Apple shares suffered their worst fall in four years on fears that it was losing market share to rivals. What really surprised me was that one of the triggers was the fact that China Mobile, the biggest mobile operator in China, had signed an agreement with Nokia to distribute their new Lumia 920T phone, but not with Apple.
Who would have predicted even six months ago that Apple would now be threatened by Nokia? It appears to me that most people these days, especially teenagers, treat Nokia as a joke. Most teenagers would give their parents a huge scowl if they were to buy them a Nokia (oh God, no!!!). Yet now, the once almighty Apple, the world’s most valuable company, is being threatened by Nokia.
Many of you might have forgotten that just ten years ago, Nokia was the world’s Number One in mobile phones with a market share of over 50 percent. While they may have suffered a decline in both market share and product quality in recent years, it might be premature to write them off. Strong, established companies have considerable strengths that allowed them to survive the myriad vagaries of business. Don’t count Nokia out – this Finnish company might not be finished yet.
This recent turn of events underscores the pivotal role of competitive advantage in business. Besides being a GP and English tutor, I am also an avid investor in the stock market. One of the principles I follow is to invest in companies that have sustainable competitive advantage or what legendary investor Warren Buffett calls “deep moats”. He once said, “In business, I look for economic castles protected by unbreachable ‘moats’.” In the fickle, fluid and fast-changing world of consumer electronics, today’s sexy new product can be dowdy junk just one year (or even six months) later. What sustainable competitive advantage do consumer electronics companies like Apple or Samsung have? I’m sure they have some, such as a strong brand, well-developed corporate values, efficiency and a culture of innovation. But these advantages are far from unbreachable, and the long-term success of these companies, far from predictable.
For enquiries on GP tuition by the blogger, a First Class Honours grad from NUS, click ‘About the Tutor/Testimonials’ and ‘Track Record’ above.
This is why I mostly invest in real estate investment trusts (Reits) such as Starhill Global Reit instead. A Reit is traded just like a stock on the stock market and run like a company, just that they are bound by certain special rules such as having to pay out most of their profits to shareholders if they wish to receive certain tax benefits. Starhill Global Reit owns the iconic malls Wisma Atria and Ngee Ann City in Singapore’s main shopping street, Orchard Road. Both malls are right beside Orchard MRT station (subway).
These premier malls face limited competition as the only other mall within easy walking distance of the MRT station is ION Orchard, and competition is highly unlikely to increase as there is no more land left for development near Orchard MRT station. Thus Wisma Atria and Ngee Ann City enjoy a sustainable, durable competitive advantage. I would say that not only are their walls high and moats deep, but their defences against potential competitors are virtually impenetrable. Of course nothing is 100 percent predictable in business, but one can say with at least 90 percent confidence that Wisma Atria and Ngee Ann City will still enjoy good business in 10 years, 20 years, or even 50 years.
By contrast, I asked this question last year: will Apple still be No. 1 in five years? I got my answer in a matter of months: Samsung overtook Apple in global smartphone sales in October last year, just weeks after the passing of Steve Jobs. Remember that Steve Jobs founded Apple and got fired by the company he created. Apple then went downhill and Jobs returned to revive the company. After he died, Apple seems to be going downhill again. It just begs the question: is Apple a one-man show? It also highlights how uncertain and dynamic life is in the age of high technology. As an investor, I try to maintain some stability and security in my finances by investing mostly in old-fashioned brick-and-mortar assets like shopping malls in great locations. I know the value of these assets doesn’t depend on just one man, or what the latest killer app is.
For enquiries on GP or English tuition by the blogger, a First Class Honours grad from NUS, click ‘About the Tutor/Testimonials’ and ‘Track Record’ above or call Steven Ooi at 98392152. Personal statement writing/editing services also available.
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