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Why Blind Dating Your Shares Can Cost You

Avid Foolish readers would be aware of the many ways to approach investing.

But as numerous as the investing approaches are, there are actually basic investing principles which apply for most Foolish investors. One of it would be viewing shares as businesses and not pieces of paper.

Businesses, not tickers

And yet, a select handful of people I’ve met seem to have a wildly different opinion.

Some would only look at tickers with the highest daily volume, without knowing what the company behind the ticker actually does.

Others are eager to pay up for shares based on a hot stock tip shared by a friend. Again, the business behind the ticker is of little concern.

Unfortunately, both choices typically do not turn out well over the long term.

When asked about what the company does or plans to do over the long term, the same people would give me a blank stare or a nervous giggle. Maybe it’s me, but it does sound like they are trying to pick a spouse by going out on a blind date.

But hey, don’t hear from me alone. Here’s what Warren Buffett has to say about chasing the next hot-stock-tip (as opposed to investing in steady recurring businesses for the long term):

“For such investor-dreamers, any blind date is preferable to one with the girl next door, no matter how desirable she may be. Experience, however, indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.”

The thing is, learning about companies does not have to be difficult. Take Old Chang Kee Ltd (SGX: 5ML) for instance. The company has been selling the humble curry puff (now – Curry’O) for more than 50 years now.

Would it be a stretch to imagine that Old Chang Kee will still be selling curry puffs five to ten years from now? I’ll say that there’s a good chance that it will be. If you’ll like to learn more about the company and its delectable curry puffs, click here and here.

Foolish take-away

The private investor (that’s you and me!) has the opportunity to make his or her investing life simpler if the basic principles of investing – like understanding the business – are followed as a first step.

In fact, the simple act of spending time to learn about the business future of a company can be a simple but rewarding exercise.

And remember: Anything which requires you to read over five times before understanding it would likely be a candidate for the “too hard” pile. Use the pile often.

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 Motley Fool's purpose is to help the world invest, better.

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.