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The One Investment for the New Year

NationalDay

Stalwarts of the local market like Keppel Corporation (SGX: BN4), SembCorp Industries (SGX: U96), Oversea-Chinese Banking Corporation (SGX: O39) and Jardine Cycle & Carriage (SGX: C07) have all delivered tremendous multi-bagger returns over the past decade-plus since the start of 2003.

But, for every Keppel Corp or OCBC, there are also shares like Venture Corp  (SGX: V03) and STATS ChipPAC  (SGX: S24). Those two companies had lost 11% and 62% of their value in the same time period.

Company

Jan 2003*                 

30 Dec 2013

% Change

Keppel Corp

S$0.96

S$11.1

1,056%

SembCorp Industries

S$0.50

S$5.47

998%

OCBC

S$2.73

S$10.20

273%

Jardine C&C

S$2.14

S$36.23

1,589%

Venture Corp

S$8.638

S$7.65

-11%

STATS ChipPac

S$0.892

S$0.335

-62%

*Prices on Jan 2003 are adjusted for dividends, stock-splits, rights offerings, and spin-offs

Source: S&P Capital IQ

Without knowing what makes a good investment, it’s easy to pick out the duds and lose money in the process. And, that’s where an investing education comes in handy.

Learn from the masters, pick their brains, find out common patterns among great investors, and you can lessen your chances of blowing a hole in your retirement funds due to bad investing.

And speaking about common patterns, it was through reading and learning where I found one striking common theme among great investors who all had very different approaches: They looked at stocks as a business.

Look through the techniques of successful investors like Peter Lynch, Warren Buffett, John Neff, John Templeton, Benjamin Graham, Philip Fisher, etc. and you might realise they look at businesses and investing quite differently.

For instance, Graham was all about finding cheap stocks without regard for the quality of the underlying business. He wanted to invest in stocks that were selling for a price lower than what the business would be worth if it were liquidated quickly.

On the other hand, Fisher was all about finding quality companies with an ability to grow their profits at above-average rates in the long-run and he was willing to pay-up in terms of valuations for companies that he deemed had tremendous quality and potential for growth.

Graham and Fisher’s approach couldn’t be more different but yet both insisted on looking at stocks as a piece of a business.

As I learnt more and more about investing over the years, the importance of that common theme became larger and larger to me. But, if I had never put in the effort to educate myself, I would likely never have realised such an important fact.

I was once asked what had been my best ever investment. My answer was the $38.50 I had spent on Philip Fisher’s book Common Stocks and Uncommon Profits more than eight years ago. It was the book that set me on the path of educating myself about investing and incidentally, it’s also one of the best books on investing ever written in American billionaire investor Warren Buffett’s eyes.

The stock market is a great place to build long-term wealth, but investors cannot afford to dive in headfirst with their eyes closed. Start the New Year by committing some time and effort to educate yourself about investing if you haven’t already started. It’s the one investment you should make for the New Year – an investment in yourself.