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The Investment Of The Decade

The Motley FoolSome have hailed it the investment of the decade. But without knowing the actual numbers, it is hard to tell if the deal is really that remarkable. Here, though, is the gist of the investment. You can make up your own mind.

It would appear that one of the eight missing Faberge eggs has been unearthed. The egg, which contains a Vacheron Constantin watch, was discovered by a scrap-metal dealer from the US. He reportedly bought the gold ornament at a flea market for $14,000.

A 235,000% return

The unidentified man, who held onto the egg for an unspecified period, has since sold the gold ornament to a private collector for an undisclosed sum. However, experts reckon that the egg could have fetched as much as $33 million, which would put the return on the investment at a whopping 235,000%.

I am not about to tell you that returns of that magnitude are commonplace in the stock market. Far from it. But then you don’t have to be super lucky to find stocks such as Keppel Corporation  (SGX: BN4) or Jardine Cycle & Carriage (SGX: C07) that have returned 983% and 917% respectively, over the last 20 years. You do, however, need to be outrageously lucky to find a Faberge egg at a bric-a-brac stall.

It is believed that Peter Carl Faberge only made around 50 eggs for the Russian Tsars between late 1800 and early 1900. Currently the whereabouts of 42 of those valuable eggs are known, which means that around eight golden eggs are still unaccounted for.

Luck or skill?

Clearly you would need a big dollop of good fortune to find one. That is a given. But do you need to be equally lucky to pick winning stocks?

Luck probably plays some part in investing, given that there can be a certain degree of randomness in the stock market. But let’s say that you have been consistently good. Let’s say that over the years, you have picked more winners than losers for your portfolio. What could that say about your skills as a stock picker?

It probably means that you have identified an investing strategy that you know and understand. It might also mean that your chosen strategy can be replicated and be relied upon to deliver similar results time and again.

I realised this many years ago when I discovered income investing. I am not, for one minute, suggesting that income investing is, in any way, superior to other styles of investing. Just that it happens to make sense to me.

Better than a dartboard

When I invest, I am looking for stocks that will pay me for owning them. But I want more. I also want to make sure that they are undervalued, which should provide me with my required margin of safety.

As far as I am concerned, investing is never about luck. It can be for some people, though, if their suite of investing tools comprise a dartboard, a copy of the Business Times and three steel-tipped tungsten darts.

Investing is about using techniques to identify stocks that are valued below what they are really worth.

Legendary investor Warren Buffett has developed a technique that works for him. So too has Peter Lynch. In fact, Lynch once said that if seven out of ten of his stock picks perform then he would be delighted. More of us should try to think like that when we invest.

Before I end, here is something for you to ponder. If the scrap-metal dealer who found the missing Faberge egg was to find another one, would that be luck or skill?

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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 Director David Kuo doesn’t own shares in any companies mentioned.