If you missed out on this year’s opening day of SIAS’s 3rd Singapore Investor’s Week, you might also have missed out on a golden opportunity to put your most pressing investing questions to a panel of professional investors. The questions from the floor were as varied as they were tough. But the answers from the panel were as consistent as they were honest. The general gist of the responses can be summed up in one word – invest. We need to invest our money sensibly if we are to have enough cash when we decide to stop work, which…
If you missed out on this year’s opening day of SIAS’s 3rd Singapore Investor’s Week, you might also have missed out on a golden opportunity to put your most pressing investing questions to a panel of professional investors.
The questions from the floor were as varied as they were tough. But the answers from the panel were as consistent as they were honest.
The general gist of the responses can be summed up in one word – invest.
We need to invest our money sensibly if we are to have enough cash when we decide to stop work, which was the theme of this year’s programme, namely, “How Can You Have A Happy Retirement?”
Your biggest threat
Leaving your money as cash might seem like a safe thing to do today. But the harsh reality is that playing it safe will probably not be enough to fund your comfortable retirement tomorrow. You need to assume some risks if you want your nest egg to beat inflation. The biggest threat to your money is inflation.
Assuming risk doesn’t mean that you have to go crazy with your money. It simply means that you should invest in a basket of good stocks that should grow over time.
Warren Buffett once said: “If a company does well, the stock eventually follows.” That should be your guiding light when it comes to picking the right shares for your portfolio. Look for businesses that have the ability to do well over the long run.
Peter Lynch said something similar: “Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of the company and the success of its stock.”
The really important bit
He went onto say (and this is the really important bit): “This disparity is the key to making money. It pays to be patient, and to own successful companies.”
With that in mind, here are four ways that we, individual investors, could achieve super investing returns.
Firstly, focus on unearthing good companies and, more importantly, discover why they are good. Simply saying that this baby is going to rocket just isn’t good enough.
So have a clear idea in your mind about where everything is going. Everything, in this instance, means not only the company but the economy in which it operates too.
There will be times – believe me there will – when it can look as though everything is about to fall off a cliff. Then, there will be other times when it can look as though nothing could possibly go wrong.
But you need to stay focussed. You can’t possibly make sound investing decisions if you base them purely on what happens day-by-day.
Arrogance and humility
Secondly, try to be both arrogant and humble at the same time.
Remember why you bought a share in the first place. Unless your thesis has changed significantly, be confident and arrogant enough to stick to your guns. But if your thesis is wrong, be humble enough to admit that your original thinking might be flawed.
Thirdly, always look forward, never look back. For instance, some investors believe that they must always sell a share for more than they paid for it. Some investors are also reluctant to buy more of a stock that has gone up appreciably.
The one thing that successful investors do well is to always forget the price that they paid for a stock. Remember, investing is about finding a good home for your money over the long term. You can’t do that if you are constantly looking back at the past.
Finally, don’t try to look for the next Google or the next Microsoft.
Keep things simple and just buy shares at a sensible price. Some investors are very good at knowing which of the many start-ups today will turn into the giants of tomorrow. Most of us can’t, which is why it is better to buy something cheap instead.
Companies such as Jardine Matheson (SGX: J36), Dairy Farm (SGXL D01) and Keppel Corporation (SGX: BN4) can by no stretch of the imagination be described as a Microsoft. But over the last decade or so, they have, nevertheless, delivered outstanding returns.
The secret to super investing returns is therefore time, patience and continually compounding the dividends that you receive year after year after year. It is really that simple because investing is not hard.
This article first appeared in a SIAS newsletter.
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