FUNDAMENTALS!

The other day, a good friend of mine said, ‘this is strange, seeing the market in red for so many days’. I understood what she was trying to convey. It's been long since we had a good day at the investment market. Me, being a captain of the ship of set of a new investors in my investment community, the London investor, had to face such expression of frustration in daily basis. So I told my friend this; “It is not a strange thing. This is how it has been over the past few decades. May be your picks need some more time to bounce back? Or, you need a serious review on your holdings. Either way, you will not go wrong in the long run, if you have enough confidence in the companies that you have invested in. Always check the fundamentals to see if any of those have changed. Do understand who actually decides the share price of a particular stock. Research on how much this stock would be worth at the end of your investment period. List out all of the catalysts you come across whilst you put this together. Set a time frame: set your price movement expectation for those catalysts. Have your exit strategy in written form. I think this would show you a clear path. Don't you think?” She didn’t say anything for some time. I thought I impressed her. Job done, right? Or at least that’s what I thought. But, after a long pause, she said “OK, after I did all that what you asked me to do, What if the trading 212 does something that works against our stocks?”

Trading 212 is a trading platform here in UK. Recently they have put ban to trade many penny stocks in their platform. Investors having invested thousands of pounds in many micro capital companies, are left with no clue about will happen to their investments. I myself holding a bag of £5000 worth of LLKKF, a lithium stock with neither buying nor selling option at trading 212 platform. This is another full story to be told for another day.

So, I didn’t have an answer for my friend. I thought about it, even long after she left the call. In fact, I have been thinking about it for quite some time now. That is what we should talk about today.

Do you know the story of Yahoo when it tried to buy Facebook in 2006? Yahoo agreed to offer $1.1Billion-it should be somewhere around $1.5B in today's value - to Mark Z to buy Facebook. Huge money for a company doing some fun play back then. So the young Mark Z accepted the offer. The deal was about to be closed, but again Terry Semel, Yahoo’s then CEO changed his mind and reduced his offer to $800million. Mark Z refused to take that offer and that deal didn’t go through.

Wait, this is not the start of this story. We should go back to year 1998. Larry Page and Sergey Brin, the founders of Google, approached Yahoo to sell Google for $1 million ($1.6 million today). Yahoo refused that offer. May be they didn't realize the true potential of Google back then. But in 2002, Yahoo themselves approached Google to make an offer for $3billion (say $4.5B today). Larry and Sergey worked really hard in those 4 years to make the Google one of the top companies in the world. So they asked for $5Billion (7.5B today). Yahoo’s CEO refused to accept that offer. Today after an 18 years , Google is worth 1.4 trillion in public market- 0ne of 4 trillion worth companies to ever traded in public market.

So what would have happened to Google and Facebook if Yahoo had indeed acquired them? We will never know. But, I think we can make some assumptions by following the management of these three companies. Oh wait, before we look into that, I must add one more interesting deal that Yahoo received in 2008. Bill Gates got interested in Yahoo in year 2008. So he wanted to make an offer. How much do you think the offer was? $45billion- $55 billion for today’s value. What happened now? Well, Yahoo refused that offer. As of today, Yahoo’s revenue shows $9B in negative. $8billion loss. How sad! (And check the list of Yahoo’s CEOs in last 20 years. And check their priority and goals when they take charge. You can find all these in the web. You will be shocked to know how often a company like Yahoo have changed their fundamentals)

Decision making in investments are heavily connected to the fundamentals. FundIt could be an individual investment decision or corporate investment decision, decision makers should analysis the fundamentals to predict the future.

Making the right decision

If Yahoo had bought Google back in 1998, they would have had a great chance to be the number 01 tech company in the world. Because, back then, Yahoo was a tech giant with a loads of cash in hand in their balance sheet. Spending Billions on these kind of investment would lot be easier to them. They could have made Google a great company a lot quicker than anyone else. At least, they could have owned FB. But their leader's decisions and continuous changes in their fundamentals lead them to astray. Hence they failed the company and by default their investors. All what they needed, was a little bit of understanding about the future and how a company like Google or Facebook could bring value to the humankind. But they failed to see this. That cost them a lot. And they have been waiting for another offer for a long time now. That offer never turned up. This is a story of an utter failure of a great company of twentieth century. So every time I make an investment related decision, I think about Yahoo’s failure a lot. I learnt and concluded a quiet a bit from yahoo's failure. Let me share a few of them with you.

Decision on rejection can be happened in two ways:

One, you make an offer and get rejected. Two, you got an offer and you rejected it. While you have a limited control over the earlier one, you will have plenty of control in the second option. Think the situation of Google approaching yahoo 1998 asking just a 1 million dollar for the entire Google's business. 1 million was a penny investment for yahoo back then. and they could have even negotiated that price if they would have wanted. But they had simply rejected it. So this is now more of an issue of having the control of making the decision rather than making the decision itself.

Now in front of me, dealing with Trading 212’s issue, I have two options to choose:

1) Stick to them and wait till trading 212 lift all its ban on my stocks that i have invested.

2) Ditch them and find my new ways as Facebook and Google did to Yahoo. If I choose the second one, I know that I will have more control over my decision. Since I know that, I will choose that one for sure. So moving out from trading 212 and find another platform would be a better decision.

Now, I will ask my friend what she would choose.

When Yahoo made that famous $1b offer, they knew FB is something that could add value to their revenue stream. But, I believe they failed to figure it out what that “something” is.

2 billion accounts all around the globe. Yes, Facebook services are free. But is it actually free? Not really! Every account is their capital. How? FB’s main revenue comes from their marketing services. we are talking about billions of dollars. Companies and individuals choose FB to post their ads because they believe it will reach many of their potential customers. This aspect was not valued by Yahoo back in the days.

So the true potential of a company stays vague. No one can logically measure it. But still, we can try to go closer to the exact amount with bit of basic FUNDAMENTALS understanding. How good we are in finding them early is what defines our success.

So, DECISION MAKING in an investor’s life plays a very vital role. Every decision that we make, directly or indirectly will impact our portfolio, so does our day today life. So please be careful with your decision making process.

Market is an awesome place. It rewards people with patience and it punishes those with ignorance. So, let’s all be literate.