Why We Should Avoid Crowded Restaurants

You couldn’t make this stuff up, if you tried. You really couldn’t. It underlines so much that is wrong with the money-management industry.

It seems that some well-known fund managers reckon there are better places to invest than in Singapore. They could be right. But their reasoning just doesn’t make sense.

Between two stools

It appears that fund managers prefer bigger stock markets such as China and India. Even the markets of the Philippines and Indonesia are preferred to Singapore.

Apparently, emerging-market investors generally don’t bother to look at Singapore shares. Meanwhile, developed-market investors choose Europe, Japan and the US markets instead.

So, Singapore is caught between two stools. We are not quite exciting enough to be classified as emerging. However, we are not established enough to be considered developed, either.

But don’t despair. We Fools never despair.

Eating in crowded restaurants

For a start, we should not put too much store into anything that the fund management industry has to say. In fact, their apparent indifference to Singapore stocks should be all the more reason for us to warm to the shares on our exchange.

We should avoid eating in crowded restaurants.

You see, funds need to be marketed. They need to attract lots of money from lots of investors to make them viable.

Consequently, the more exciting the investment, the easier it is for marketers to sell the story. After all, it can cost lots of money to rent billboards, print poster, run advertisements and, most importantly, pay managers.

But investing isn’t supposed to be exciting. Or as Peter Lynch once said: “Investing is fun, exciting and dangerous, if you don’t do any work”.

Dull is good

We should, instead, prefer dull and boring investments.

My ideal company is one that delivers a high return on the money that I have invested in it. It should also be cheap. What’s more, it should not have too much debt. It also helps if it pays a dividend because money in our pockets is better than in someone else’s.

And did I mention that it should be cheap? So I did.

As an investor we want to get lots of bangs for our buck, which is why disregarded markets such as Singapore could be a good place to invest.

Currently, our Straits Times Index (SGX: ^STI) is value at around 14 times profit. It means that we are buying $1 of earnings that Singapore companies collectively make for just $14.

That is an earnings yield of around 7%. The yield on bank deposits, on the other hand, is far too embarrassing to mention.

So, the Singapore market is ostensibly cheap, primarily because fund managers find it boring. That is fine. There is nothing worse than trying to chase stock prices higher because other people are fighting over the same investment.

Keep it simple

Warren Buffett once said that there seems to be a perverse human characteristic that likes to make easy things difficult.

Buffett also said that he does not expect to make money on the stock market. In fact, he buys on the assumption that the market could close the next day and not reopen for five years.

That is precisely how we should be looking at the Singapore market too.

If we had embraced Buffett’s simple view of investing five years ago, we could have been amply rewarded.

Five year of rewards

Since 2010, shares in Thai Beverage (SGX: Y92) have more than trebled, while the value of StarHub (SGX: CC3) has increased 2-1/2 times. Elsewhere, ComfortDelGro (SGX: C52) and Jardine Matheson (SGX: J36) have doubled in size.

Meanwhile, SingTel (SGX: Z74) and Singapore Press Holdings (SGX: T39) have increased around one-and-a-half times in five years.

That is not shabby, at all.

An investment of S$6,000 spread equally across the six company five years ago would, today, be worth around S$13,500. That equates to an annual compound return of 17%.

If that is the definition of boring then please, please bore me more.

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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 Director David Kuo doesn’t own shares in any companies mentioned.