I’m still waiting on a bonus I expected at work, so I haven’t been able to do as much investing as I had planned. I have been able to set aside enough to make a purchase, though. I picked up 130 more shares of Shanda (盛大).

Earlier I said I’d had my eye on a certain Chinese stock. At that time, I was strongly considering a purchase in Guangshen Railway- 广深铁路 (NYSE: GSH), the line that runs from Guangzhou to Shenzhen. Based on my analysis, it paid a similar dividend, held similar risk and was priced similarly to other railway investments. However, the growth prospects of Guangshen far outstrip those of the vast majority of other railway lines. No analysts covered it. The financials were sterling. It was selling for $14/share, and I valued it at $21/share. I nearly bought it on margin. Something inside me told me to hold back, though. It seemed too good to be true.

Guangshen Railway

Unfortunately, this time I was right. An English speaking analyst initiated coverage in December, and since then the price has risen to nearly what I’d initially calculated as a fair value. The chance is gone.

I still might be able to make a little money off of it, but there are other more attractive investments on my list- CTrip (携程旅行网), a Chinese travel company; Sina (新浪), another Chinese tech company; Harris and Harris, a nanotech VC firm; and Netease (网易), a Chinese online and wireless content provider. Baidu (百度) is also still very much on my mind.

However, Shanda (盛大) remains the most attractive choice in my opinion. The Chinese video game market is a massive growth industry, Shanda’s the clear leader, and the story is looking better and better to me. Though they
did take a 3rd quarter revenue hit due to the fact that MIR 2 is aging and unable to compete with that juggernaut that is WOW (licenced from Blizzard by The9), total net revenues increased 41.4% year-over-year. According to their earnings release, revenues from all other games increased 21.0% quarter-over-quarter and 81.0% year-over-year.
The exclusive distribution deal they got with NHN Games Corp. for Arch Lord is good news, too. Simply put, I thought Shanda was a good buy at $40/share. At $15.5/share, there just wasn’t any way I could pick anything else.

At this point, I have nearly 20% of my portfolio in this one company. Do I feel any concern that maybe the rest of the world is right about its valuation and I’m wrong? Sure. But if there’s anything I’ve learned from the hundreds of hours I spent playing poker in college, it’s that you wait until the odds favor you as best as you can calculate them, and then you invest heavily.

Legal Disclaimer: As I just said in the article, I own stock in Shanda. I also own stock in Netease. Sina is 20% owned by Shanda. At the time of this writing, I don’t own stock in any other companies I mentioned. If you purchase any stock solely because I did, you do so at your own risk.

This entry was posted on Thursday, February 23rd, 2006 at 4:48 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.