Investing can be as simple or as complicated as you want it to be. I have seen people invest in the same company but from totally different angles. The interesting thing is they are both right. As Warren Buffett once said, “You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning are right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else.” That is the very essence of investing. To me, investing is a…
Investing can be as simple or as complicated as you want it to be.
I have seen people invest in the same company but from totally different angles.
The interesting thing is they are both right. As Warren Buffett once said, “You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning are right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else.”
That is the very essence of investing.
To me, investing is a very personal journey. When I first started investing, I thought it was all about copying what famous or successful investors did. So, I went out and read about how investing luminaries like Warren Buffett, Walter Schloss, Sir John Templeton and George Soros invested their money. But, I soon learnt that more harm than good can be done if I had copied all of them and invested in the same companies (or the same type of companies) as they do.
This is because different styles of investing each have their own basic philosophy.
Buffett invests in great companies at a fair price; Schloss picks mediocre companies at bargain-bin prices; Templeton loves to trawl the global market for bargains; and Soros invests based on complicated theories (the theory of reflexivity) and even uses his back aches as a signal for when he’s making a wrong trade.
If we try to imitate all of those four investors to a tee, we’d end up investing in companies that might, say, suit Buffett but yet go strongly against what Soros preaches. This creates conflict in our investing activity and we can easily end up arguing with ourselves on whether a particular company makes for a great or poor investment. That in turn can lead to us having a lack of confidence in our investments and it can be dangerous because it might lead us to sell our investments at all the wrong times.
To illustrate a possible conflict with a real-life instance stemming from a difference in investing philosophy, let’s use healthcare services provider Raffles Medical Group Ltd (SGX: R01).
A growth investor (someone who looks for companies that can really grow their businesses for years and decades and who isn’t afraid to pay up for such growth) might think that Raffles Medical will be a great investment as a result of its multiple expansion plans, like the on-going extension of its flagship Raffles Hospital and its plans to develop a 400-bed international hospital in Shanghai.
But, from the point of view of a value investor (someone who’s out looking for shares with very cheap valuations; sometimes the quality of the business itself may not matter), Raffles Medical’s valuation – a price-to-earnings (PE) ratio of 37 – might be way too steep a price to pay. For some perspective, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index (SGX: ^STI), Singapore’s market benchmark – has a PE of just 13.8 at the moment.
The key here is to recognise that while trying to copy from great investors is a good way to get started on investing (after all, there’re always lessons to be learnt from success), it should only serve as the first step for you. No matter how great an investor Warren Buffett is, there is only one Warren Buffett. No one has been as successful as him simply by copying his style.
So, the best investor you can be is simply yourself. Once you’ve picked up some basic knowledge about all the different ways to invest, form your own investing philosophy and build your own investing strategy around that philosophy.
Only then can you have confidence in your own investments as they’d all be bought according to your own investing philosophy.
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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 writer Stanley Lim does not own any companies mentioned above.