It’s been a while since I have last written to you. However, I feel that I am always connected to all of you, in one way or the other.
The other day, a good friend of mine said, ‘this is strange, seeing the market in red for so many days’. I understood what she was trying to convey. And I told her this; “It is not a strange thing. This is how it has been over the past few decades. May be your picks need some more time to bounce back? Or, you need a serious review on your holdings. Either way, you will not go wrong in the long run, if you have enough confidence in the companies that you have invested in. Always check the fundamentals to see if any of those have changed. Do understand who actually decides the share price of a particular stock. Research on how much this stock would be worth at the end of your investment period. List out all of the catalysts you come across whilst you put this together. Set a time frame: set your price movement expectation for those catalysts. Have your exit strategy in written form. I think this would show you a clear path. What do you think?” I thought I impressed her. She didn’t say anything for some time. Job done, right? Or at least that’s what I thought. But, after that long pause, she said “OK, after I did all that what you asked me to do, What if trading 212 does something that works against our stocks still”
I didn’t have an answer for her. I thought about it, long after she left the call. In fact, I have been thinking about it for quite some time now. That is what we should talk about today.
Do you know the story of Yahoo when it tried to buy Facebook in 2006? Yahoo agreed to offer $1.1Billion. It should be somewhere around $1.5B today, to Mark Z. Huge money for a company doing some fun play back then. So the young Mark Z accepted the offer. The deal was about to be closed, but again Terry Semel, Yahoo’s then CEO changed his mind and reduced his offer to $800million. Mark Z refused to take that offer and that deal didn’t go through.
Wait, this is not the start of this story. We should go back to year 1998. Larry Page and Sergey Brin, the founders of Google, approached Yahoo to sell Google for $1 million ($1.6 million today). Yahoo refused that offer. May be they couldn’t realize the true potential of Yahoo back then. But in 2002, Yahoo themselves approached Google to make an offer for $3billion (say $4.5B today). Larry and Sergey worked really hard in those 4 years to make the Google one of the top companies. So they asked for $5Billion (7.5B today). Yahoo’s CEO refused to accept that offer. Today after an 18 year time frame , Google is worth 1.4 trillion in public market- 0ne of 4 trillion worth companies to every exist)
So what would have happened to Google and Facebook if Yahoo had indeed acquired them? We will never know. But, I think we can make some assumptions by following the management of these three companies. Oh wait, before we look into that, I must add one more interesting deal that Yahoo recieved in 2008. Bill Gates got interested in Yahoo in year 2008. So he wanted to make an offer. How much do you think the offer was? $45billion- $55 billion for today’s value. What happened now? Well, Yahoo refused that offer. As of today, Yahoo’s revenue shows $9B in negative. $8billion loss. How sad! (And check the list of Yahoo’s CEOs in last 20 years. And check their priority and goals when they take charge. You can find all these in the web. You will be shocked to know how often a company like Yahoo have changed their fundamentals)
So, why am I writing all these here? Simply for two reasons guys. 1) Making the right decision 2) Making the right decision at the right time
Making the right decision
If Yahoo had bought Google back in 1998, they would have had a great chance at being the number 01 tech company in the world. Because, back then, Yahoo was the tech giant. They could have made Google a great company a lot quicker than anyone else. At least, they could have owned FB. But their leaders, lacking long term vision decided not to do so. Hence they failed the company and by default their investors. All what they needed, was a little bit of understanding about the future and how a company like Google or Facebook could bring value to the humankind. But they failed to see this. That cost them a lot. And they have been waiting for another offer for a long now. So every time I make an investment related decision, I think about Yahoo’s failure a lot. It has two ways in two different ways. Let me explain the first two way; let’s start with ‘making an offer’. As said earlier, there are two ways in this. One, you make an offer and get rejected. Two, you got an offer and you rejected. While you have limited control over the earlier one, you will have plenty of control in the latter. Now in front of me, dealing with Trading 212’s issue, I have two options to tell my friend to choose: 1) Stick to them and wait for a good thing to come like Yahoo which is still waiting 2) Ditch them and find my new ways as Facebook and Google did to Yahoo. If i choose the second one, I know that I will have more control over my decision. Since I know that, I will choose that one for sure. I will ask my friend what she would choose.
The other thing that we should take it from here is; “Buying or not buying decision plus time and price”
When Yahoo made that famous $1b offer, they knew FB is something that could bring a lot of revenue to them. But, I believe they failed to figure it out what is that “something”.
2 billion accounts all around the globe. Yes Facebook services are free. But is it actually free? Not really! Every account is their capital. How? FB’s main revenue comes from their marketing services. we are talking about billions of dollars. Companies and individuals choose FB to post their ad because they believe it will reach many of their potential customers. This aspect was not valued by Yahoo I reckon
So the true potential of a company stays vague. No one can logically measure it. But still, we can try to go closer to the exact amount with bit of basic understanding. How good we are in finding them early is what defines our success.
There are so many ways to value a company. Already established KPIs would help us to understand the true current value of these companies. For examples, Revenue, Net income, Total asset and liability, PE ratio, ROI, EPS, BV and so on. Nevertheless, I always try to find companies with ‘true future potential’ for my long-term investment. (That’s what I would like to talk about in the next zoom meeting that is scheduled for 27/03/2021. Please don’t miss that. Zoom link will be shared right before the meeting)
I am not always right. I do make terrible mistakes. But most of the time I shoot on the bulls eyes. ALPP, ABML are a few such picks.
So, DECISION MAKING in an investor’s life plays a very vital role. Every decision that we make, directly or indirectly will impact our portfolio, so does our day today life. So please do be careful with your decision making process.
Market is an awesome place. It rewards people with patience and it punishes those with ignorance. So, let’s all be literate.