What Has Chicken Masala Got To Do With Investing?

If I have learnt one lesson about dining out in Singapore’s Little India, it is this: Never ask restaurant owners whether their curries are hot.

Invariably, they will tell you that they are not too spicy. But in reality, the curries can take the roof off your mouth, if you are not prepared.

I am not suggesting that Little India’s restaurateurs are disingenuous. It is just that their definition of “hot” and my understanding of “spicy” can be vastly different.

Hot & Spicy

Recently, I popped into one of the many great Indian eateries that pepper Little India’s Chander Road. As per usual, I asked whether the Masala was spicy. As per usual, the restaurant boss said it was “ok”.

The first sign that something was amiss was when I lost total sensation in my lips. Next, my tongue went completely numb. This was followed by profuse sweating. Then came the uncontrollable coughing fit that could only be staunched by downing an entire tumbler of mango lassi in one go.

Welcome to my private dining hell. But what does this have to do with investing?

Often many of us will either ask for, or be offered, share tips from friends, family and professional tipsters. There is nothing intrinsically wrong with that. After all, what can be so wrong about getting investing ideas? We can all do with a little help.

But it is important to consider carefully the context in which the share recommendations are made. Their definition of “hot” and your notion of “spicy” could be very different.

Brokers, for example, have developed a colourful vocabulary that could mean almost anything. For instance, what exactly do they mean when they say that a stock is a “firm hold”? How does a “firm hold” differ from a “hold” or a “weak hold”? Surely, a hold is just a hold?

Put it in neutral

And what on earth does “neural” actually mean? Do they like the stock or don’t they? If they like a stock, then shouldn’t it be a buy? If they don’t, then shouldn’t it be a sell? If it is a hold, then say so. But being “neutral” means absolutely nothing.

Then we have the curious “accumulate” or “add” recommendation. Does “accumulate” mean that we should buy more, provided we already own the stock? But what if we don’t already have the stock in our portfolios? Should we,  then, avoid it like the plague?

The “underperform” and “outperform” ratings are strange beasts too. What exactly is the stock supposed to be underperforming? Will it underperform its peers, the sector or the entire market? And if a stock is going to underperform, then shouldn’t a “sell” recommendation be more appropriate.

Thing is, brokers can be reluctant to issue “sell” recommendations. After all, who would ever want to bite the hand that feeds it? That would be like an Indian restaurateur telling you that eating its curries is akin to chewing on a live grenade.

There is something else to consider too. Often the recommendations that you might come across in the media could already have been around the block several times over. In other words, the tips might be as stale as last week’s bread.

Insightful Buffett

Warren Buffett has provided some great insights about buying and selling shares. He once said: “Buy so well, you don’t have to sell.” That is an invaluable piece of advice.

Buffett also said: “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.” That is another precious piece of advice.

For instance, I wonder how many have been tempted into dipping in and out of Singapore Exchange (SGX S68), Boustead Singapore (SGX: F9D) and Raffles Medical (SGX: R01) over the last ten years at the behest of brokers’ recommendations. If they had done so, they could have missed out on total returns of 600%, 700% and 1,200% respectively, simply by buying and holding.

Buffett offered another valuable piece of insight into his investing strategy. He said: “Berkshire Hathaway is very reluctant to sell sub-par businesses, even if it hurts performance.” But he qualified it by saying: “As long as the business generates at least some cash and as long as it has good managers and good business relations.

Now that is insightful.

This article first appeared in Take Stock Singapore.

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