For example, this quarter, thanks to our profound knowledge of the media sector through our analyst Vighnesh Padiachy, we took advantage of a window of opportunity that saw the stock market debut of the Chinese firm IQiyi (NASDAQ:IQ). The so-called ‘Netflix’ of the East, which in reality is probably more a combination of Netflix and Disney, made its debut with a valuation that, according to our analysis, offered significant growth potential. And we were not alone in spotting the opportunity; the offer was enormously oversubscribed. In other words, investors requested to buy several times more shares than actually IPO-ed on the market.
The firm made its stock market debut on Holy Thursday and its first movements caused concern: the price of the shares fell rapidly from the €18 at which they had been placed to €15. But the subsequent reaction was stunning and, within a few months, the shares that we had been able to purchase had more than doubled in value with respect to their placement price. In fact, the progress has been so rapid that we have now sold all of the position, generating a very attractive return of 100% for our portfolios.
By default, we do not necessarily rule out investing in companies that are losing money. It is important to analyse the reasons in detail, understand the business well and see why the losses are happening. For example, there are some internet-based businesses for which being the market leader is the absolute key, and so they make major investments to maintain their positions. Companies such as Amazon and Netflix spring to mind.
Of course, the key is being able to distinguish the companies that ‘burn money’ for the wrong reasons from those that are building their future leadership positions. And here, again, a profound knowledge of each company, each business, each trend, is critical, which is what you have at your disposal through the investment team at BESTINVER.
From Bestinver's second quarter 2018 shareholder letter.
