My favourite quote having to do with investing sprang to my mind last week while I scanned the news.
It’s not a line from some legendary hedge fund operator. Nor is it a citation from some tenured finance academic.
It’s a simple piece of sporting advice that comes from arguably the world’s greatest hockey player.
I’m talking about National Hockey League (NHL) legend Wayne Gretzky.
In his autobiography, Gretzky revealed a secret to his success. It’s a lesson his dad taught him when he was a young boy.
Here’s the Gretzky secret: ‘skate to where the puck is going, not where it’s been’.
Here’s how you should interpret that advice. If you want to dominate the stock market like Gretzky dominated the NHL, you have to balance intuition and analysis to make smart decisions faster than others.
And if you want to scoop big profits, you’ll need to take large, calculated risks.
Sometimes that means taking a chance on a technology that’s yet to be commercialised. Or speculating on a resource explorer striking it lucky.
Investing this way isn’t always easy. If it were, we’d all be billionaires. But there are many rewards if you’re persistent.
Funnily enough, billionaires seem to find it easier than most to invest the ‘Gretzky’ way.
Maybe when the stakes are higher, the mind focusses more sharply. Or maybe these guys are just too rich to waste time.
Either way, it’s clear that the richer you are, the more doors open to investment opportunities from which you can potentially make a killing.
I went into that theme in some detail in last month’s issue of Australian Small-Cap Investigator.
But it’s back in view with the news that James Packer and Lachlan Murdoch are considering a multi-million dollar investment in Australian peer-to-peer (P2P) lender SocietyOne.
I wrote about P2P lending a month ago in this eletter for Money Morning.
SocietyOne is Australia’s first fully compliant online platform that connects borrowers and lenders directly. It offers people on both sides of the transaction more attractive interest rates than banks.
It may not be profitable yet, but several Gretzky-esque investors have already skated into position in SocietyOne’s capital structure…amongst them Westpac’s venture capital fund Reinventure, Berlin tech incubator Rocket Internet and the Australian head of global private equity giant KKR & Co. L.P. [NYSE:KKR] Justin Reizes.
When I see investors of this stature circling a tiny start-up, I get excited.
I’m not trying to tell you that everything Packer and Murdoch think about touching turns to gold.
But the line that divides financial services and technology companies is becoming more and more blurred. Start-ups are working out new ways to solve old problems in finance. And slowly but surely, they will eat away at the billions in profit that the big banks record each year.
Both of these billionaires have a strong track record of backing young tech companies that have gone on to upend well-established industries.
You need look no further than Packer and Murdoch’s early reading of the play in now-iconic online businesses like Seek Ltd [ASX:SEK], Carsales.com Ltd [ASX:CRZ] and REA Group Ltd [ASX:REA].
Seek’s co-founder, rich-lister Paul Bassat, certainly believes that P2P technology has enormous potential to disrupt the lending market.
Bassat had this to say at Tuesday’s Macquarie Bank Future Forum:
‘There’s a bunch of people that just can’t get the money they need for day-to-day activities…but it’s also an opportunity for yield-hungry investors to get better returns without intermediaries taking a pretty significant clip on the way through.’
That kind of praise should tell you one thing: sooner rather than later, more savvy investors will skate into P2P lending.
How you can take the first bite
Successfully picking the next big investment theme is one challenge. But sometimes it’s just as hard to find a vehicle that lets you invest in those forward-thinking ideas on the Australian Securities Exchange (ASX).
That’s largely true today for P2P lending…but I’m betting it will change in the near future.
Sometimes the billionaires muscle their way in before a stock becomes publicly listed. It’s not easy for you and me to get a seat at that table.
But at other times, these heavy hitters join the party months or years after you’ve had the first bite at the cherry.
When well-known investors join a shareholder register later in a young listed company’s life, it can bring a new level of credibility and momentum to the stock.
We’re seeing that play out right now for one of the stocks we’ve recommended in Australian Small-Cap Investigator.
It’s a stock that’s gone up 281% since we tipped it, but the latest news could keep it moving.
This firm is only just starting to pop up on the radar for some of the world’s biggest and most influential investors.
Last week this company announced that one of the world’s largest hedge funds had become a substantial shareholder with nearly 7% of the shares outstanding.
The company is now set to add three more heavyweight US funds as major investors.
This company doesn’t trade on cutting-edge technology…but it’s brilliantly positioned to reap the rewards of long-term structural changes in the global energy market.
When the world’s sharpest and wealthiest investors sit up and take notice of your stock…it’s a thrilling time to be a speculator in small-cap companies.
Small-Cap Analyst, Money Morning
Ed Note: The above article is an edited extract from Australian Small-Cap Investigator.