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You Must Prepare For This If You Want To Be A Successful Investor

This is the last thing we hope for as a student. This is also not something we look forward to in our day job. Yet, this is something we must all be comfortable with making if we want to be a successful investor. I am talking about Making Mistakes.

As famous investor, Peter Lynch, once said “In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” And even at being right only 60% of the time, Peter Lynch was able to achieve an average return of 29.2% annually as the fund manager of Fidelity Investment’s Magellan Fund from 1977 to 1990. His experiences and track record tell us a lot about the fundamental truth about investing. It is ok to make mistakes in investing. More importantly, being wrong about an investment should not be frowned upon but rather be accepted as just part of the learning process of investing.

Take for example, I have invested in the oilfield engineering servicing company, MTQ Corporation Limited (SGX: M05) back in 2011 when it was growing at a healthy pace, with good margins and trading at a very low price to earnings ratio. However, I was never able to predict how oil prices would fluctuate and how it will impact its business, it is a risk I know I have to carry in that investment and something that is out of my control or prediction ability. When the oil prices collapsed at the end of 2014, the investment fell more than 50% from its peak, making my overall return mediocre over the past 4 years. However, if I did not invest in MTQ Corp based on that reasoning, I would have also passed on the investment in Straco Corporation Ltd (SGX: S85) back 2013 which turned out be a great investment for me. When a friend brought to my attention about this company, it is also growing at a healthy pace, with good margins and trading at a very low price to earnings ratio. Similarly, I am not unable to predict how the Chinese economy will do in the near future and how it might impact Straco’s business if the tourism industry slowdowns dramatically.

I invested in both companies with the same thought process. Yet, one turn out to be a great investment but the other was average at best. Nevertheless, if I have not made the “mistake” of investing in MTQ Corp, I would have never made the “achievement” of investing in Straco Corp.

The strategy I follow in my investment is simple. Whenever I consider an investment, I tend to look for companies with healthy margins, growing well and trading relatively cheaply. It is just the process I followed and it does not mean that every company I invest in will be a great success. Sometimes I make mistakes and I am alright with it.

Foolish Summary

It is not realistic to aim to be right 100% of the time in your investments. We have to be confident in our thought process and not be too affected by losses experienced in some of our investments. If your reasoning is sound, you are consistent in your investment philosophy and you invest for the long term, more often than not, your overall portfolio will do reasonably well.

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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 owns MTQ Corporation Ltd and Straco Corporation Ltd.