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RTC12: How to avoid a not-so-good investment! · The Curve

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  Welcome to the Curve Podcast, a conversation for women who want to learn more about money,
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  their money for the future they want to have. We're all busy in the pursuit for financial
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  confidence and increasing your wealth should be a simple one. That's why the curve was
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  created. This podcast is for women to learn about investing in a non-scary or intimidating
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  way. With short episodes, you'll have time to learn, digest and understand everything
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  to do with the world of investing. Don't expect to be an expert on day one. No question
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  is a silly question. If you're asking it, so is everyone else. So thank you for being
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  here and for listening. Because together, we really can raise the curve. We are back,
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  we are back. We are back. We should never do that again. It's terrible. Today we are
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  going to be going into a less endearing investing example. We can want to call it a bad example,
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  but it's an example that just doesn't tick all those boxes that we mentioned in how
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  to pick a winner. So it's sheer price has reflected that. So is this a New Zealand example
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  or an overseas example? New Zealand one. Let's hope no one's listening
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  who works for the company. I know. Apologies about, I do know people that work here
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  and- Do I? Probably. Oh dear. What is that? Rum roll. It's Sky TV. Oh yes do know.
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  Now I just want to caveat this discussion with just because an investment doesn't tick
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  these boxes doesn't mean it can't do well. Okay. So I know I've hopped on about saying
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  that there's these five attributes, but there's just a limit your risk and that's what
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  I do when I invest, but a lot of people have made a lot of money in companies that don't
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  tick those. And things always change with businesses. They get different management teams.
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  They pivot their businesses to target different industries or customers. So businesses are
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  dynamic and they're going to change all the time. What you're trying to say is that just
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  because a business ticks three or five of your suggestions around how to pick a winning
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  investment does not mean that that business is not going to be flamingly successful.
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  And it doesn't mean it's going to go to zero either. It's just a checklist for you when
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  you're investing. Well, I think it's a really good starting point as well, especially for
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  a beginner like me who has no idea what to look for. And it just makes our brains as beginners
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  start to think about what's important when it comes to a good investment. Exactly. And
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  the universe, the investing universe is huge and it can be overwhelming in terms of where
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  do I even start looking for an investment idea or good investment. And so with those
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  five attributes, it does narrow your universe a bit. So therefore it doesn't seem overwhelming.
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  So with Sky TV, so it's sheer price has unfortunately gone from its highs at $3.50 to now trading
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  it around 20 cents. So and the business has gone through a lot of changes, a lot of management
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  changes, business changes, you know, and it's been around for a long time. So it's about
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  looking at the business today and looking at the industry that it participates in. In my opinion,
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  is in a somewhat declining structural growth industry, industries like that would be like
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  you mentioned the newspaper industry, magazine industry, and nothing against people that
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  own or work in newspaper or magazine companies. It's just I'm just saying it's not growing
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  exponentially. It's not growing as fast as a Netflix, for example. Exactly. Well, people's
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  habits are changed. Those are the way they consume content and television. And so I think that
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  is such a huge part of why that company would have dropped in share price, right? Because everyone's
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  habits and the way they interact with that particular product is so different. Exactly. And it's
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  companies like sugar manufacturing companies, you know, as people started to see sugar as being
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  bad. Oh my god. Remember Chelsea? That's still around. Is it? Yeah. But still like that's a great
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  example. They used to advertise all the time. And companies like oil and gas companies, you know,
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  with such a shift to clean energy and climate change and global warming, like a lot of those
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  businesses can't adapt because that where they are is not in a structural growth industry and
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  it's not something you can pivot. And investors don't want to invest in that. It kind of seems
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  dirty. So, you know, so you don't get that invested in demand, which drives a share price as well.
