This ad has been rolling for a week or so, and a group of Gumshoe readers have already been discussing it and trying to figure out exactly what the Stansberry folks are talking about… but there are lots of questions still coming over the transom here at Castle Gumshoe, so let’s take a look.
The ad is for a new Stansberry publication helmed by Steve Sjuggerud that they’re calling Stansberry’s China Opportunities, and like a couple other Stansberry offerings lately they’re using a somewhat different pricing model — they’re charging $1,500 up front to join and get their first listing of investments and the analysis behind them, and then $49 a month to get their ongoing updates… and they’re not offering any refunds for any of those payments. So that’s a somewhat daunting commitment for many investors… and, of course, the idea of investing in China at all is fairly daunting, too, given the relatively poor (though improving, perhaps) sentiment about the Chinese market that you’ll hear in most of the financial media.
What’s the big idea? Well, Steve Sjuggerud is essentially saying that there’s a huge opportunity in Chinese tech stocks, particularly “internet” tech stocks.
The reasons he gives are that they have vastly larger market opportunities than their US counterparts, they are earlier in their growth cycle and the stocks have a better chance of quickly doubling (or more), and the businesses are somewhat protected by the Chinese government — some are actively supported or endorsed by the government, but just being behind the “Great Firewall of China” means that the (mostly) US companies that Chinese firms are either emulating or copying or surpassing (depending on who you ask) can’t really operate in China. Global titans like Facebook and Google are mostly blocked by Chinese authorities.
What are “292-C Shares?” Those are just the shares of Chinese companies that you can invest in either directly on the US or Hong Kong exchanges, or through US OTC listings or ADRs. I don’t know what the “292” means, it could just be a reference to roughly how many Chinese companies are available for trading by US investors (I don’t know that it’s 292 precisely, but if you combine the Chinese companies trading on the OTC market and the ones that are listed in NY it’s right around 300).
There is nothing magical about these shares, nothing leveraged or unique or secret — they’re just shares of Chinese companies (or, depending on how the structure works, shares of holding companies in the Caymans who have indirect ownership interests in Chinese companies… remember the worries about Alibaba during the pre-IPO days?)
The leverage and the higher potential return that Sjuggerud tells us we can enjoy, as I understand it, are based on the fundamentals of the Chinese stock market, which has generally been beaten down for a while, and on the growth prospects for these leading Chinese tech companies compared to the (usually) more mature US counterparts. Steve Sjuggerud has often written about his basic strategy, which is to buy investments that are “hated, cheap, and in an upturn” — which basically means you’re trying to do “value investing” (that’s the cheap and hated part) but wait until a little bit of momentum (the “upturn”) starts to trickle in to the investment before you buy, and you can certainly find Chinese stocks (even most Chinese stocks) that fit those criteria.
Here’s the bit of the ad that got some of our readers interested:
“… most investors don’t realize this, but there are essentially two ways to get rich with internet technology stocks today.
“The first way is to buy a stock like Amazon, Netflix, Google, or Apple before others have heard about or care about it.
“This requires a lot of patience, and a whole lot of luck. After all, Fortune estimates that 90% of companies in Silicon Valley fail.
“But I recently discovered a second, much easier, and much faster way to get rich off internet technology stocks.
“All you have to do is simply wait until something we call a “292-C” or a “C” share, for short, hits the market… typically several years AFTER these big companies become household names… and often for as little as $1.09 a share.”
OK, so that’s basically: if you missed Facebook, buy the Chinese Facebook!
Depending on your assessment of the marketplace in China, your understanding of the competitive landscape, and the specifics of any given investment that might well not work so hot — you could just ask the folks who bought Renren (RENN) five years ago when it went public with a $2.5 billion valuation, backed by the story that it was the “Facebook of China”… it’s now down to a market cap of about $600 million, with a share price down below $2, and it’s really turned to being a venture capital fund more than an internet company… despite the fact that it continues to operate what is now looking more and more like it was the “Myspace of China.”
Sometimes the timing is nice and simple, too, and sometimes the story works brilliantly — like Baidu (BIDU), which was widely touted as the “Chinese Google.” BIDU went public in NY almost exactly a year after Google did, and both stocks ended up providing about the same returns to date — if you bought Google at the IPO you’re sitting on about a 1,500% gain today; if you missed that first 200% run in Google’s first year and decided to instead buy Baidu a year or so later at its IPO, you’re sitting on a 1,400% gain today (and that would be far better than having bought Google at the time of the Baidu IPO — if you waited until a year after the IPO to buy Google shares, your gains would be “only” about 450%).
And there are plenty of short time periods when the “Chinese version” of a US tech stock did far better — here’s one example from Sjuggerud:
“Take Expedia, for example…
“The company went public in 1999. And if you’d guessed right, and got in early, you could have made compounded annual gains of about 13% over the next decade.
“Not bad — but there’s actually a better way.
“Instead, you could have taken the more predictable “C” Share approach…
“On April 1, 2013, a limited number of “292-C” shares hit the market for just a fraction of what the online travel agency stock was trading for.
“In less than 4 months, shares jumped 109%.Are you getting our free Daily Update
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“Meanwhile, Expedia’s stock fell 16% during the same period.
“And that’s not all.
“Over the next few years, these “292-C” shares soared as high as 327% — around 3 times higher than Expedia’s shares.”
That, and the accompanying chart of the stocks, indicates to me that he’s probably referring to Ctrip (CTRP) as the “Expedia of China,” though there are a couple other stocks that are close enough to be somewhat conceivable (among them eLong, the Ctrip competitor that Expedia used to be a big investor in, and Travelsky). And yes, Ctrip was about a third the size of Expedia back in April of 2013 — and it did double between April and August of that year (it has since continued to grow, the shares are up about 600% now if you bought them at that low point 3-1/2 years ago).
So yes, as will probably not surprise you too much, Chinese stocks are often a lot more volatile than US stocks in similar industries. Which ones is Sjuggerund interested in, do we get any hints?
Well, they “gave away” one of them in the live “webinar” that they hosted, a stock that Steve Sjuggerud elsewhere calls a “little known company” that “will soon be the world’s largest” … that one is Tencent (0700 in Hong Kong, TCEHY or TCTZF OTC in the US).
And that one causes me to have a bit of that “woulda shoulda” heartburn, since I sold my Tencent shares after a nice gain of 150% or so in 2007, after holding for a couple years, and it has since gone up 2,500%. It’s not listed in the US like Sina (SINA) or NetEase (NTES) or Baidu (BIDU), so I guess it’s fair to say it’s “little known” here… but i