Interesting Ways in Which Golf Can Improve Your Investment Ability

Golf might not be the most appealing of sports to everyone, especially not to the younger crowd who might find it too slow a sport and too expensive a hobby. However, for those who do play the game, you might find that many of the things you observe in the course are things that can be applied to investing.

Here are some random observations I have, after spending far too much time searching for my golf balls in the roughs.

Every course you play is different, so is every company you look at

The reason why golfers enjoy travelling hundreds of miles to play on a difference course for just a few days is mainly because there are no two courses that are perfectly alike. Each course is a new experience and a great opportunity to learn something new.

Similarly in investing, every company we look at should be viewed with a fresh mind. No two company’s the same and being over-confident about a new company you are doing research on just because you know some of its competitors can be a grave mistake. For instance, take telecommunications operators Starhub (SGX: CC3) and M1 (SGX: B2F). Both companies compete in the same industry, in the same market (Singapore) and carry a similar product range. However, Starhub has a market capitalisation more than double that of M1, and has debt levels that are much higher.

If an investor had taken the view five years ago that investing in one or the other should result in the same performance, he or she would be in for a nasty surprise. Since then, M1’s capital gains have outperformed that of Starhub’s by more than 30%, as seen from the chart below.

Source: Google Finance; M1 in red, Starhub in blue

You need a wide range of tools

To a guy with a hammer, everything seems like a nail. For a new golfer who has just learned about his irons, he might tend to use it for all kinds of golfing situations. And as you might imagine, it’s not a practice that will yield great results. It’s the same in investing too: When we learn a new valuation tool, we might be very excited to use it in practice for all kinds of companies. But, that might cause us to use the wrong tools in valuing different companies, resulting in illogical values.

It would be far more appropriate to have different valuation tools for different companies in much the same way as a golfer would use different clubs for different terrains and situations.

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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 Stanley Lim doesn’t own shares in any companies mentioned.