Tuesday, May 3, 2011

Trend Investment

To maximize the short to mid-term investment opportunities, it is interesting to ride on the next trend, just like the Singapore IR (Integrated Resort) story.

We are not talking about technical charts, neither following the hedge funds but industry/sub-sector trends. Years back, we communicate through letters. Technology advances and we have emails and now social media.

During the financial crisis, I was at East Coast and noticed a large number of idle container ships floating around. Now, you can hear the "poo poo" sound if you stay there, signalling that the cargo vessels are ready to move off. Good for the shipping industry as a whole.

So the question is this, "what is the NEXT trend that is going to happen"?


While this involves some element of speculation; nonetheless you can conclude and paint a visual picture in the future based on publicly available quantitative and qualitative information such as brokers' reports, newspaper clippings and other press releases. To dwell deeper, you can ring your contacts.

Just like a corporate organization mapping out their 5 years strategic plan via forecasting the next growth market based on emerging industry drivers. But for them, their sources are solid.

Of course, for us as the minority shareholders, we will not have direct access to first hand intelligence. So when the newspapers are published, it can be considered stale.

However, the information covered can be useful if we can sniff through some of the major details, write down, put some thoughts to it and conduct additional primary (e.g. talk to people) and secondary (e.g. library sources) research to support your hypothesis.

Have a framework, a skeleton to list down the key areas based on the industry.

From there, we try to piece everything out like a jigsaw puzzle and state a number of trends moving from either global to industry or in-country. Understand from a wider, holistic perspective. Finally, we identify the top 1-3 companies that may be impacted by the trends based on that sector.


Let's do a simple exercise:

Luxury Retail

In this definition here, we assume the sector as high-end designer products purchased at retail outlets. Gucci, Fendi, Prada, Louis-Vuitton, Versace are some examples.

On a realistic note, think about the factors that influences luxury retail on a broader scale:

- Consumer lifestyles and socio-economic patterns such as income and expenditure
- Unemployment rate
- The rise of the social classes - high net worth individual, affluent, middle
- Population mix by age and education level
- Brand communication tools
- Societal norms
- Growth of chained boutiques vs. traditional retail and internet shopping space
(where is it moving towards in the near term?)
- Many more...

Expand the scope to include fine wines and champagne, luxury travel, luxury accessories, luxury jewellery and watches, luxury tea...under FMCG (fast-moving consumer goods). Ensure all sectors should belong to the SAME industry to maintain like-for-like comparison.

Do you think the above will apply?

In your own opinion, list down 5 potential countries after reading through articles, ground observation etc. (not in ranking order) - we shall focus geographies in Asia as the hotbed:

- China
- Malaysia
- Singapore
- Hong Kong
- Taiwan

Next, pull out some of the public listed companies worth looking at across the total luxury goods industry (luxury retail, fine wine and champagne etc..) that has presence in any of the countries mentioned, adopt any of the top 10 brands (www.top10list.com) or may benefit from the rise of the luxury goods market.

- Banyan Tree
- FJ Benjamin
- The Hour Glass
- L'Occitaine (HKSE)

Based on trends, my conclusion is "Banyan Tree". The trend of luxury travel impacted positively from the overall growth of the luxury goods market, one of which is retail. Plus the fact that high net worth individual in Asia is fast increasing, particularly China where Banyan Tree has presence in. The bulk of the Asian consumers are well segmented (e.g. honeymoon couples) with disposable income rising and expenditure on high-end travel increases, especially the affluent classes from Singapore and Hong Kong - the close proximity to travel within Asia. Zooming down into brand value, Banyan Tree commands a premium with great reputation points - numerous awards won and positioned as a gateway for the luxurious travelers. The communication used was displayed visually online upon clicking on any luxury-related articles and business commentaries.

*Note: I am not vested into Banyan Tree currently. As always, please do your due diligence before plonking your money down. Trends is an exciting way to invest and exit when the time is up, provided you understand the risks involved.

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