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That “Secret Ingredient” to Making Money in Investing

Last week, I had a discussion with a friend who runs an investing club. Eager to learn more, we chatted about what might be in the minds of new investors. One of the recurring themes was the “search for the secret sauce” in investing.

You may know what I am talking about. It’s that “secret ingredient”.

It’s that mythical secret formula that can determine whether our investments will make money or not. Or, it could be that mythical secret calendar which can show us future share market tops and bottoms (hint: both the secret formula and secret calendar are mythical for good reason).

Lessons from Kung Fu Panda

Fortunately, the truth is much more simple. It is similar to the “secret ingredient” to Mr. Ping’s noodles in the Kung Fu Panda movie franchise: There is no secret. There is no one formula or single ratio that will guarantee that your investments will make money every single time. The best we can hope for is to be right more times than we are wrong.

Before we lament on this predicament, let me also say that being right more times than we are wrong can still be a fantastic recipe for success. My Foolish colleagues may well agree with me on this.

Let’s look at some long term winners that they have shared.

Fellow contributor Sudhan P recently shared that Singapore Exchange Limited (SGX: S68) is the top performing blue chip over the decade ended 2014. The stock market operator and regulator managed to return more than six times its original value, including dividends, in that time period.

Meanwhile, fellow Fool Chong Ser Jing pointed to Raffles Medical Group Ltd. (SGX: R01) as one of the stellar performers over a 10-plus year duration stretching from 1 January 2004 to 1 June 2014. The owner of Raffles Hospital managed to bring in 1,274% in total returns during that timeframe.

As you can see, these level of returns may more than accommodate the occasional investing mistake that will happen from time to time. To that point, the 1,274% total return that Raffles Medical earned can more than make up for 12 other shares with 100% losses! Check out the hypothetical table below:

Company Total return for each company (1 Jan 2004 to 1 June 2014)
Raffles Medical 1,274%
A -100%
B -100%
C -100%
D -100%
E -100%
F -100%
G -100%
H -100%
I -100%
J -100%
K -100%
L -100%
Overall Portfolio 5.7%

Foolish take away

The stupendous returns from the likes of Raffles Medical and Singapore Exchange may have occurred simply due to a good old-fashioned investing approach which does not require a “secret ingredient”. And that approach is to simply hold your shares for the long term. Good investing, as I see it, comes from simply buying great companies with great leaders and holding it for the long term. Read more about investing and get more investing tips and tricks, FREESign up here to The Motley Fool Singapore’s weekly investing newsletter, Take Stock Singapore.

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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.