There is Always Something Wrong with Your Investments

My fellow Fool Morgan Housel wrote an article sharing his thoughts on how we can become better in investing. It turns out that one of the best ways, is in fact to surround yourself with people who disagree with you. To make his point, the most fitting quote came from investing guru, Charlie Munger:

“One of the great things to learn from Darwin is the value of the extreme objectivity,” Munger once said. “He tried to disconfirm his ideas as soon as he got ’em. He quickly put down in his notebook anything that disconfirmed a much-loved idea.”

But why should you invite people to disagree with your ideas?

Confirmation bias

The answer could be a behaviour often referred to as “confirmation bias”. Morgan Housel describes this human behaviour as “starting with an answer, and then searching for evidence to back it up.

Described in the context of investing, when an individual investor purchases a share of a company, it is possible that he or she becomes financially and emotionally attached to the idea. As such, the individual investor may spend more time searching for bullish articles and comments to support their own view, and in turn, may miss out on some of the flaws within the investment idea.

Take Boustead Singapore Limited (SGX:F9D) for instance. The bullish individual investor for Boustead may be encouraged by its recent partnership with the Abu Dhabi Investment Council (ADIC) to develop modern logistics and high quality industrial facilities in Singapore. With real estate solutions business segment making up about 41% of Boustead’s revenue for the financial year ended 31 Mar 2014 (FY2014), this could be viewed as the shot in the arm which the company needs to increase sales in this segment.

However, spending too much time looking for more information on this deal with ADIC may cause the bullish individual to brush over some of the more cautious comments made by the chief operating officer CEO, Wong Fong Fui on the challenging real estate operating environment in Singapore.

In the recent FY2014 earnings briefing call, CEO Wong shared his take on the changes to the design and build market where the company operates. Over the years, the CEO quipped, the market has become more crowded with competitors emulating its success. Additionally, he also shared that local clients for Boustead have also been demanding for “rock bottom” prices.

To the company’s credit, its move to niche industries such as the biotechnology and aerospace sector within Singapore, is in part to differentiate itself from its competitors. According to CEO Wong, competitors would not be able to lay claim to “design and build” capabilities in industries such as these. As for regional expansion, the company is also reliant on improvements on political environments in countries such as Vietnam and Thailand before being able to expand.

Foolish bottom line

There is nothing wrong about keeping an optimistic view on companies. However, Foolish investors may do well to keep their rose-tinted glasses on for viewing the future of their own companies, but at the same time, complement their knowledge with people who help point out the flaws in their own thesis.

The key here is giving yourself the chance to consider all the facts on the table, good and bad, in a collective manner.

Investing, after all, is not about putting money into “perfect, can’t miss” ideas but rather, on ideas where the positives would far outweigh the negatives. Keeping independent minds around you might just help you come out with the right ideas which are broader and more complete. And, it could also help kill errors or blind spots which we may miss.

In the process, this may just increase our chances of finding success in investing. Learn more about successful investing through a FREE subscription to our weekly newsletter, Take Stock SingaporeSign up here now. 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.

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.