I wrote in a previous article that there can be many approaches to investing. If I could follow on from that article, it would be that investing does not have to be highly complicated in order to generate a respectable return. In fact, investing maestro Warren Buffett once quipped: “I don’t try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over.” Said another way, we do not have to make spectacular or difficult bets to achieve a good return. So, if the objective is simply a good night’s sleep without worrying about our…
I wrote in a previous article that there can be many approaches to investing. If I could follow on from that article, it would be that investing does not have to be highly complicated in order to generate a respectable return. In fact, investing maestro Warren Buffett once quipped:
“I don’t try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over.”
Said another way, we do not have to make spectacular or difficult bets to achieve a good return. So, if the objective is simply a good night’s sleep without worrying about our companies, here are three simple rules to pick shares that might help:
1. Choose companies with cash and free cash flow
Having a steady free cash flow (operating cash flow minus capital expenditure) and no debt is one way to stay out of harm’s way. If the companies you stick with has a track record of both, the possibility of business failure could be greatly reduced. In this regard, companies like vehicle testing and inspection provider, VICOM Limited (SGX:V01), or health care purveyor, Raffles Medical Group Ltd. (SGX:R01) might just fit the bill. As my fellow Fool Ser Jing once pointed out, both companies have remained relatively debt free since 2008.
2. Avoid companies with large foreign country exposure
Foreign operations like Asian Pay Television Trust (SGX:S7OU) may represent an interesting investment opportunity. However, as Foolish investors, we always have the choice on what companies we invite into our share portfolio. In this case, the Taiwanese-based business trust business is moderated by government policies in Taiwan which individual investors might not be familiar with. Of course, it is possible to learn and gain more familiarity with the government policies. On the other hand, if the goal is a good night’s rest, this might not be a risk worth worrying over.
3. Avoid technology based companies
In a recent study released by Harvard Business Review, companies related to industries such as computers or software exhibited the most technological and demand uncertainty. Within the SGX, semiconductor test and packaging company, STATS ChipPAC Ltd. (SGX:S24) operates a backend supporter for such industries. As such, it may have a future which is harder to predict.
In this case, Foolish investor who desire a good night’s sleep may want to take another Buffett quote to heart:
“I look for businesses in which I think I can predict what they’re going to look like in ten to fifteen years time. Take Wrigley’s chewing gum. I don’t think the internet is going to change how people chew gum.”
In following the advice, if the outcome of an idea seems to hard to predict ten years from now, Foolish investors may be better off moving on to the next idea.
Foolish bottom line
To be sure, investing with a good night’s sleep in mind may make you miss a few investing opportunities. For instance, companies with debt do not always underperform companies with no debt. That said, it may be much more important is to invest only when the right conditions come along.
Individual investors may be comforted by the fact that we do not need to grab every winning share in order to generate a decent return. Instead, all we might need are just companies which quietly compound while we enjoy a good night’s rest at the end of the day.
It is up to us, as investors, to decide what those companies should be. It is important to learn about the basics of investing. To help you with that, we here at The Motley Fool Singapore have prepared a special free report titled What Every New Singapore Investor Needs To Know. It is a quick five to 10 minutes read on what’s really important about the share market and is a great guide for both new and experienced investors alike regarding the basics of the market.
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.