Some growing companies (especially in China but also applied to all countries including Singapore) depend on operational cashflow (which depends on high populations with lower prices to create a network of customers) to expand and pay for expenses, eg. transportation, F&B, consumer products, etc. When this cashflow is disturbed (eg. few people spending or shopping due to serious Coronavirus), the business or sector would go into short term cashflow bottleneck, if dragged longer (eg more than 6-12 months), some which could not get the loan, may need to close down, declare bankruptcy.
So, growth company supported with strong assets (eg. property & cash) is more likely to last through the winter time, even without additional loan as asset could be converted into cash. Another close example is Oil & Gas sector crisis over the past 5+ years, most company could last for the first year of oil & gas crisis but then weak companies would start to close down due to weak assets with little cashflow (fewer customers), eventually game over. Mobile bike business is another recent example, burning money to expand but could not last long as debt is increasing faster than cashflow growth.
Cashflow to business is similar to blood to human body. Cash is similar to blood, need to circulate (cash to produce products / services, earning more cash in return) more a healthy body or company. Sometimes, blood transfusion (take loan) is required to sustain a weak business but if dragged too long, the company still cannot last or recover, investors have to suffer permanent loss.
Investor has to balance between growth investing (earning /cashflow), value investing (high asset, low liability, strong net asset value) to avoid possible business crisis which may end up a permanent loss (Hyflux could be another example). For a giant stock, crisis in share price is fine (due to fear), as long as business is still strong (either growing income/cash or strong asset). A growth stock may do well in normal time but it may go into real crisis under certain condition, therefore an investor has to evaluate risk vs opportunity.
Learn from Dr Tee on balance among Growth Investing, Undervalue Investing and Dividend Investing in stocks: www.ein55.com
