Passion Investment’s Strategy of Investing
Passion Investment’s strategy of investing is based on fundamental analysis (FA) of companies to pick stocks. In addition to public listed stocks, our portfolio also includes stock derivatives such as covered warrants (CW), futures (VN30F) in order to increase profit or to reduce risks (Hedging).
Our portfolio are also open to using leverage to increase profit or holding 100% cash and selling futures (VN30F) when necessary. Therefore, this investing strategy could result in a portfolio mix with stocks percentage greater than 100% or smaller than 0%.
Passion Investment’s individual stock selecting method is built on the basis of value inesting. We invest based on companies’ ability to generate profit, long term cash flow or the amount of asset under ownership.
- Profit generated from stocks investing comes from two factors: firm’s ability to generate profit annually; investor’s ability to buy stocks lower and sell them higher than their real value.
- Passion Investment focuses mainly on holding long term stocks of good companies that have room to growth in the future, but we are also willing to sell such stocks once they got overvalued and move to other stocks with more potential.
- Profit margin is expected to be 20 – 30% annually, coming from a ROE around 15%, which is possible for a well run company, in combination with 5 – 15% from buying stocks lower and selling higher than real value.
- In order to not over-diversify, Passion Investment chooses to invest mostly on 8-10 stocks only. We only invest on the companies we understand the most after having researched thoroughly on their competitive advantages, their business potential and competition in order to most accurately assess their value. To limit the impact of mistakes that might be made during research and pricing, we don’t make any investing decision without proper margin of safety.
Company Categories for Investing
There are many ways to categorize stocks. Nevertheless, based on practical investing experience, Passion Investment currently divides stock into 3 categories for investing:
- Star comapnies – Companies that have special cometitive advantages and operate in a large growing market –> these companies can maintain revenue and profit growth rate (avg. above 15%) for a long period.
- Thanks to competitive advantages, these companies can also maintain profit margin above market average: ROE averages greater than 15%
- These are the stocks that investor should hold. If such stocks can be bought at P/E around 10, they can yield average annual profit margin of at least 15% regardless of market movements.
- Regular Companies – Companies that operate consistently and have little room for growth (narrow market a contributing factor)
- These companies maintain a profit margin around market’s average
- These stocks should be considered attractive investment only at a low price with P/E 5-7.
- Bad companies (assets purchase) – companies that operates inefficiently, yield little to negative profit
- Buy based of assets value: cash, current assets, real estates;
- Buy when market value is much lower than assets value