You don’t need to be a Li Ka-shing to produce a return of 5,000 times on investment, which is what the outgoing chairman of CK Hutchison did for the group’s loyal shareholders in 46 years.
If you are lucky, you can accomplish the same feat in one-third of the time. That’s because we are in the age of the internet, when everything happens much faster.
But, of course, you have to pick the right stock that offers such a once-in-a-lifetime opportunity.
Consider Naspers, a South African technology conglomerate that invested US$33 million in a then-unknown Chinese internet startup for a third of the company.
Fast forward 17 years. Naspers is selling 2 percent of its stake in that company, which happens to be Tencent, which is now one of the world’s top internet firms, for over US$10 billion – and promised not to sell more shares in the next three years.
Naspers’ entire stake in the Chinese company is now worth US$175 billion, or 40 percent more than its own market value.
That means investors are placing almost no value on its other assets, such as newspapers, pay TV services and other technology investments. And that’s why its shareholders want to cash out.
After all, it is hard to maintain a “buy and hold” approach to investing in this fast-changing environment, and that’s probably the reason why we only have one Warren Buffett.
In 2001, Naspers bought the stake in the company from IDG and PCCW for US$33 million, or an average of fewer than 10 cents a share.
As Tencent grew, Naspers exercised incredible patience, selling no shares in the company since its 2004 listing up to now.
Tencent started out as a mobile games developer before branching out to instant messaging. It is now one of the five biggest technology firms in the world and its chairman, Pony Ma, is now China’s richest man.
Based on Tencent’s price of HK$439.4 at Thursday’s close, Nasper is sitting on a return of 4,700 times on its investment. If its dividend had been reinvested in the stock, that would have produced a return of over 5,440 times.
That’s definitely higher than the accumulated gain of investors who held on to Cheung Kong Holdings, which Li Ka-shing said produced a 1,500 times return in 46 years, or over 5,000 times if the dividend had been reinvested.
The Hong Kong tycoon has every reason to be proud of his accomplishments as a businessman. But now that he is retiring, let’s see who can produce more for their shareholders.
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