Lessons learned from investment mistakes

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Grace Yan, Hong Kong-based portfolio manager at Nikko Asset Management

Yan’s lesson learned dates back to three years ago when she held the position as an equity analyst at Nikko. She helped fund managers find investment ideas from the universe of Asian small and mid-cap equities.

As an analyst, she recommended to the fund manager a listed travel agency. The company, based in North Asia, was a leader in the travel agency segment and decided to expand into the duty-free retail business.

“Even though a discount on valuation was given due to the new business plan, we had confidence in the management’s historic capability to deliver a good result,” she said.

Her forecast was that new duty-free shops would have synergy with the company’s core outbound travel agency services. Additionally, the company had previous experience as a retailer, though it was not with a duty-free business.

Eventually, brand recognition proved to be a problem. The company’s travel agency brand was not effective when applied to the duty-free business.

She admits underestimating the influence of existing duty-free players and their ability to grow market share.

“We probably underestimated the intense market competition with the existing duty-free retail players as the travel agent was a latecomer to the duty-free market.”

Additionally, as a new entrant, the company postponed their initial estimations on breakeven in the new business, according to Yan.

As the duty-free business struggled, the company’s outbound travel services were hit by political turmoil and natural disasters in key travel destinations and the stock price eventually tumbled, she added.

What has she learned? Today, when evaluating a potential investment for her firm’s Asian Small Mid Equity Fund, she is more watchful of companies that are expanding into new business areas, regardless of the relevance to the core business.

“When a company is entering into a new business, probably it is a better idea to examine them with a fresh lens and put little credit to their operations from the past.”

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