Sunday, November 04, 2007

Catalyst Connection Unplugged

Having read the Catalyst Code, it is now time to scan the environment looking out for business models that fit this bill...... Having seen plenty of examples it will be interesting to explore and ascertain which of these will have enough legs to last the distance. A quick check reviews some exciting possibilities i.e. Xbox, Ropponggi Hills, Sotheby's, MySpace, DoCoMo. Extrapolating from these, we can also easily identify others e.g. integrated resort (IRs), aviation hubs, social networking sites etc.


The starting point in the analysis is to enquire how catalyst identifies distinct groups that need each other and bring them together. Next, will be how one can capitalise on this? And if we are convinced that it works, we should identify a portfolio of the more promising models and perhaps consider having stakes in them. When the model succeeds, it can be expected to generate exponential revenue growth and value creation.


What about Microsoft? Someone did say that it is turning into a Berkshire Hathaway- type of company. Is this a catalyst model? Bringing group of investors, and getting on board the best-of-breed companies. And add value. Is private equity a catalyst model?

Looking from a broader perspective with an eye on trends in the marketplace, it is clear that excess liquidity is eroding the value of monetary assets. This means higher prices for non-monetary assets e.g. commodities ( oil, palm oil, corn, gold etc). So when growth prospects are not entirely clear, and inflation creeping in, how would one expect the U.S. Fed to response? Will it opt for the lesser of the 2 "evils" - holding interest rate steady and risking recession or a rate cut albeit a symbolic one, and give asset price a boost.

The ordinary folks have limited choices and are likely to accept the inevitable - an erosion of purchasing power. With limited pricing power, how can one hedge against the inevitable?

Of course a recession will bring about an erosion of asset prices and this will create even greater dire consequences.

In considering catalyst models, while it is good to think big, we need also to be realistic that most of these models have yet to prove that they are profitable.

It is easy to get carried away and fall into a trap where a bubble is about to be pricked.

We need to ask what are the objectives of investing. If it is to generate a sustainable rate of return year-on-year ( with return commensurating with risk ) and particularly as a hedge against long-term inflation and erosion of purchasing power, we will be wise to be guided by Warren Buffet's axiom on investing: "The key is to be greedy when others are fearful and fearful when others are greedy."

Then we ought to go for great brand names, broad reach and trading at bargain prices and be very patient.

We need to work the above into a plan with a portfolio of well-diversified asset classes ( low correlations ), namely: TMT ( Telecommunication, media and technology ), private-equity ( with real estate and emerging market elements ), commodities and cash.

At present when Fed is adopting a "neutral" stance with a 25 basis points cut and signaled no immediate need for further cut citing inflation risks balancing out risks to economic growth. According to reputable source, high crude price is not sustainable and may go to US$ 80 come Q1 2008.

Given the above, it will be interesting to look ahead and see which risks are more likely to prevail. The downside risks pose by a deflationary environment ( recession ) is likely to pose more threats than a stance promoting growth i.e. increasing liquidity, rate cuts, declining US$.

Adopting a neutral stance would imply balancing US$-denominated monetary assets with non-monetary assets, given the above.

Ultimately, key is to think big, have a strong stomach for risk ( volatility ) and have staying power.

Keywords: quality, value systems,
trust, domain knowledge, technology, networking, maven traps, speed of trust, lifestyle



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