Investing and intrinsic value

One of the things that being a part of the technology industry comes with is the awareness that there’s a lot of money in technology. Almost everyone knows of someone working in a startup or making money off of technology companies. Personally, I’ve invested small amounts (up to $1,000NZD) into NZ tech companies here and there. These have resulted in some gains, some losses. Overall, not much either way (probably would be about “even” if I kept track of things).

One thing that always did bother me was that I had no idea how to calculate the “fair price” (also called “intrinsic value”) of a company that isn’t paying any dividends. (I “roughly” knew how to work out the value of a company that was paying dividends).

A few months ago, I heard about Hatch Investments and that they allow you to buy US stocks directly from NZ (ASB only let you buy NZX and ASX listed stocks and Sharsies didn’t have US stocks, but apparently this is coming).

After signing up to Hatch I first just bought some Index funds, figuring it was a low risk way to see how it all works. The way it works is roughly:

  • Transfer NZD to Hatch bank account
  • Wait a (working) day or two for the money to get converted to USD and made available in your account (not sure whether they take a cut here)
  • Money is there to invest!

Then, at some point I started wondering about individual companies, but still had my doubts as to how to actually work out the “value”. With this question on my mind, I read through one of the Hatch articles, where they profiled a NZ investor by the name of Tom Botica. This led me to check out his Youtube video explaining his method of working out intrinsic value. Going through it, the method made a lot of sense to me, in that I could understand it and couldn’t see any obvious problems with it (it does come with caveats that it doesn’t apply to stocks not from well established, large capitalization companies).

So, armed with a spreadsheet, I was kicked into action by the crash around March 20th, triggered by the COVID-19 virus. I set about working out the intrinsic value for Amazon and Google stocks. Lo and behold, they were under priced and I bought some.

Will this bet pay off? I don’t know. In the short time since then (about six weeks?) a lot of people have started pointing out that the market recovery is not logical and that it resembles a “dead cat” bounce. This is probably true. What will the world look like in a year or two? Who knows.

Sharsies

So, we have this new company called Sharesies which is trying to make it easier for people to invest in the sharemarket. They’re basically re-selling Smartshares EFT’s by making a nicer looking UI and trying to simplify the options (risk as an “out of 10” score) etc…

I signed up for the beta and got $20 “free” credit (though there’s a yearly $30 for signing up) and got started. Currently there’s only six options to buy (4 “balanced”, one “conservative” and one “growth”):

Screenshot showing available options to buy
Screenshot showing available options to buy

List of options currently available, mix of NZ, Aus and US products

This was a bit disappointing as Smartshares offers about 22 different products, but I assume that this is just due to Sharesies being in “beta” and that more will be added as time goes on and more users join.

The user interface is nice and simple to use and was obviously designed for mobile phones. This is kind of ironic in a way since topping up your wallet basically requires a wait (nightly batch processing is still alive and well in NZ’s banking industry) as well as actually placing a “buy” order can take up to two days to fulfill.

How/why a real-time interface is needed when you’re dealing with those kinds of delays/processes is beyond me. The only thing I can think of is that Sharesies is hoping to gain enough users to spur the finance/banking industries into developing some “real time” capabilities and not relying so much on batch processing running on ancient mainframes. I wish them the best of luck 🙂

Overall a great idea, well executed (especially considering it’s in beta) and I hope Sharsies take off and get more people to invest in anything other than housing.