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Should We Follow The Investing Gurus?

Wong way go back The most revered investing “guru” of our times has to be Warren Buffett. Reverent followers track his every move in the stock market, just like how Sherlock Holmes would track a perpetrator down fervently.

“Oh, Buffett just bought Heinz”. “Buffett acquired a newspaper company”. “Did you hear that Buffett just bought a Las Vegas power supplier?”

It didn’t help that Buffett announced in his 2010 Shareholders’ Letters that, “We will need both good performance from our current businesses and more major acquisitions. We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy.” Those reverent followers might have become more alert, looking at where Buffett is aiming his elephant gun at.

Buffett is human, after all

However, the same reverent followers should note that Buffett is no God. Buffett is human and he can make mistakes too. He has done so in the past and will continue doing so. He had said it publicly in his 2012 Shareholders’ Letter: “I have made plenty of mistakes in acquisitions and will make more.”

One of his recent mistakes was piling money into an oil company, ConocoPhilips, in 2008. Buffett more than quadrupled Berkshire’s stake in the company when oil and gas prices were near their peak. It cost the company several billion dollars when oil prices promptly fell. In 2009 and 2010, Berkshire sold about two-thirds of its ConocoPhilips position. He later quipped, “During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt.”

Popiah King

Coming to closer to home, Singapore too has a “guru” in the form of Popiah King, Sam Goi. He is a billionaire businessman who is the Executive Chairman of a private company, Tee Yih Jia. This year, he has purchased stakes in Global Yellow Pages Limited (SGX: Y07), Yamada Green Resources Limited (SGX: MC7) and JB Foods Limited (SGX: Q0W). Not surprisingly, a day after Sam Goi’s buy-in, Yamada’s shares shot up 126% while JB Food went up 27.4%. Traders just jumped into the same bandwagon as Sam Goi without knowing where it is headed to! Isn’t that inviting trouble?

Sam Goi’s intentions for purchasing the shares might be manifold. Buying just because a well-known investor bought in is extremely speculative. That’s not what investing is about. Investing is protecting our downside in the first instance before thinking of making profits. Investors should do due diligence as to why Sam Goi bought the company. What did he see in the company? Do I understand how the company makes money? Is the company in my circle of competence? These are some of the questions an investor has to ponder about.

Straight from the horse’s mouth

Sam Goi’s parting words for traders who follow his suit was: “I don’t want investors who follow me to suffer losses… I’ve become cautious about the companies I buy into. But I’d like to remind investors – I’m no God, please do not follow me blindly”.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.