21 April 2019
A businessman puts up a poster of the late former prime minister Lee Kuan Yew at his shop in Singapore on Wednesday. Photo: AFP
A businessman puts up a poster of the late former prime minister Lee Kuan Yew at his shop in Singapore on Wednesday. Photo: AFP

How to apply Lee Kuan Yew’s bottom-up theory in investing

There’s always a debate over two different investment approaches: top-down and bottom-up. 

In the former approach, one first looks at the broad economy and industries before looking at individual companies, while the latter focuses on the fundamentals of individual companies.

Singapore’s success under Lee Kuan Yew proves that the bottom-up approach is more feasible.

The city state lacks natural resources and no backing from a mother nation. The Straits Times Index also has no heavyweights like HSBC (00005.HK) and the giant Chinese enterprises. It has to spend massively on defense and foreign relations.

Despite all these disadvantages, Singapore has managed to surpass Hong Kong in recent years.

Investors are attracted by China’s rapid economic growth, and they would follow closely the direction of national policies. However, the most important factor is the competitiveness of specific companies.

The internet, environmental protection and healthcare sectors are set to maintain their double-digit growth in the next five to 10 years. Many companies in these industries will see their market value exceed 10 or a hundred billion yuan.

Meanwhile, some might go out of business as a result of poor management. There are always bad companies in a good industry.

By contrast, some companies will manage to stand out in highly competitive sectors like finance, property and retail. There are good companies even in less sexy sectors.

Analysis on sectors or economic growth should only be considered as references. The most important thing is whether the company itself can sustain growth.

Lee once said: “If you want to reach your goals and dreams, you cannot do it without discipline.”

It’s not hard to pick good stocks or buy them at the bottom level, but the most difficult thing is to hold them for the long term. That’s why most investors fail to benefit from sustained growth and compound interest.

Established in 1965, Singapore has built its strength from trading, taking advantage of its unique geographical location.

Then it decided to develop its finance industry. Strict regulations have attracted banks from other parts of the world, while innovation and flexibility have drawn in global investors. It has, for example, allowed Hutchison Port Holdings Trust to list as a business trust in 2011.

In recent years, the city switched its focus to tourism and casinos. Singapore Airlines has become one of the world’s best airlines.

In all this, we can see the thinking of its government.

The city changes from one industry to another, benefits from the peak period, and then switches to the next target. But it spares no effort in doing this. The government doesn’t just test the waters in one sector and give up easily. 

Investment returns have always hinged on the investor’s attitude. Those who always complain about everything or have little confidence in themselves will eventually lose money in the market.

Lee was also lucky to have found his soul mate in Kwa Geok Choo. Behind every successful man, there is a strong, wise and hardworking woman.

This article appeared in the Hong Kong Economic Journal on March 25. 

Translation by Julie Zhu

[Chinese version 中文版]

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Columnist at the Hong Kong Economic Journal

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