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1 Important Thing You Have To Learn As an Investor

Lately, I’ve received some comments from readers about the futility of “hind sight” analysis, especially those that concern the October 2013 collapse of a trio penny shares which include Blumont Group Ltd  (SGX: A33).

But here’s an interesting observation: The general context in which Blumont Group’s collapse happened wasn’t new. It happened all the way back in 2007 with Uni-Asia Holdings Ltd (SGX: C3T).

History repeats

In August 2007, Uni-Asia went public at S$0.55 and soon quadrupled to S$2.79 by 15 October 2007. At its peak, it was selling for almost 40 times its trailing earnings – a high valuation to say the least. Soon enough, Uni-Asia fell by almost two thirds to S$1.00 by 25 October 2007. Now, it’s languishing around S$0.19 per share. The entire share price history of Uni-Asia since its listing is given in the chart below.

Source: S&P Capital IQ; Uni-Asia’s share price history

Blumont Group’s scenario was way more exaggerated, but there are similar threads to the story. Blumont was trading at around S$0.06 per share on August 2012 and by 30 September 2013, it had hit a peak of S$2.45. That’s a 3,980% gain for anyone who’s counting. Near its peak, it was selling for almost 500 times trailing earnings and 60 times its book value – again, those are crazy high valuations. The similarities to Uni-Asia should be rather striking now.

Learning from the past

Although we should always be looking forward as investors, there’s a lot to be gained from looking at the past as well. After all, history is the one important thing we should learn as investors – it’s how we can connect the dots and find patterns about past successes and failures in a bid to repeat and avoid them, respectively, in the future.

In a March 1972 interview that was released in the book “Benjamin Graham: Building A Profession”, Benjamin Graham spoke about the importance of history. Graham’s widely considered the grandfather of the discipline of value investing and is a well-known mentor of billionaire investor Warren Buffett. These are his words on the topic:

“And if you say, as people have said, that the past is no longer relevant, the thing they forgot was that if the past is not relevant, what is? What do we know? If you cannot base your investment policy on the past, I think you have no basis for it at all.”

I couldn’t have put it any better than Graham.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.