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Investing Lessons From A Crab

The Motley FoolSeafood is a vital part of our varied and tasty cuisine here in Singapore. Yes it is.

But whether your preferred seafood haunt is along the East Coast, out in Geylang or right in the heart of downtown Singapore, most eateries have one thing in common – the massive display tanks that hold their aquatic livestock.

So there I was one evening, minding my own business, when a fellow restaurant patron and his young toddler walked up to one of the giant fish tanks behind my table. The dad was knowledgeably pointing out the various types of fish to his son, when the young lad pointed to the cast of crustaceans in the tank.

The giant sea spider

He enquired what those peculiar looking shelled decapods were at the bottom of the aquarium. “Oh”, the dad said, “They are just giant sea spiders”.

Giant sea spiders – what was the dad thinking of?

They are crabs. So, why not just call a crab, a crab. His portrayal of a crab as a giant spider was both sweetly innocent and deeply disturbing at the same time.

The poor kid will probably go through life believing that the harmless arachnids that we find in our homes and gardens could one day grow into of those giant ocean-living crabs. I don’t know about you but that would scare me witless.

I could grow up thinking that maybe spiders are somehow edible or, worst still, it could put me off eating crabs forever.

But that is how myths are born. Someone somewhere could say something that is just not true and some of us could swallow it hook, line and sinker.

The biggest stock market myth

Myths have a terrible habit of being perpetuated in the stock market. What’s more, they tend to get embellished over the years. Perhaps one of the biggest myths we encounter is that investing in shares is just like gambling. I jest you not, some people actually believe that.

That one single untruth is enough to put many people off investing because they believe buying shares is very risky. Bizarrely, though, it does not deter many people from putting a few dollars here and there on 4-D, Toto or the Singapore Sweep.

Where is the logic in that?

It would seem that many people are unaware that when we purchase shares, we are actually buying part-ownership in a business. Those shares give us the right to a portion of the assets and a slice of the profits that the company could make.

Sadly, though, many like to think of the stock market as an opportunity to make a quick buck.

Up and down

Admittedly shares can go down as well as up. But we need to bear in mind that stock market investors are continually trying to assess the profits that a company is likely to deliver in the future. Those constant assessments can cause share prices to fluctuate.

However, I often wonder how many pointless man-hours have been spent analysing a company such as, say, Keppel Corporation (SGX: BN4) over the last two decades. Far too many, I suspect.

Truth is, since 1994 shares in the shipbuilder have risen from a dividend-adjusted price of S$1.50 to S$10.70 today. That is a seven-fold increase over 20 years. But over the same period, shares in the company have bobbed around like a cork on water.

The secret to stock market success is therefore to look for great and enduring companies with the intention of investing in them for the long term. Try not to focus too much on what the company might do in the short term. Instead, picture what the company could look like in five, ten or 20 years from today.

Or as Peter Lynch once said: “Time is on your side when you own shares of superior companies.

This article first appeared in Take Stock Singapore.