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  Some people say cinemas. That's a really good one. Yeah. So with the rise of Netflix, cinema
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  industries could be of somewhat a declining industry. I mean, I went to the cinema for the first
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  time the other week in about four or five years. Yeah. So maybe it's having a resurgence. But we know
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  they ever full. Like you don't often go to a cinema and it's packed. But there's a lot of cinema
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  companies that have probably been able to pivot to more gaming or something like that. I'm not saying
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  that all cinema companies are bad. I'm just saying industry in general less people going to cinema
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  is because they've now got Netflix. That kind of thing is it's a very broad, broad statement. But
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  Sky TV was and has been impacted by the rise of Netflix, for example. And people being able to
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  have much cheaper subscriptions to one platform at Netflix or multiple, like maybe you've got a neon
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  and a Netflix and you get your movies and you access to movies from that. Therefore, Sky TV's
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  offering is less compelling because they used to offer movies and sports and entertainment.
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  And being able to record up and not have to watch it live was like game change back in the day.
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  I remember when my planner came out and you could record the news or record a docker and watch it
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  later. Like those are like the Kardashians. Oh my god, series link. Whereas now that's just a
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  given, even expects you to be able to watch it when you want to watch it. And in all the TV channels
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  now have a TV on demand where you can watch it when you want. And so it's just, it's lost a lot of
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  customers or failed to gain new customers, particularly our age group. I don't have a Sky network
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  or a sky box in my, in my, in my house, my, my parents do this to get rid of as well.
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  Yeah, so they're not, they're not in an industry that's, that's growing at a really fast rate.
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  And the company's not managed by a founder or the CEO doesn't own a lot of, a lot of stock.
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  So again, it's not, it's not run like a growth business with a founder who's really passionate
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  about growing it. It was historically when those people leave. It almost is this giant flag or like
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  siren that's like, I don't believe in this anymore. Neither should you. You know, like if you're
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  aware of that and you're looking for investments to, yeah, to see that founder bail out because they
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  don't see any more opportunity there. It's definitely an interesting. It is a red flag, but I mean,
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  there's a lot of, there's also a lot of examples where new CEOs can actually turn things around.
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  Turn things around. And it's not all bad. So maybe the founder has new opportunities or
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  has got really old and he's not making the best decisions anymore. And he's not that interested.
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  And therefore new CEO, younger, that's why Mark Zuckerberg, he's still only in his 30s, maybe he's
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  40 now, but he's got that tenure still of like firing his ballet. He knows what's going on.
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  Yeah. It's similar to shares when you say it just because someone's selling it doesn't mean
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  that it's a bad investment. There's many reasons why that person might be selling. It's not
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  solely because of them thinking it's a bad investment. They might need it for personal reasons
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  or and it's the same when it comes to a founder. Exactly. And there is a point where a company
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  starts looking attractive from a valuation standpoint when a share price is foreign so much.
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  So I'll explain that in terms of if they owned a lot of assets. So say they owned a lot of property.
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  It was a retailer and they actually owned the retail stores, for example. Therefore when the
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  share price gets to a certain level, so say the share price was below the value of that property,
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  then that would seem like a good investment because you know the property is the asset if that makes
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  sense. No, sorry. So I guess I'm saying there's a point where a company, there's a share price
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  or a valuation point where a company starts looking attractive because of the assets it owns.
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  Let's say that a company has share prices gone from 30 to 20 cents, but it had at least 40 cents
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  per share of cash on the balance sheet, then that's a bargain. You're paying 20 cents for 40
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  cents of cash if that makes sense. So another example with in property, if you could value the
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  property assets that a company owns, say they were worth two million dollars and the company itself
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  was trading at one and a half million dollars, then that's a really attractive investment because
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  you can see that they're sitting on two million dollars of property. You're paying 1.5 million
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  for that two million. Does that make sense? So if you ended up having to liquidate and sell
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  that property and you got two million dollars and you could give that back to shareholders,
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  they would do better than what they bought in it. Exactly. I guess what I'm saying is there is a point
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  where a share price could get to a point where the underlying assets of the business
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  are greater than the share price or the value of the company itself.
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  So the fourth attribute, if we look at revenue visibility with Sky TV, if you aren't
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  being able to access more customers and get more customers on board, you can't really visualize
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  where your revenue is going to come from in the next 12 months, 24 months, and getting those
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  customers becomes harder, which means getting that revenue becomes harder. So as an investor,
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  if I can't see where the revenue is coming from, it makes it difficult to believe in the
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  company and the vision of where it's going and see the growth in the revenue and the earnings.
