I have a very quick question for you. The question is this: Have you ever looked up answers to tough questions in the back of textbooks? I think many, if not all, of us have done it at some time or other. It just seems like such a natural thing to do. After all, if someone has already worked out the answers to difficult questions, why do we need to punish ourselves by trying to solve it from scratch? Where is the fun in that? Need to know Trying to work things out the hard way is tantamount to assembling…
I have a very quick question for you. The question is this: Have you ever looked up answers to tough questions in the back of textbooks?
I think many, if not all, of us have done it at some time or other. It just seems like such a natural thing to do.
After all, if someone has already worked out the answers to difficult questions, why do we need to punish ourselves by trying to solve it from scratch? Where is the fun in that?
Need to know
Trying to work things out the hard way is tantamount to assembling Ikea furniture without looking at the instructions. I doubt if anyone would want to do that out of choice.
There is something else about looking up answers in the back of textbooks.
Even after we have successfully managed to solve difficult questions, we still like to check that we have got the right answers. So we automatically turn to the back of the book, if only to satisfy our own curiosity.
However, the need for confirmation, validation and endorsement is something that can hold us back when we invest. When we buy shares, we like to know that we have bought the right stock at the right price at the right time.
Unfortunately, there are no model answers that we can look up. There are no fancy filters or clever apps that we can download to cross-check our investing decisions. Or as Peter Lynch once said: “Stock picking can’t be reduced to a simple formula or a recipe that guarantees success if strictly adhered to.”
The Holy Grail
That has not stopped many of us from searching for the Holy Grail. We want to believe that success can be guaranteed, if we just replicate the investing style of successful investors.
But not even they have magic formulas. There are just too many variables, permutations and possibilities associated with each investing decision.
In fact stock picking boils down to just a few things. They include a dollop of investing knowledge, a dose of market experience and a chunk of intuition, which can’t be bottled and marketed.
Additionally, investing tends to be very personal. Rarely would you find two investors sharing the same views on a range of shares.
That said there is an important thread that runs through the philosophy of many successful investors. They talk about it at length, albeit using slightly different words.
Peter Lynch said: “Often there is no correlation between the success of a company’s operation and its stock price over a few months or even a few years. But in the long term there is”.
Warren Buffett quipped: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years”.
Meanwhile, Benjamin Graham noted: “You are neither right nor wrong because the crowd agrees with you. You are right because your data and reasoning are right”.
So if there was ever an answer in the back of a text book about how to pick great shares, it would probably go something like this: “Only buy shares in simple businesses that you are prepared to own forever”.
In years gone by, investing in simple, solid Singapore businesses was unattainable to many of us. That was because of antiquated rules regarding onerous lots sizes. But all that will change in just a couple of months.
From January next year, lot sizes will be cut from 1,000 shares to just 100. That could bring highly-priced but simple businesses such as Jardine Cycle & Carriage (SGX: C07) and Singapore Exchange (SGX: S68) within the reach of us ordinary shareholders.
What a great time to be a private investor in Singapore.
This article first appeared in Take Stock Singapore. Click here now if you would like your FREE subscription to Take Stock - Singapore, The Motley Fool’s free investing newsletter, delivered directly to your inbox. 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.
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