The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.
- Tired Asian Businessmen, Assessing Management Quality and the $15 Billion Oshin Retail Stock in China, Oct 28, 2013 (Moat Report Asia, BeyondProxy)
Dear Friends and All,
Tired Asian Businessmen, Assessing Management Quality and the $15 Billion Oshin Retail Stock in China
“A tired businessman is one whose business is usually not a successful one.” – Joseph R. Grundy (1863-1961), Quaker businessman and US senator
“For many CEOs the hours are relentless; you’re working around the clock seven days of the week. I need a break. I think three-and-a-half years in the department store is a long time and if you think about our restructuring post the global financial crisis [and] us not being ready for the digital world, it has taken its toll and I’m just simply tired. The past three-and-a-half years as a CEO … weren’t normal, let’s face it. It was tough going and I am signalling my intention to resign ….” – Paul Zahra, CEO of David Jones, on Oct 22, 2013
Tears were welling up in my eyes this week. Not over Paul Zahra’s shocking announcement on Oct 22, 2013 over his sudden resignation as CEO of Australian upmarket departmental store David Jones (ASX: DJS, MV A$1.48 billion) and the even more shockingly frank explanation: Because he is “simply tired” and “burnt out”. Zahra could have confined his decision to the usual “personal reasons” but he chose to elaborate.
I was fighting back tears over watching the Japanese movie Oshin (おしん) that was shown in the theatres. The movie is a remake of the iconic 1983 Japanese TV drama which was a global hit. The never-tired spirit of Oshin, about a poor girl who perseveres and triumph against the odds despite all the bullying and adversities, has stood in sharp contrast to the admission by Paul Zahra. David Jones was down 44% since Zahra took over in 2010 and has reported consistent falls in revenue and is only now looking at the prospect of earnings growth. Zahra was recently credited for the potential reversal in fortune and he was awarded 88% of his short-term incentive payment.
Oshin is inspired by the touching story of the late Katsu Wada, the indefatigable entrepreneur who founded the once-successful Japanese departmental chain Yaohan in 1930. The film-maker explained that the 30-year lag for the movie version of the series was to celebrate the 30th anniversary of Oshin and that even after 30 years, “there are some things that never change, like the inspirational story of perseverance”. Even though I have watched the TV series like most older-generation Asians and am familiar with the story, I still cried in one particular scene. Before Oshin’s beloved grandmother died, she had a mouthful of the rice porridge – wages that were earned by Oshin when she was taken in by the kind and wise matriarch Mrs Yashiro in exchange for her labor at the Kagawa-family rice dealer shop. Oshin’s grandmother’s touching parting words: “The rice is very tasty.”
The death of her grandmother steels Oshin’s resolve to make something good out of her life. The story of Oshin is to remind people to cherish those around them and to keep going no matter what happens. Perhaps I was also a little emotional because building up The Moat Report Asia has its unique challenges and what kept me going was the sense of duty to value-add to our subscribers and readers with authentic and refreshing views about resilient compounders in Asia as accounting frauds of companies with attractive quant financials and net-net numbers break out systematically and syndicates manipulating share prices and volumes run rampant. Like Oshin who treasure the people around her, I cherish every one of our subscribers and they come from North America, the Nordic, Europe, the Oceania and Asia, including value investors with over $20 billion in asset under management in equities.
Quaker entrepreneur Joseph Grundy (1863-1961) illuminated a useful way to assess management quality with his penetrating quote: “A tired businessman is one whose business is usually not a successful one.” The story of Paul Zahra and Oshin highlighted two interesting questions:
- Avoiding stocks whose companies are run by managers who are tired appear to be a sound method to lower downside risks. If so, is it possible to know in advance why managers get tired and burn out?
- Why then do others not get tired like Oshin? How to identify and invest in stocks whose management and culture that have such Oshin-like quality?
To answer these questions, let’s explore the case of the $94-billiion retail grocery market in China:
- Why is there one Oshin-like company in China, with a market value of $15 billion, who is growing sustainably when everyone else, from Tesco, Wal-Mart to Asia’s richest businessman Li Ka-Shing’s Park N’Shop and Thai billionaire tycoon’s CP Lotus, are “tired” with faltering growth and losses?
- Also, what are the 3Ms that resulted in entrepreneurs and managers to not become tired? The 3Ms is also a simple and practical way to help value investors assess management quality.
- How can companies avoid the fate of a Yaohan and investors to detect the downfall ahead of time?
“In business, I look for economic castles protected by unbreachable ‘moats’.”
– Warren Buffett
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