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1 Deadly Emotion to Avoid when You Invest

Yesterday, I shared a simple investing mantra from investing maestro Peter Lynch. That mantra was:

“Know what you own, and know why you own it.”

The advice is worth noting when you consider Peter Lynch’s track record. Starting as head of the Fidelity Magellan fund in the USA in 1977, he managed to deliver 29% annualized returns for 13 years. To put this into perspective, every $1,000 invested into his fund would have turned into $27,200 over his 13 year tenure.

The next lesson

So, to further the spirit of “knowing what you own”, Lynch shared more about his own industry – the mutual fund industry (analogous to the unit trusts in Singapore) – in his book “One Up on Wall Street”. He wrote about Dreyfus and Franklin, two mutual fund companies which got listed and subsequently became amazing 100-bagger (that is, returning 100 times your initial investment) shares.

Stupendously, right after detailing these two huge winners, he also confessed that the amount of money he made out of the two mutual fund companies above was, in fact, a big fat zero.

Unsatisfied with this confession alone, he went on to list down another whopping 65 companies that were 10-baggers, all of which he had either completely missed or sold too soon during his stint in the Magellan fund.

Sub-optimal investing

Before we start rolling our eyes on his sins of omission, Foolish investors should consider his overarching point. In this case, we would do well to remember that Lynch did indeed achieve 29% in annualized returns over 13 years, and what’s more, he did this in spite of missing out on all the ten-baggers listed.

You see, by sharing the missed multi-baggers, the investing master had another salient point to make.

And that is, that there are many opportunities out there. If we expand on this, his implicit point may have well been this: Whenever you find yourself rueing a “missed opportunity”, do remember that there are many other opportunities out there.

In other words, Foolish investors do not need to own every multi-bagger share out there in order to achieve an enviable investment track record.

Take Raffles Medical Group Ltd. (SGX: R01) as an example. As my colleague Ser Jing has shared, the medical services company recorded a 1,274% total return for a 10-plus year period stretching from 1 January 2004 till 1 June 2014.

If you, dear reader, missed out on this (like I did!), any feeling of “missing out” should not compel you to “make up” for the loss by chasing the next hot healthcare share which comes along.

Instead, spending less time rueing the missed opportunity could mean that more time is used to study the very companies which have done well over the decade. In this case, time is better spent studying Raffles Medical to see if there is any further addressable market to be taken.

That feeling of “missing out” is an emotion which will not help you make your investing decisions and is one that should be avoided.

Foolish takeaway

Investing in the share market is a sub-optimal activity. The good news is that “sub-optimal investing” may still churn out very satisfying results as Peter Lynch’s 13 year track record has shown us. Foolish investors might do well to come to terms that that all great investors will likely miss out on plenty of multi-baggers in their investing lives, and yet still achieve investing success.

Perhaps, Charlie Munger, another investing master, may have said it best when he concluded:

“ If that’s what failure looks like, I wouldn’t mind some more of it”

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.