Horse racing has always been huge in Hong Kong.
It’s something of a religion over there. Their cathedral is the Happy Valley Racecourse.
The grassy oval floodlit at night is one of the grandest sporting views in the world. In the backdrop are neon skyscrapers, high rise apartments, and hundreds of thousands of reflective windows, brightening the city.
Attending Happy Valley is not just about status or appearances. To some it holds the potential for fortune.
In 2001, everyone was talking about Hong Kong’s largest jackpot — the Triple Trio.
On that single bet, punters had to predict the top three horses, in any order, in three different heats. It was a tall order, with more than 10 million possible combinations. But if anyone could pull it off, they’d take home US$13 million.
If no one won the prize money would roll over to the next set of races.
One night in November, the pot had rolled over six times. It was now the last race of the night. Everyone was going ballistic. Everyone except two Americans sitting in a private box watching multiple TV screens.
They had developed an algorithm which was making bets on their behalf. So far 35 bets had correctly picked the three winners in the first two races. But the lucky last managed to pick the top three horses in three consecutive heats.
The pair walked away with US$16 million. But they had to make 51,381 bets to do so.
Limit yourself to a punch card
The Aussie market is ever so close to creeping back above its high this year.
In early February, you saw markets all over the world slip thanks to spiking bond yield. Since, we’ve seen escalating privacy concerns, a trade spat and central bankers change their sentiment.
It’s all aided volatility.
This short-term noise doesn’t exactly feel that way in the moment, though. When the market drops 5–10% investors believe more of the same will come.
But making decisions on such short-term events will more often than not hurt your returns long-term. Unlike the two Americans that made 51,381 bets, you should try to making as few bets as possible. Doing so will force you to invest in businesses you really believe in.
Say, for example, you had an investment punch card. There were 20 punches on the card. Each time you make an investment you lose a punch. Once you use up all 20, that’s it. No more investments.
With such a strategy, you’d likely think long and hard about each investment you make. You wouldn’t buy a stock to simply diversify your portfolio. You wouldn’t buy something just because everyone else likes it. You probably wouldn’t even pay attention to politics, central bankers or even a tweeting president.
The only thing that would matter is the business and its long-term prospects.
This is exactly the mindset Warren Buffett told recent graduates to have when making any financial decision in their lives.
‘Big opportunities in life have to be seized. We don’t do very many things, but when we get the chance to do something that’s right and big, we’ve got to do it.
‘…you’re not going to get 500 great opportunities.
‘You would be better off if… you got a punch card with 20 punches on it. And every financial decision you made you used up a punch. You’d get very rich, because you’d think through very hard each one. I mean if you went to a cocktail party and somebody talked about a company and they didn’t even understand what they did or couldn’t pronounce the name but they made some money last week in another one like it, you wouldn’t buy it if you only had 20 punches on that card.’
While the number 20 is arbitrary, it’s the mindset that’s important. Buffett himself has made hundreds of investments over his life time. But each one has taken hours of thought.
Is there a substantial risk of losing money? Will I get an adequate return on my money?
It’s a simple lesson, but one many investors forget when they jump into the stock market.
Do not jump into things haphazardly. Think through each investment you make. And by the end of your life you’ll be that much richer for it.
The question then is, where do you find these opportunities?
Be a contrarian
You can find some of the best opportunities in places no one else wants to look. Investors generally think in weeks and months rather than years.
Who wants to wait a few years for an investment to pay off? Almost nobody it seems. It’s why you’ll see a majority of investors jump in and out of stocks trying to capture small gains.
So when an industry or stock performs poorly, it’s abandoned by the market. But it’s worth considering the long-term prospect of the most hated stocks and sectors in the market. Usually they’re full of opportunities if you just draw out your time horizon.
Take China for example. What do you commonly hear about China?
Debt and communism.
Yet almost no one doubts China’s long-term potential. The nation has a massive growing middle class, they’re quickly building out their technology industry, and they’re building out infrastructure to further improve trade.
Opportunities in and profiting from China are surely worth a look. In fact, during Berkshire Hathaway’s 2018 Annual General Meeting, second in command, Charlie Munger said China holds even better opportunities than the US.
Days later Munger told CNBC:
‘The best companies in China are cheaper than the best companies in the United States…I don’t think it would be all that hard for any smart person to find four or five great companies in China to invest in.’
If you want to find even more unique Chinese opportunities, click here.
Editor, Money Morning