In the last Year of the Goat (2003), the market focused on two major themes.
One was whether the United States would attack Iraq, thereby driving up oil prices and boosting energy stocks. The other was whether investors should bet on export plays such as Esprit (00330.HK) given a weakening euro.
My favorite stock, MTR Corp. Ltd. (00066.HK), was rarely mentioned. The Tseung Kwan O Line had been only months in operation and property developments above the railway station were years away from contributing to the company’s bottom line.
Also, the government was leaning toward an environment-friendly railway development plan which meant railway coverage was set to expand.
That would pave the way for MTR’s property sales and commercial revenue from its stations.
Today, the stock does not look as promising due to its limited correlation to the macro economy and little room for innovation.
That’s why the counter is out of favor with many ordinary investors who prefer hot stocks that generate news and move with economic and political trends.
Most people understand sensible analysis when making investment decisions but they can’t resist temptation and sloth.
Human beings tend to get lazy when they get older and very few are curious enough to get into the bottom of things.
In most cases, they rely on instincts and they tend to stand with the majority, which makes them feel right.
However, hasty decisions based on intuition are often wrong. And there has been very little research on how to overcome this human weakness.
Another Year of the Goat has come. The fundamentals of MTR Corp. remain but the market focus is somewhere else.
MTR’s share price has soared from HK$8 in 2003 to around HK$36 now. The company has paid nearly HK$6 in dividends during the past 12 years.
In that time, MTR Corp. has become a market behemoth worth HK$200 billion.
Several new lines will open in the coming years, contributing to the company’s earnings.
However, most people continue to ignore these facts.
Investors ought to ask themselves three questions:
1) Will the company still exist after a decade?
2) Will the company become more valuable in the future?
3) Am I willing to invest in the company given its business model and share price?
This article appeared in the Hong Kong Economic Journal on Feb 25.
Translation by Julie Zhu
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