
- The market overreacts to good and bad news, resulting in stock price movements in short term do not correspond with a company’s long-term fundamental, giving an opportunity to profit. Our value strategy require long term horizon to take advantage of short term volatility in the market.
- The return on investment expected to be 15-20% per year – corresponding to the return on asset that a good business in the economy can achieve.
- The decisive factor of this investment method is a thorough understanding of the business environment including competitive advantage, industry prospects, competition in the industry, etc. in order to determine the fair value of the business. This is a most time consuming and demanding task in our investment process hence PI only invests in the businesses that we understand most.
- At PI, we choose the “Stock-picking” investment approach which makes us competitively different to others in the market since this technique requires lots of research and insight into business activities. Since the PI’s focus portfolio is usually concentrated, the common stock only consist between 5-8 stocks. Therefore, the selection of enterprises for investment will be the decisive factor for the investment efficiency of PI.
- PI is always seeking and investing in underperformed stocks. Investing with high safety margin to allow room for error in investment judgments (minimize downside risk).
- Taking advantage of the market volatility to gain better profit –buying stock of business that is much undervalued compared to fair value and then wait until the market correctly recognizes its fair value to sell.
Currently, PI categories three types of stocks for investment activities including:
Type 1: Growing business
- Enterprises with special competitive advantage and operating in a large market, -> these enterprises maintain a good growth in revenue and profit in the long period (on average 15%);
- Investors should focus on these type of stock with P/E around 10 times since the possibility of generating the aeverage expected profit margin at least 15% per annum despite the volatility of stock market.
Type 2: Stable business
- Stable businesses with good dividends: Revenues and profits are expected to stabilize in the next 3 years.
- Maintain average margins of the economy; P/E is around 5-7 times with dividend yield >5%.
Type 3: Poor business
- Enterprises with poor performance, low profitability;
- Purchase based on the value of assets: cash, liquid assets, real estate;
- Business with the net asset value is much higher than market value, preparing for special event of transferring asset into profit.
Typical Businesses selected by Passion Investment
BMP – Binh Minh Plastics Joint Stock Company
- No.1 in plastic pipe industry;
- Top market share;
- High profit margin, steady growth;
- In early 2014, there was information about tax collection of about 100 billion, affecting the cash flow and retrospective of BMP’s profitability in previous year. BMP’s stock price is adjusted from VND 80,000 – 60,000 despite the good performance in their business activities.
PNJ – Phu Nhuan Jewelry Joint Stock Company
- No.1 in jewelry retailer;
- It accounts for about 20% market share;
- Competitive advantages in term of scale, brand recognition;
- Growth of 20-30% / year in revenue and profit;
- In 2015, PNJ’s financial investment in Dong A bank had a big provision, causing a slump in profit, share price dropped sharply to VND 30,000 while EPS from core activities remained between VND 4,000- 5,000 per share, core business activities therefore were not affected.