while $100 invested in a Chinese darling like BABA and Tencent, both rated “BUY” by over 90% of analysts & forecast to grow earnings forever & beyond,
would fall to $77 and $81 respectively
In 3 months
I think you may have sent me a get-well-soon card and muttered
“some people just don’t want to get it”
So, is there a lesson in here?
Yes, it reminds us that the future is unpredictable
Which means the common narrative might not play out
No matter how common
Be it:
Growth is Great
or
ESG is Everything
or
Inflation is Transitory
or
Passives not Actives
So what do I do?
Be diversified
Don’t bet on one strategy and
Ensure there’s a margin of safety
There was a Margin of Safety when people (including its own parent, Anglo American…) were discarding Thungela like a lump of hot coal at less than 1x earnings
But there’s no Margin of Safety with Tencent
Even now
I think the analysts have all been drinking Kweichow Moutai (Let’s pretend that’s the Chinese version of Koolaid)
Because they all still seem to think the company is going to magically grow earnings from
RMB 135bn this year to
RMB 291bn in March 2025
How?
I mean just HOW are they going to more than double earnings in 4 years?
When their 2 earnings levers – listing investments offshore and gaming
Are BOTH under threat by US AND Chinese regulators
Plus they’re having to spend money on “Social Aid” grants
I can’t wait to see how these are accounted for ..
Hey, maybe they can list those as SPACS – Social Purpose Aid ContributionS…?
anything seems to fly these days
But if regulators like reading accounts,
it’s probably unwise for the CFO to label those payments “non-recurring”
oh yes, and has anyone else noticed that the $7.7bn pledged on a whim a few days ago is more than the sum of all the dividends ever paid to shareholders ($6.5bn)
mmm
Needless to say, I think there’s as much chance as these companies making those earnings as Tencent letting the youngsters ignore the new 3hr weekly time limit & binge-game nightly
But even if they do
Even then
they’d be trapped
I’m talking about the cash earnings, not the “Sustainable Social Values” payments of course
Anyway, I digress
So when someone suggests there are reasons why
Value could beat Growth
Or why Actives can beat Passives
Or why Small Caps can whip Large Caps
Please apply your mind more than the Tencent analysts are seemingly doing and don’t simply point to a recent chart or table and say,
“Ah but look, it has done…. so on that basis… it just will”
And just remember how the Little, Old, Unwanted Coalmine
defied “logic” and whipped
the Great Giant Chinese Darlings
in 3 months
So stay open-minded
and invest across strategies
because if that’s how wrong you can be in just 3 months
Just imagine how wrong you could be in 4 years