Can short term hiccups present long term investment opportunity?
23 June, 2015
Some of the World's most successful investors have made their money buying high quality assets at bargain basement prices.
Yes, it's one of those things that's easy to say but a little harder to do, but it is definitely one strategy to be on the road to amassing riches! Like I say, it is harder to do than it sounds. It usually needs one of two things to happen — neither of which feels very good at the time.
Either the share market needs to fall a lot (think 2008) and you get a lot of bargains then. Or the other way was for a company to have a stumble that affects it in the short term, but doesn't really affect it in the long term — and that can provide a real opportunity.
We might have seen an example of that yesterday in the case of Seek, the online employment and training website.
Yes Seek updated the market yesterday — it's "confession season" as they call it in Australia — and they updated the market that profits won't be as quite good as a lot of people had expected. That's bad news; profits for this year will be lower and the inevitable happened. People panicked dumping Seek shares which, at their worst point of the day, were down by over 15%.
Seek cited a couple of reasons for the lower than expected earnings.
There a few moving parts in the announcement they made to the market, but two things really stood out for me.
First and foremost there was an IT systems upgrade by one of their customers essentially, NSW TAFEs — TAFEs are sort-of like polytechs here. Their students sign up to Seek courses, the IT platform upgrade didn't work properly — therefore less students, which equals less profits.
Seek's also looking to invest more money to grow its business both in Australia and offshore as well. That comes at a short-term cost to profits, so two things that affected profits.
What does this mean for the longer term outlook for the firm and its share price?
I guess it's the fact that those things look transitory that to me make it look more like an opportunity than a threat.
The issue with the TAFE's computer enrolment system will eventually get sorted out and it's at that point presumably Seek will get back a lot of those students back onto their courses.
Similarly, as far as the increased investment in Seek's Chinese business, a company called Zhaopin, Seek's got a really good long term track record of generating high returns with money they invest on behalf of shareholders. It seems pretty smart to me to back a high quality management team that's investing more shareholders money in a growing market that it's got a really strong market position in.
So, what's the general point here? The general point is that sometimes short term hiccups can provide great long term opportunities to buy shares at sale prices.