Franchising and Licensing Asia 2010 trade exhibition @ Marina Bay Sands, Singapore

I will be visiting the Franchising and Licensing Asia 2010 trade exhibition, to be held at Marina Bay Sands, Singapore from 21 - 23 October 2010 (Thursday to Saturday) to get some ideas and exposure, and perhaps potential opportunities on franchising and licensing. Admission is free.

Getting a franchise is a good way for starting entreprenuers to learn from an established business model. It minimises the risk of start-up failure by adopting an established business with proven track record. Of course, there is no such thing as a risk free business or investment. The entreprenuer still have to learn and work smart and hard to better his business even through a franchise. Of course, the learning is more structured since he has an established business system (based on the franchisor) to follow.

Advantages of a franchise for starting entreprenuers are as follows:-
1. Benefits of an established business model with proven track record to follow.
2. Learning from operating a franchise is more structured with help from the franchisor.
3. Lesser risk of failure and more stability since there is a guiding business model to follow instead of self-exploration.

Disadvantages of a franchise for starting entreprenuers:-
1. No freedom in managing business creatively since one has to stick strictly to the business operating protocols from the franchisor.
2. Need to pay franchising fee (usually one-off at the start), any other compulsory start-up cost and training cost, and ongoing royalty (certain % of sales revenue) to franchisor.
3. Need to be bounded by a contract to hold the franchise for a long period of time (which is usually at least a good number of years).
4. Any other binding terms of franchise agreement which are more favourable to franchisor to protect its interest.

Although getting a franchise can be a breeze to aspiring entreprenuers in terms of tapping on an established business model with proven track record, there are many limitations that the entreprenuer will be bounded to. So, aspiring entreprenuers need to consider carefully the pros and cons before deciding whether to take up a franchise.

Simple rule for investing (maintain a strong foundation of a pyramid).

We know of the old adage, "Buy low, sell high." How many investors can be disciplined to put this principle into practice? No wonder only approximately 5% of all stock market participants make the cut and get their deserved returns from the 95% who fail to do so.

How do one buy into the market? When prices are low during bear markets, buy aggressively so as to build a good foundation of shares of selected potentially good companies at cheap valuations. As stock prices increase, buy lesser amount of shares each time as the price heads higher. With each rise in stock price level, the amount of shares purchased must be lesser and lesser. This culminates into an analogy of a pyramid with more shares bought at lower prices and lesser and even much lesser shares bought as prices head higher and higher.

This simple idea of a pyramid buying process is not unknown to many but yet "seems to be unknown" to many. This is because we still hear of many market participants making losses on their investments lamenting the fact that they got caught at high stock prices. To be able to generate returns, one needs to be abnormal compared to the rest of the many market participants. When prices are heading higher and higher, a normal investor will buy more aggressively thinking of only better days ahead. This makes him practise an "inverted pyramid" way of buying when the head is heavy and the base is not able to support the head since more shares were bought at high prices instead of lower prices. With a weak foundation through "inverted pyramid" way of buying, it is no wonder when prices start to head back to lower grounds, the poor investor is left hanging with many shares bought at higher prices, and the probability of capital loss is high.

More shares bought at lower prices and progressively lesser shares bought at higher prices creates a strong pyramid foundation where base supports the head

So, the more abnormal an investor is, refusing to be caught up with greed which is normal to the common crowd who chase after higher stock prices, the higher the chances to avoid risk of capital loss and higher the chances to make returns on investments. Thus, investing is mechanical and boring and made simple with the idea of a pyramid way of buying stocks. Don't be typically normal in investing. Consider being abnormal instead.

Starting a business (let's learn how to become an ultimate investor).

I have been researching on the skills to start and grow a business over the past one year. I am looking forward to consider starting a small business in the coming year. No risk no gain. The aim for me in wanting to own a business is to learn how to start a business, grow it and work towards the business generating sustainable cashflows. So, I will make a small venture out to have my hands wet in doing so. I believe the best way to invest is still to invest as an ultimate investor, that is in owning an entity (a business) that generates returns on my invested capital. The experience that one can get from learning how to start and grow a business is beyond measure. Once a business owner has grasp the art of starting and growing a business, the skills can be applied in future business or investment ventures.

The skills to manage a business can be applied to investments as well. A knowledgeable business owner and entreprenuer can apply his skills in setting up and running a business into analysing investments as well. All road leads to rome. A business owner sees and experiences far more in the frontline to what a business entails than an investor would. So, I hope to learn to become a skillful business owner and apply my future experience in running business also to analysing businesses as investments.

One of my few ambitions was to become an entreprenuer and business owner, so I hope to try it out and make it happen and work. Risk is always present in any businesses. However without risk, there will not be any challenges to make sure one tries to minimise risks and overcome obstacles by continually doing one's best and learning from mistakes and failures along the way.   

