The Webb Way of Investing

He’s an Oxford-educated investment banker from London. He’s Hong Kong’s best-known activist investor, earning the nickname “Long Hair of the Stock Market.” And even as he’s made a fortune in the market, his reports have helped to take down crooked companies and send their leaders to jail.  We can’t all be David Webb- but we still can learn a lot from him.

Acclaimed activism

Webb moved to Hong Kong in 1991, when he was working as an investment banker with Barclay’s.  He retired seven years later at the age of 33 and founded, a platform he used to lobby for better corporate and economic governance.  In the years that followed, Webb became a tireless and high-profile advocate for better governance and shareholders rights.

He regularly contributed to various media, and wrote numerous letters to the Hong Kong Exchange and the Securities and Futures Commission appealing for changes.  In 2003, he was elected as an independent director of the Hong Kong Exchanges and Clearing Limited, where he served until 2008.

Webb has developed a reputation as an ardent foe of shady stocks and dishonest companies. In 2017, not long after he published the report, “The Enigma Network: 50 Stocks Not to Own,” the SFC and ICAC conducted an extensive search-and-raid operation on these companies.  Several executives were arrested, and some of the report’s featured stocks lost up to 90% of their value.

In 2018, Webb published another report, “The Huarong-CMB Network: 26 Stocks Not to Own.”  Once again, it received widespread attention and triggered a sell-off of some of the featured stocks.

Impressive investing

At the same time, Webb has made a considerable fortune from his stock investments, which Bloomberg estimated to be worth at least HK$170 million in a recent interview.  In this interview, Webb also shared the basics of his investment strategy.  He owns about 35 stocks at a time, with an average holding period of at least five years.  He doesn’t use leverage, or short stocks.  He looks for businesses that are well-governed and undervalued.

Sound familiar?  All these are classic value investing principles that Fools must know well. But there is more behind Webb’s impressive 20% annualized returns.

Webb tends to buy only small-cap companies around1 to 2 billion market capitalisation, which are undercovered by sell-side analysts.  He typically builds up a position to just over 5% of the total shares to become a “substantial shareholder” as defined by SFC. Substantial shareholders must disclose their interests to the public.  Thus, as a high-profile shareholder, Webb can exert his influence on these companies on issues like governance and shareholder interests. Webb also pursues stocks that offer outstanding dividend yields

His stocks also tend to sport outstanding dividend yields.  Most are in the range of 5%-8%, some even exceeding 15% (special dividend included).

The Fool’s Take

Can Fools emulate the Webb Way of investing? The value investing principles behind his strategy are certainly Foolish.  On the other hand, the thoroughness with which he searches for undervalued small caps, and the capital he uses to buildup a substantial holding, are nearly impossible for the ordinary investor to match.

Webb is a master of small caps.  He has extraordinary expertise in deciphering a sea of financial and disclosure documents to uncover gems – a combination of raw talent and hard work.  It’s quite impossible for most ordinary investors to acquire a similar level of expertise, much less Webb’s sizable war chest.

Why don’t we just buy whatever Webb is buying?  In fact, until 2009, Webb used to give an annual “Christmas Pick”, the stock he recommended readers to buy that year. But there are good reasons to tread carefully along any trail Webb blazes. Small caps and dollar/cent stocks often involve shares are neither liquid nor frequently traded.  These stocks are also subject to much more speculative endeavors than their large-cap counterparts.  All in all, trading small caps stocks can be a high-risk undertaking.

Few of us can invest like Webb.  But one way or another, we already have benefited from his relentless efforts to promote corporate and regulatory governance.  This is the true legacy of David Webb.

*Remarks: “Long Hair” is the nickname of politician Leung Kwok-Hung, who is known for his outspokenness and sense of justice      


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