Here’s my best investment idea, but don’t laugh

‘Is it not the case that people are still driving cars, wearing clothes, sitting on furniture etc, etc? Someone’s got to make all this stuff and will be required to do so for the foreseeable future’

PUBLISHED : Wednesday, 12 July, 2017, 11:18am
UPDATED : Wednesday, 12 July, 2017, 10:58pm

Those of us who really like companies that actually make things will be celebrating the latest quarterly results from Samsung, registering a 72 per cent operating profits surge for the period to June; full year estimates are also pretty healthy.

Samsung is a really serious maker of things from microchips to computers to phones to household appliances and all manner of components. This year has been rough for the company, which is caught up in a major domestic political scandal and is clawing back its reputation in the smartphone business after the Galaxy Note 7 exploding battery disaster.

However the sheer breadth of its manufacturing prowess has cushioned the group from these pitfalls and allowed it to power on.

The days when the great industrial conglomerates dominated business, let alone stock markets, are well gone. The world’s biggest companies, as measured by market capitalization, are corporations that make nothing or practically nothing at all. The biggest of them all, Apple, is rightly not thought of as a manufacturer; products bearing its brand are largely made by other companies. The number two in this list, Alphabet, only really exists in the virtual world where its Google operation churns in the cash.

You need to get down to the eight slot of largest companies to find the pharmaceutical giant Johnson & Johnson, a business actually making things. Samsung, incidentally, ranks twelfth and is now the world’s largest industrial conglomerate.

The big auto companies have long ceased being masters of the business universe; indeed the only major automaker in the top 50 is Toyota, languishing in 48th place. The big steel barons are nowhere to be seen; even the big oil giants have been eclipsed, although the pending listing of Saudi Arabia’s Aramco will change some of that.

Meanwhile companies that once made things, such as General Electric, are still very much around but they are not dependent on the latest household gadget to make a buck as they have moved on to the glorious world of finance and beyond.

In Hong Kong most of the big manufacturing companies no longer manufacture but precisely because they once made things they also owned buildings that have served as the basis for their transformation into property conglomerates. This, in itself, provides a salutary lesson for the desirability of owning physical things because unlike the heady world of ideas and concepts that fuel the growth of corporations, such as Facebook, physical things remain once the original business idea has been supplanted by the next big thing.

My enduring love of the manufacturing sector has, to be honest, not served me that well as an investor

My enduring love of the manufacturing sector has, to be honest, not served me that well as an investor. I am, for example, a very long term shareholder of Johnson Electric, one of the few pure industrial counters remaining on the local bourse. A less glamourous stock is hard to imagine as its focuses on producing goods such as pumps and valves that have little appeal to the smart folk who love to talk concepts when they discuss investments. Anyway sticking with Johnson has been something of a rocky ride but it is coming good again, albeit at glacial speed.

However us boring long-term investors are not looking for speed, but longer term reward, this is just as well given my interest in Japanese stocks, which tests the most ardent believer in investing in real things.

The dismal performance of Japanese shares for a very long period required a vast residue of patience but my view was and remains that some of the world’s best industrial companies, making some of the best products, are located in Japan and that quality will eventually out.

Yes, yes, I know eventually means a big wait; in fact the Nikkei 225 today has only just managed to get back to where it was some 16 years ago. The carnage of 2008/9 was experienced throughout Asia but Japan has taken longer to recover; yet recovery is what’s happened. This process began in 2010 with share prices trending on an upward trajectory propelled by the inherent strength of Japan’s biggest companies.

Friends have mocked me for sticking with Japanese investments (some of which have admittedly been dire) but I am unshaken in the view that fundamentally Japan has a strong economy, with an unusually strong manufacturing base.

Does such a thing matter anymore? Surely the smart money should be placed on ideas and what used to be called the new economy but now has another name that I didn’t quite catch. Obviously this idea of ideas is all very exciting but is it not the case that people are still driving cars, wearing clothes, sitting on furniture etc, etc? Someone’s got to make all this stuff and will be required to do so for the foreseeable future.

Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster

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