Home / Business / Here are lessons learned from two “10-bagger” investments of a fund that has doubled in value this year

Here are lessons learned from two “10-bagger” investments of a fund that has doubled in value this year



Hayden Capital has had a pretty good year – back 101.2% in the first half, according to the shareholder letter for the second quarter.

Fred Liu, its managing partner, discussed two of his so-called “10 baggers”, ie investments that returned 10 times the original investment.

One was a company that everyone knows, Amazon.com AMZN,
-2.14%,
which was achieved in six years, and another was Sea Ltd. SEE,
-1

.90%,
The Singapore service company in just two years.

Amazon, he noted, has not only increased its sales, but has done so in its higher margins, Amazon Web Services and the third-party market. Sea Ltd. meanwhile, successfully invested in its Shopee e-commerce platform, which it was able to do because the Garena gaming business provided cash flow.

It was really a “bite on the farm” moment for Sea Ltd – but one that I thought was the right decision given the large size of the price if it worked, and the ability to put together and still save the value on the Garena side if it did. not, ”he wrote. “In short, I saw a massive opportunity, while the market saw a gaming company burn money on an e-commerce business that it had no right to be in. This allowed us to buy the shares at a very low entry multiple.”

What do the two have in common? “The lessons learned from these two case studies show that in order to achieve 10x type returns, you probably need a combination of rapid value creation, along with the market’s increasing appreciation of the company’s path shown by multiple expansion,” he said.

Finding a fast-growing company is not that difficult – but the nuance, he said, is that sales growth must come from value-added activities, for example by strengthening the company’s networking power with each new customer added. The third and critical point is the price.

“But the problem is that investors too often pay too much for these companies in the first place, because the market has already become too excited for them and offered prices,” he said. “The stock is constantly fighting headwinds and is looking for a growth in intrinsic values ​​to exceed the degree of multiple compression.” A company that grows three times more valuable in five years – but with a multiple compression of 50% – will return 8.5% annually, or more or less in line with the market.

He said he was looking for companies that are priced for a low-growth scenario, where the further realized growth is then released.

drone

The presumptive Democratic president nominated Joe Biden, after the markets closed on Tuesday, appointed senior Kamala Harris as his running mate. The pair will appear on Wednesday in Wilmington, Del., To deliver joint comments. At the same time, no talks are yet planned between the congress leaders and the White House on a fifth stimulus package.

News on the coronavirus front took a turn for the worse, with new cases, the positive test rate and deaths increasing on Tuesday, according to the COVID-19 tracking project.

The United Kingdom reported a 20.4% decrease in quarterly gross domestic product during the period April to June, which is the worst development for any major economy during that period. The US economic calendar contains consumer price data for July.

Tesla TSLA,
-3.11%
said it has approved a 5-for-1 share split after the increase in the value of the electric car’s inventory.

Modern MRNA,
-4.22%
said it has reached an agreement to sell 100 million doses of its COVID-19 research vaccine to the US government for more than $ 1.5 billion.

The telecommunications company Liberty Global LBTYA,
-0.58%
launched a $ 5.5 billion bid for Switzerland’s Sunrise Communications SRCG,
+ 26.21%.

markets

Following a 104-point decline in Dow Industrials DJIA,
-0.37%
on Tuesday, US stock futures ES00,
+ 0.64%
YM00,
+ 0.82%
NQ00,
+ 0.76%
was higher.

Oil CL.1,
+ 1.29%
futures rose while gold futures GC00,
-0.15%
continued to turn.

The return on the 10-year Treasury TMUBMUSD10Y,
0.671%
edged up to 0.67%.

Random readings

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases for the past three decades, expressed skepticism about Russia’s coronavirus vaccine.

FiveThirtyEight has released its election model – and that gives Biden the same odds as winning as Hillary Clinton 2016.

A new dinosaur related to T. rex has been discovered.

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