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  That makes sense. I mean, there is something to be said for Sky TV in terms of the reach that
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  they've got today and all those boxes that they've got in people's houses, that's quite a tangible
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  asset in itself having access to all those customers. You just need to really see them grow and
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  then change the way they're doing that. Leave rage off that footprint that they've got.
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  And then the strong balance sheet. So Sky TV's got about $100 million of debt at the moment.
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  Oh, that's a lot. Yeah, it is quite scary to have that much debt. It does have cash though,
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  so it's actually, it's debt level isn't actually that high, but it's harder to have cash on the balance
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  sheet as well if your businesses are growing because you don't have that cash to maintain on the balance
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  sheet if that makes sense. So you have your revenue, your pay away sum and your expenses,
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  then you get your earnings, and then you can retain some of those earnings to invest back in the
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  business. But if that revenue is struggling to grow, again, you can't build up that bank of cash
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  in order to help grow. So it's kind of you end up in this a bit of a spiral sometimes. Yikes.
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  It's not to say they couldn't turn it around though. Exactly. You could see that share price
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  go from 20 cents to 40 cents, you double your money. And you might also say you know who the CEO is,
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  and you really believe in that person, and you know that they're brilliant. And sometimes when
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  share prices fall to low levels, you do get increased interest in other business might buy it.
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  Oh, yeah. And they usually, in order to buy all the shares, for example, if they're taking over
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  a company, they need to make it attractive enough for investors so that usually they would bid for
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  that company at a premium to what the share price is trading at. So Sky TV, for example,
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  it's trading at 20 cents. You could have an overseas company come in and buy that.
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  They want me to sell to them. So they need to make it with my while. So if I've got
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  sister sitting there with the shares at 20 cents, they'll need to get, they'll need to bid me,
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  I mean, 30 cents is probably a lot. It's a decent premium. But then that wouldn't incentivize me
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  to sell to them and then they can buy it. And then it could turn it around. Turn it around.
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  They might have the resources. They might see an opportunity that the current business hasn't.
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  But they, again, they're like an investor. They need to see something in their business that they
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  want to have access to, whether it's a patent, whether it's a great technology access to customer
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  data. Yeah, there needs to be a reason why they would want to buy that as well.
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  Okay. You don't have to tick all those boxes, but I prefer to tick as many of those boxes
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  possible because then it just limits the risk on the investments that I make.
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  You're covering your ass a bit really, aren't you? Yeah. Yeah. You're doing as much research to
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  make as much of an educated decision as you possibly can. Exactly. And you're not going to get
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  them all right, but as long as it's in a structural growth industry with a passionate founder or
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  management team with a competitive advantage, good revenue visibility and a strong balance sheet,
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  I think you can sleep easier at night when you're investing in those companies.
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  I definitely think, I mean, I've heard you talk about how to pick a winner and the five things
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  quite a lot, but hearing it broken down an example where you can actually go into detail as to why
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  different aspects where it fell by the wayside or where it was doing really well,
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  that was really helpful. That's good. Yeah. And I think also it's just like that thought
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  process of, okay, a founder company. Now I'll dig into it and look at those five aspects.
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  It makes it feel more real having seen both sides. I could good in a bad.
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  Balance to view. Yes. Yeah. We're so educated. All about balance. Just like a healthy diet.
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  And she's starving thinking of that. So let's wrap this one up.
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  I just also would like to make a quick shout out to all the men who have messaged us,
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  saying that they're listening and also just say that you're not, you are allowed to listen.
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  I think they were like secretly moved. They were listening to an all female podcast and
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  we're allowed to educate the masses and anyone that can benefit from this podcast and the curve
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  is welcome. Are you ready to take control of your own financial freedom? Do you want to discover
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  how you can grow what you already have? The curve is here to help. At the curve we are passionate
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  about educating women to feel confident when it comes to growing their wealth. If you have any
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  questions, get in touch with us via our socials at the Underschool Curve NZ and together,
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  let's raise the curve.