The 10X Potential Series By TUBInvesting
Hi all,
I am Terence aka TUBInvesting, a financial blogger whom has been investing since 2009 and started writing the T.U.B Investing Blog as of Mar 2015 (Google “TUBInvesting” for the links)!
I will be utilizing Medium as a spin off from my Blog for my exclusive write up — The 10X Potential. It is basically a write up on companies that I am VESTED in and believes that the company has a 10X potential. These companies could be a recent investment or an existing long-term position.
To be a 10X Potential, I personally believe the company must have some sort of condition / criteria / situation such as the following:
Understanding The Business — To invest in a company, we will need to really know the business and its model. This is probably the most under-rated question of asking about a company. You may roll eyes at this question but I do believe not everyone really know what the companies in their portfolio really does.
Examples are that many still believe Tesla is solely an automotive manufacturer and a lot of investors still do not know what Palantir does.
Huge Total Addressable Market or An Expanding Total Addressable Market — This meant that a company that has a growing presence within a huge market can potentially make a huge revenue. This can also happen to a leader of an expanding market. The leader could eventually grow along with the expanding market. Thus, a growing huge top line will eventually tickle down into a huge bottom line.
For example, Tesla is a leader within the EV space and has a growing presence within the automotive industry.
Unique Proposition that Provides An Edge — In order to stand out from the crowd, a company will need to showcase its uniqueness in terms of its business model/product/service that gives it a competitive edge against its competitors. Some investors explain this as “having a moat” — a term made famous by Warren Buffet.
During its early days, Microsoft’s edge is in terms of its products, Windows and Office, and its strategy of getting almost all enterprise in utilizing them forces almost everyone to be familiar with these products and continued to use them over the years. This led to significant cashflow for Microsoft for many years, where it allowed the company to diversify into new revenue channel into cloud computing as well as gaming.
Competition — In my opinion, understanding the competition is the key to success in investing. It allows you to understand the company’s edge in its industry and how it differs from/compares to its competitors. If a company does not have competition in the market it operates in, it will be deemed as a monopoly — the best kind of company to invest in. However, this is seldom the case. Companies also have to constantly look out for disruptors in their respective markets. Thus, there is always a need to innovate.
The most direct competitor of my highest conviction investment (Digital Turbine) in my portfolio is IronSource. The Trade Desk being the most established AdTech firm can also be deemed as a close competitor. If we want to look into the bigger industry, all the AdTech players should also be deemed as competitors.
Management & Execution — If I deem understanding of the competition being the most important factor, I believe knowing the management and their execution comes in as the next important factor. A good management that executes well can bring about significant changes in a company that will result in significant growth in its revenue and eventually lead to the growth in its market cap.
Hut 8 Mining has a changed of CEO in Dec 2020. Subsequently, almost the whole management team changed. Quarterly revenue has since gone from $10.2m in Dec 20 to $39.7m in Sep 21. In the 10 months, Market cap has also grown from sub-$300m to $2.5bn today.
Imagination — Finally, for a company to grow 10X, I believe there is a need to have a bit of imagination as well. When the FAANG was listed on the exchange on day 1, will we have guessed it could have become the big tech as of today? Thus, this meant that for a company to 10X, we will also need to imagine “what the company could become in the future”. That is why all the above stated factors are important in order for us to have an imagination that has the highest chance
Conclusion
As a quote in the Art of War, “If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
For a company to grow 10X, we need to have a little imagination, understand the business, its TAM, uniqueness, the competitors and hope that the management can execute well.
Eventually, I believe all companies can be a 10X potential but with prerequisites to be fulfilled.
Note that these are solely my point of views and should not be taken as financial advice.
I will like to thank you for picking up this exclusive write up. Really appreciate your time and I hope I value-added to your investment journey. Please follow me on Medium!
See you in the next post!
