Reluctant Entrepreneurs
Giving Thanks
A Chinese Stock Pick
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Last weekend my wife and I attended a launch party for a new food-and-wine magazine called Northeast Taste. The editor and publisher are both old friends, and the new publication is the culmination of many long years of editing and publishing other people’s books and magazines.
But the reason I’m writing about them today—besides my gratitude for the pear vodka, amaretto and ginger beer martini I was served at the party—is that my friends are a great example of what I call reluctant entrepreneurs.
I know there’s a 2009 book called The Reluctant Entrepreneur by Lynn Parker, but my friends were using the title for themselves back in the 1980s. Ms. Parker’s book is aimed at people who became entrepreneurs because that was the only way they could achieve the working conditions they wanted.
My friends, on the other hand, became entrepreneurs because they lost their jobs.
It’s a very different kind of reluctance.
It’s also hard to gauge the likelihood that the new magazine will make a go of it. I’m told that sales of food-and-wine books and magazines have held up very well during the economic downturn and the employment doldrums that followed. Pre-orders from distributors have been higher than expected, which is a great sign.
But what really interests me is the phenomenon of good results coming out of bad situations.
Here’s one example from the years after the Tech Bubble burst in 2000.
While the Tech Bubble was still inflating at high speed, there was a maxim making the rounds to the effect that “band-width is the ultimate commodity.” And in response to the logic of that maxim, the country went on a fiber-optic building spree that laid down enormous digital highways capable of handling tidal waves of data.
Those highways went begging for traffic in the few years after the dot.gone era arrived, and it looked like all that building was in vain.
But it’s one of the laws of the universe that abundant resources tend to generate their own uses, and the exponential rise of email, instant messaging, online commerce, cloud computing and the flood of file sharing of music, pictures and videos was made possible by all that unused transmission power. Even now that everything is going wireless for its final leap to devices, it’s the fiberoptic highway system that does the heavy lifting of moving signals from router to router.
And to get back to the entrepreneurial business, I have no doubt that the wave of unemployment in the past few years has already lit a fire under the rear ends of hundreds of thousands reluctant entrepreneurs.
It may be that these people would like nothing more than a nice steady job with a regular paycheck and a company health plan.
But harsh times are a great motivator, and when people have to become their own bosses, the results can be spectacular. And when hiring returns to somewhere near normal and the people who prefer to be employees can finally find work, there will remain a huge group of one- and two-person businesses whose proprietors never want to go back.
They will be bakers, handymen, tech-help gurus, musicians, artisans and craftspeople who were forced to start their own businesses. But they will also discover something about the joy of being your own boss and producing goods and services on your own terms. And they never want to go back.
And unless I’m very much mistaken, in a few years we may see a new wavelet of IPOs for companies that got their start in these hard times at the hands of some very reluctant entrepreneurs.
I could make a parallel point about people who have reluctantly come to the conclusion that they have to manage their own investments.
It’s a daunting task, and one that many people are hopelessly intimidated by.
But it’s also true that some people who have been forced to take a role in managing their own assets have found the challenge invigorating.
And I hope I may be forgiven for suggesting that the assistance of one or more of Cabot’s fine investment newsletters might be of material assistance in such an enterprise. (I’m thinking especially of the Cabot China & Emerging Markets Report, probably because I write the useful thing.) I think it’s worth looking into.
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With Thanksgiving looming large on the horizon, I’m tempted to make a list of the things I’m thankful for. That’s always a heart-warming topic.
But since I haven’t hit the lottery (in large part because I don’t play the lottery, but let that go), haven’t been released after many weeks of being trapped underground in a coal mine (same reason) and haven’t been given my own reality show (for which major thanks), my reasons for gratitude are pretty mundane.
If I tried to get beyond the Big Three (family, job, health) into something a little less generic, I’d say I’m grateful for the existence of HDTV, for books on paper and books on CDs, for foreign and art-house movies that don’t make it to the Mallplex theaters, for top-shelf bourbon (Knob Creek at the moment), and for a large supply of firewood, a few pieces of which can be sidetracked into carving projects.
But if I can get really idiosyncratic for a moment, I’m grateful for a chance to communicate with the readers of the Cabot Wealth Advisory. An interest in investing in individual stocks isn’t all that common. And if you’ve ever tried to drop a stock story into the flow of dinner conversation with a group of non-investors, you know what I’m talking about.
So while I wish a Happy Thanksgiving to everyone, I have a warm spot in my heart for those who enjoy the challenge (and can tolerate the occasional kick in the shins) of riding the carnival ride of the stock market.
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My stock pick for today is China Southern Airlines (ZNH), which is the dominant passenger, cargo and mail carrier for the southern provinces of China. Airlines are traditionally tough ways to make a profit, but the Chinese government’s control of rate structures, routes and operating rules takes a little of the uncertainty out of the equation for China Southern.
The company’s major appeal is its last three quarters of steady revenue growth (31% in Q1, 52% in Q2 and 48% in Q3) and the huge earnings growth that can come seemingly out of nowhere, such as the 816% jump in Q3 earnings.
This isn’t a stock for the faint of heart, or for those who like to invest and forget about it for months at a time. ZNH has a beta of 1.46, and the chart shows some big volatility. But the chart also shows a stock that put in a nice base from April through the end of August, then broke out above 26 on good volume in September. The stock soared to 39 in late October before the correction set in. Note that volume is minuscule, which guarantees high volatility. It’s that low volume that pulls the stock out of consideration for inclusion in the Cabot China & Emerging Markets Report’s portfolio.
But with a P/E ratio of just 7, annual sales or more than twice its market cap and a generous float of 66 million shares, ZNH can provide a good opportunity for a trader with the patience to sharpshoot it near the 50-day moving average.
For more on top Chinese (and other emerging markets stock), check out Cabot China & Emerging Markets Report, the #1 newsletter for the last five years, according to Hulbert Financial Digest.
Sincerely,
Paul Goodwin
For Cabot Wealth Advisory