This is going to be the best part of my investing journey, to become an ultimate investor investing from the inside of a cashflow generating business. To have a positive cashflow generating business takes time and effort, so I hope to learn how to arrive at it. Everything has to start somewhere just as a child learns to talk and walk. The child will make many falls and finally learn how to walk without giving up. Keep failing by "falling" and learning from the many failures so as to improve on every next "step". It is a natural learning process for a child to be able to walk. It will also be for any new learning in life.

Wearing FA "lens" and TA "lens".......seeing from two different angles of the same market

We have heard of both fundamental analysis (FA) and technical analysis (TA) used by investors (be it retail or professional investors) as working principles of doing stock investments or other forms of investments. More often, we hear also the debate behind the effectiveness of one of these skills over the other in getting investment performance. I have always stayed on a neutral stance though I am applying fundamental analysis in making my investment decisions. I have also researched on TA, though not very extensive yet. I have now got a better appreciation of TA. However, I am not an expert in terms of knowing the inside out of this set of skills.

My discovery so far is that FA and TA are both useful and should be used in conjunction when making investment decisions. The danger is to swing to either side totally, be it TA or FA, and ignore the realities of the one side of the same story (the story about the investment one is making decision on). FA tracks the fundamentals of a company, it's historical business performance and future projected performance based on track record. TA tracks the market sentiments (usually short term basis) towards the performance of the company and it's share price. In doing so, TA also takes into account the larger market in view too (based on ongoing macroeconomics). If one thinks the share price of an excellent company based on FA is undervalued but bought at a time when impending correction of a significant magnitude is likely going to take place based on TA, undervalue can get more undervalue. So, TA does have it's merits and both FA and TA should be used in conjunction to be more effective.

The decision making process need not be complicated and clouded by one skill, be it FA or TA over the other. These two skill sets are not contracdictory in nature. They are just skill sets for the investor to use. The investor is the one who manages the use of these two sets to the best of their use so as to make the best possible investment decision at a particular point of time. By doing so, the investment decision hopefully is better thought out in thoroughness. So, I will not say I use FA or TA. I will say I use my prudence in making investment decisions. FA or TA, both are just skill sets for the investor to use, and both are effective and makes investment decision making more thorough if the investor is careful not to be confused emotionally by the use of one technique or the other. 

Just a parting note, in a bear market like last time, no amount of FA can save an investor from watching his portfolio depreciate sharply in value. In such occasional moments, probably TA can offer help in terms of allowing the FA investor to put on another pair of lens to look from the other side of the same situation to make his investment decision on how to navigate the bear market. Wear FA lens or TA lens to see the market? Both exist for the same reason, to allow the practioner of the skill set to garner good returns from making his investment decisions. The trick lies in the user, not the type of "lens" as both lens can and should be used..........

Who is an ultimate investor?

As investors in the stock market, one is conditioned to think and act like a 'normal' investor. One thinks of buying and owning shares of a public listed company. By doing one's due diligence and through buying and selling shares of companies over the market, an investor seeks to maximise his returns from his invested capital. However, no matter what, he can never be as profitable as the founders of a public listed company who have built up and owned the business and got it public listed at a premium price significantly much higher than their initial invested capital in the start-up of the business.

We often heard of P/E ratio (price/ earnings ratio) of 10 and above for the shares of a company during it's IPO (initial public offering). At the onset of being public listed, the premium that retail investors would be paying is already 10 to above 10 times of the earnings per share of a company that goes into public listing. So, it is usually the founders and owners of the company who benefit the most to getting their company to be public listed since the net worth of their business has tremendously mulitplied by 10 times or more. This is the reward the founders and owners can receive for spending so much effort to start up and build up a business for public listing.

Thus, who is the ultimate investor over here? It is the ones who have started and built up a successful business that goes into public listing. For such founders and owners of the business, they invest from the inside of their business and sell shares of their business to other investors at premium pricing. So, as much as one is conditioned to think that being a successful retail investor is already a wonderfully side to investing, it is as much a reality to know that it is the ulimate investors who are the really more successful investors since they invest from the inside of their business rather than invest from the outside which retail investors do.

In conclusion, the ultimate investor is one who adopts the risk and learns to start a business and invest from the inside of their business directly to grow their business generating revenue and income for themselves. On the other hand retail investors no matter how successful they are can only be at most average investors since they can only invest from the outside of a business and have no controlling interest in a business. No matter how good retail investors are, it is ultimately the ultimate investors (as business founders and owners) who receives the most from their business since they have the controlling interest and sell shares of their businesses to other retail investors who often pay a much higher premium and have 'almost no say' in the business. So, should one be an ultimate investor who learns to start and grow businesses selling shares of his businesses to other investors at higher premium or be the outside investor who buys shares offered by ultimate investors of businesses at high P/E ratio without any controlling interest and relies entirely on the fate of the business run by ultimate investors?..................