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Does Your Portfolio Pass The Bolognese Test?

The Motley FoolDoes anyone out there think they can make good pasta? I am sure many of you can.

In fact, one of the first things that I learnt to cook when I left home was spaghetti bolognese. But it seems that I am not alone.

It appears that many people – when they have to fend for themselves for the very first time – will try their hand at making bolognese. The reasons are really quite obvious.

It is cheap; it is nutritious and it is not that hard to do. After all, how difficult can it be to fry together meat, onions, garlic and a sprinkling of herbs? Then pour in a tin of tomatoes and allow it to bubble away gently on a back burner for an hour or so.

But it wasn’t until I tasted other people’s ragu that I realised that there was more to making bolognese than I first thought. It seems that almost every other person that makes bolognese has their own variation of the classic Italian pasta sauce. And some of them are really very delicious.

Did you, for instance, know that some cooks add carrots or celery or even bits of bacon to enhance the whole culinary experience? Well, they do.

I have even heard of some home-chefs who first boil their mince in milk to soften the meat. Now that really is going beyond the call of duty.

Before you think that you have mistakenly signed up to the first issue of “Kuo Can Cook”, there are some interesting similarities between making your first ragu and building your first portfolio.

For instance, how hard can it be to buy a hotchpotch of shares and let them stew in a portfolio for a few years or more? Isn’t that the essence of good investing? Aren’t we supposed to just buy and hold stocks for the long term?

The simple answer is that it is not at all difficult to build a portfolio of stocks. In fact, anyone can cobble together a collection of disparate investments into a portfolio for the long term.

But the question we have to ask ourselves is whether the portfolio is any good. Will it stand up to scrutiny? Or to use a culinary analogy: Is it good enough to bring out to share with friends and family?

Perhaps one way to gauge the “goodness” of our portfolios is to compare it against a recognised benchmark. We can choose any benchmark we want. But it helps if we pick something suitable.

For instance, if your portfolio is comprised mainly of Singapore companies, then measuring your performance against, say, the Straits Times Index (SGX: ^STI) could help determine how good our stock-picking skills really are. You could also compare your returns against one of the low-cost index trackers such as the STI ETF (SGX: ES3) or the Nikko AM STI ETF100 (SGX: G3B).

So what if you should underperform the market? What if the underperformance should happen over a protracted period? What does that tell us about our ability to manage our own investments?

Running our own portfolio is not difficult. However, the disciplines that are required to manage our own investments effectively are something that we have to learn and refine over time.

The key is to buy shares in businesses that we are happy to own for a lifetime. These are businesses that you understand.

Here at the Motley Fool Singapore we spend our time understanding Singapore businesses because we believe in buying companies, not tickers. Or as Peter Lynch once said: “In stocks as in romance, ease of divorce is not a sound basis for commitment.

In case you are wondering, I think my ragu does stand up to scrutiny. However, that has not stopped me from continually looking for way to improve. That’s because with cooking as with investing, we can always do things, better.

The Motley Fool's purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock -- Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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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.