There are no guarantees when it comes to investing.
So when it comes to evaluating where I?m going to place a proportion of the funds in my portfolio, there are few things I?d like to know:
First, does management have skin in the game and own shares in the business?
Second, is management at all entrepreneurial? Are they truly creating and growing a sustainable business or are they merely turning up to work every day to collect their fortnightly pay?
Third, is management adept at using technology to create and sustain its competitive advantage?
For the majority of my own portfolio, I…
There are no guarantees when it comes to investing.
So when it comes to evaluating where I’m going to place a proportion of the funds in my portfolio, there are few things I’d like to know:
- First, does management have skin in the game and own shares in the business?
- Second, is management at all entrepreneurial? Are they truly creating and growing a sustainable business or are they merely turning up to work every day to collect their fortnightly pay?
- Third, is management adept at using technology to create and sustain its competitive advantage?
For the majority of my own portfolio, I invest in businesses that have been around a while and have proven themselves as successful listed entities.
In the interests of true diversification though, I also like to look for businesses that are relatively young, have a huge growth opportunity in front of them and, also, come with significant execution risk.
I’m not scared of risk but to feel comfortable in investing in a listed tech startup or venture-capital-type business with aggressive growth plans to take on the world, I’ll allocate my scarce capital accordingly.
I’m not talking huge amounts here, perhaps anywhere between 1% and 3% of a portfolio will suffice, but if any one or more of these investments hits it out of the park, you could be talking multiples of your initial capital where a 1% position could become 5% or more.
Last week was the launch of the inaugural ‘Tech Pioneers Report’ which
… showcases the most exciting and pioneering startups from Australia and New Zealand. These are the companies at the leading edge of the ‘ideas boom’ and the drivers of the economy of the future.
You’d expect any discussion of startups to be concerned with mainly privately-held businesses, but I was pleased to identify a number of listed businesses on the list as well.
Here are the three listed businesses appearing on the inaugural Leading 50 Tech Pioneers Report which, I believe, should form a small part of your portfolio:
Xero FPO NZX (ASX: XRO)
Coming in at number two on the list, Xero probably doesn’t need much of an introduction. The provider of online accounting software and services for small and medium-sized businesses, it’s gradually gaining brand-name recognition as well as revenue and market-share in the online ‘cloud accounting’ space. With Mr Rod Drury, the CEO of Xero, owning more than 15% of the ordinary shares on issue, Xero definitely meets all of the above criteria.
If you’re going to buy shares in Xero, then make sure you do so with a timeframe of at least five years.
Wise Tech Global Ltd (ASX: WTC)
A provider of cloud-based software to logistic service providers in the global logistics industry to enable the storage and movement of goods globally, Wise Tech comes in at number 10 on the Tech Pioneers Report.
Mr Richard White, the CEO and Executive Director, owns almost three quarters of the shares on issue after it went public only in April this year.
Like Xero, this is a company that adopts technology to service its customers, has management with a large stake in the business and is running the company for growth, all with an owner’s mindset.
Aconex Ltd (ASX: ACX)
Coming in at 14 on the list, here we have, again, a cloud-based provider of software, this time for customers in the construction, infrastructure, and energy industries. All stakeholders in large projects using Aconex’s software solutions collaborate online to streamline efficiencies in information which, ultimately, assists stakeholders to finish projects on time and within budget.
Between them, Mr Leigh Jasper, CEO, and Mr Robert Phillpot, Senior Vice President of Product and Engineering, own more than 12% of the listed shares on issue and will be instrumental in growing this business over the long run.
It’s no coincidence that these companies are considered innovative, are growing rapidly, are highly reliant on the use of technology for the source of their competitive advantage, and have founder-led shareholders calling the shots.
There’s a lot of risk here though and there’s a chance that these investments may not turn out the way you hope. Therefore, investments in companies like these aren’t for everyone.
However, if you can keep your allocation low, and if you can hold on for at least five years ignoring the inevitable bouts of volatility in the shares, the potential upside to such investments means that companies like the ones referred to above should be considered for investment.
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Motley Fool contributor Edward Vesely owns shares of WiseTech Global and Xero. The Motley Fool Australia owns shares of WiseTech Global and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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