6 Quick Lessons to Set Yourself Up for Investing Success – Part 2

Welcome to the second part of the series. Make yourself at home and read on.

As a quick recap: On occasion, Foolish folks like us will attend interesting talks on investing. One such talk was given by Professor Aswath Damodaran at the SIM Investment & Networking Club Youth Financial Symposium. The travelling professor hails from the Stern School of Business in NYU and is a well-regarded voice on the subject of valuation, corporate finance and investment management. He posts regularly on his blog here.

There were plenty of noteworthy quotes and pieces of wisdom shared during the session, and I’d like to summarise it the best I can. Below are six quick lessons which I gleaned from the two hour session.

I’ve previously shared three of them in the first part of the series, so let’s get going with the next three.

Learn what game you are playing

In a question to Professor Damodaran, a member of the audience wanted to know if oil prices can be valued. The professor explained that there are two different games at play here: The pricing game, and the valuation game.

In the professor’s opinion, the valuation game is more valid when we are able to project future cash flows from a company or entity. With oil, it can’t be done, and so it belongs to the pricing game.

In this case, shareholders of rig builders like SembCorp Marine Ltd (SGX: S59) and Keppel Corporation Limited (SGX: BN4) should take note. Oil prices may affect the future cash flows of oil and gas companies, but it would be much more important to  stick to valuing the two blue chips rather than to try and forecast where oil prices will go next.

The pricing game is tough, and as you can see in the tweet below, most economists couldn’t predict where oil prices would go to either.

Management does not hide good news  

Professor Damodaran had a wonderful quote to share on the topic of management. He mused that management is unlikely to hide good news about their own company.  As such, if we find annual reports to be too convoluted or complicated to understand – then perhaps it would be better for us to leave it alone.

On a personal note, I would rather keep my investing thesis simple, as I plan to invest and follow a company for the long term. In a prior article, I shared on how the competitive advantages of companies like food provider Neo Group Ltd (SGX: 5UJ) can be understood with just a stroll to a nearby MRT station. 

In fact, try to keep your investing thesis so easy that even a kid could understand. Or, as investing maestro Peter Lynch would say:

Learn by doing  

Professor Damodaran’s guest lecture ended with a story from the Wizard of Oz. The lesson from this fairy tale was that it was more important to learn from our journey to master investing rather than to seek the mythical solution that might disappoint us in the end.

At the Fool, we are life-long students of investing. So, this lesson resonates with us. 

I hope that you enjoyed the quick take-aways I had from Professor Damodaran’s lecture. It’s always a privilege to learn from well-respected minds in the art of valuation – and Professor Damodaran is certainly one such person. It’s an even bigger privilege given the fact that Professor Damodaran had graciously offered the lecture for free. 

Fool on!

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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.