Back in August 2016, I had touched on the
concept of associative investing to capitalise on disruptive technology
companies, where we could invest in areas that support and/or result from these
firms, especially since there is little or no avenue to invest in the said
companies themselves.1
The basis for associative investing is
simple; all sectors and industries are dependent on one another, and it is
making use of these interdependence relationships to carry out investing. For
example, if you want to invest in e-commerce, besides e-commerce companies, you
could take a look at sectors and industries that are related, like data
centres, logistics firms, payment solution companies, etc.
A simple way to carry out associative investing
is to draw out a relationship chart (e.g. a family tree or an organisation
chart) of the sectors/industries concerned. To draw the lines and fill out the
various boxes in the chart, you could get the information from online and
documentary sources, personal observations or even logical inferences and
deductions. After filling out the related sectors, you could select companies
and ETFs that best fit these sectors/industries, and then carry out fundamental
analysis on them to pick the right ones for your Bedokian Portfolio.
It is not necessary to name the
sectors/industries or their sub-categories if you are not familiar with them.
Using the e-commerce example above, you could instead use simple terms such as
“computers”, “smart phones”, “delivery vehicles”, etc. in your charting.
Once you get the hang of this relationship
charting, you could further modify it by having the target sector/industry in
the middle of the chart, with suppliers/supporters on top and consumers/resultants
at the bottom, creating an “upstream and downstream” map. You could also
include competitors and substitutes, making it like a
Strength-Weakness-Opportunity-Threat (or SWOT) analysis.
Associative investing allows you to view
the entire economic and market ecosystem, as well as the dynamics amongst them.
It could also be used to spot future sector/industry trends, a topic which I
will touch on in my later posts.
1 - http://bedokianportfolio.blogspot.sg/2016/08/disruptive-technology-capitalise-on-it.html