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The Difference in Investing between Being “a Fool” and “a fool”

The Motley Fool

The INVEST Fair 2014 was just held over the weekend. For those of you who missed it, there were interesting speakers like the billionaire Jim Rogers and our very own David Kuo. And for those who missed it, I’m sad to say you might never find out why David likes mini-skirts. That’s really one of the great mysteries of the world.

Anyway, I’m not trying to talk about mini-skirts or even INVEST Fair 2014. Instead, it is about something I encountered at the fair.

I was at the event and attended one of the talks. However I eventually found out that the most interesting person to listen to at the talk wasn’t the speaker – it was a lady seated near me. She wasn’t exactly speaking softly and I ended up listening to her more than the speaker.

The lady was telling a friend about some shares she had been buying. I found it amazing that she could remember all the prices of all the shares at different points in time. She continued to describe how much a particular share has moved for the past few weeks and how she liked the share because it was moving up.

But there was something that bugged me: I couldn’t help but notice the disconcerting lack of any mention at all of the business fundamentals of the shares she had discussed. At the end of her animated chat with her friend, I still had no clue about what businesses those shares were involved in. Nonetheless, the lady spoke with confidence and it seemed to me that her friend viewed her as an “expert” of sorts.

At that point, I realized the danger an uninformed investor might face when listening to people who merely sound like an expert. I also realised how important it is for investors to know the key difference between an investment Fool, and an investment fool.

Here’s a little bit of history about The Motley Fool:

“The Motley Fool was founded in 1993 by brothers David and Tom Gardner. Our name derives from Elizabethan drama, where only the court jester (the “Fool”) could tell the King the truth without getting his head lopped off. We’re dedicated to educating, amusing, and enriching individuals in search of the truth.”

Thus, at the Fool, we always strive our best to be Foolish, which is to be intelligent in our thinking and to be as honest as we can. When investing, we focus on the business fundamentals and prospects of companies instead of on the share prices they are trading at.

The fact that United Overseas Bank Ltd (SGX: U11) is trading at S$23.00 per share while Oversea-Chinese Banking Corp. Limited (SGX: O39) is “only” at S$9.88 per share does not mean that UOB is more expensive than OCBC. In fact, the two banks also present different risks to investors if we dig in and discover that they have different geographical exposures (Thailand is big for UOB, but not so for OCBC) and business lines (OCBC has an important insurance arm that’s almost one-fifth of its assets; UOB has no insurance operation of such scale). That’s something which can’t be known from looking at just the share prices of the two banks.

The two paragraphs immediately above is what it means to me to be an investment Fool. 

On the other hand, an investment fool is, in my opinion, one who simply knows the price of everything but the value of nothing. So, the next time you listen to someone talk about “investing” in the share market, assess his or her ability on the content of their talk rather than on their tone and the confidence they exude.

Have a great week ahead, Fools. Stay hungry, stay Foolish.

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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 any shares of companies mention above.