At the Motley Fool, we aim to educate, amuse and enrich. Two days back, I happened to be listening to a podcast – the latest Motley Fool Money US podcast to be exact – and heard my colleagues talking about great financial advice they had received from their dads. The advice shared, despite being given by U.S.-based Fools, is very useful for local investors in Singapore too. To meet the Fool’s three-pronged aim, here’s me passing on the pearls of wisdom from the Motley Fool Money podcast. 1. On getting it right the first time: You’ll never buy in the…
At the Motley Fool, we aim to educate, amuse and enrich.
Two days back, I happened to be listening to a podcast – the latest Motley Fool Money US podcast to be exact – and heard my colleagues talking about great financial advice they had received from their dads.
The advice shared, despite being given by U.S.-based Fools, is very useful for local investors in Singapore too. To meet the Fool’s three-pronged aim, here’s me passing on the pearls of wisdom from the Motley Fool Money podcast.
1. On getting it right the first time: You’ll never buy in the bottom, and you’ll never sell at the top, so get used to it and move on.
This great advice goes to the heart of the tendency for stock market participants to try and time the market. With the benefit of hindsight, we may at times find ourselves rueing the fact that we could have “got in a stock a little bit earlier or lower” or could have “sold a stock at a higher price”.
Put another way, there is an implicit desire to get in at the ultimate low and sell at the ultimate high. The problem is, there is little chance that we can do that consistently. In fact, not getting the lowest ever stock price for entry or the highest price for an exit is part and parcel of the investment game.
But that is really not a problem at all. My colleague Stanley Lim had previously shared how diamond-manufacturing systems provider Sarine Technologies Ltd (SGX: U77) had languished for a good number of years before turning out to be a solid winner over the long run.
In his example, Stanley showed how a S$0.90 share price in 2006 would have been far from the best price for Sarine Technologies (the stock traded at less than $0.10 at its lowest in 2008).
Yet, through all its trials and tribulations, the share turned out to be a champ over the long-run. Shares of Sarine trade at about $2.41 at the time of writing, up 167% from S$0.90. In contrast, the Straits Times Index (SGX: ^STI), Singapore’s market barometer, is up by only 43% since the start of 2006.
So, keep your expectations in check and don’t fret: Not getting the best price can still result in awesome stock returns.
2. On humility: You’re gonna meet people in your life who are smarter and better than you at everything. Embrace that and try to hang out with those people.
In life, we will meet folks who are better than us at some (maybe even all!) areas. Sometimes, there will be folks who are significantly better than we are. And that’s great! It means that there will be opportunities for us to learn from different perspectives.
This advice reminds me of a quote from the highly successful hedge fund manager, Seth Klarman. Speaking on the importance of embracing humility when investing, Klarman mused:
“When you buy anything, it’s an arrogant act. You’re saying: The markets are gyrating and somebody wants to sell this to me, and I know more than everyone else so I’m gonna stand here and buy it. I’m gonna pay 1/8 more than the next guy wants to pay and buy it. That’s arrogant. And you need the humility to say: But I might be wrong. And you have to do that on everything.”
The bottom-line is this: We don’t have to be the smartest guy in the room with all the answers. In the spirit of being Motley, every investor has the choice of listening to many sides of an argument. And it’s even better if the arguments come from folks who are smarter than us.
3. On dealing with bad news: The first bad news is not the last bad news.
Judging from the events unfolding at commodities trader Noble Group Limited (SGX: N21), this advice may well be a good one to remember.
In February this year, an unknown blogger named Iceberg Research released two reports criticizing the company’s accounting and valuation practices. This was followed by a third report from Iceberg research in March.
In April, it was the turn of Muddy Waters Research to announce that it was shorting Noble Group’s shares.
Then in May, it was Michael Dee’s turn to step up to the plate. The former Temasek Holdings senior managing director had written an open letter to address all of Noble’s employees, imploring them to ask for answers from Noble’s management regarding some of the questions that were raised about the company by its critics.
Noble has since taken legal action against Iceberg Research and a former employee who the company believes is behind the blog. The company has also issued statements refuting a number of the claims made by its critics.
Who knows when this whole saga is likely to be over?
But whether or not you are considering Noble as an investment, one lesson we can take away from this whole series of events thus far is that we should not always brush off any bearish thesis which pops up.
At the Fool, we welcome differing opinions on companies. A bull and bear thesis considered side by side may be superior to the consideration of just the bull or bear case alone. Additionally, Foolish folk from different walks of life may offer a perspective which you may not have considered before.
If you are interested in examples, here are a few from the Tug-of-Fools series that we have done with Shares Investment in which a bull and bear case is presented for a company:
- VICOM Limited (SGX: V01) – here
- Tiger Airways Holdings Limited (SGX: J7X) – here
- ComfortDelGro Corporation Ltd (SGX: C52) – here
- Frasers Centrepoint Trust (SGX: J69U) – here
- Singapore Airlines Ltd (SGX: C6L) – here
- Cordlife Group Ltd (SGX: P8A) – here
- Keppel Corporation Limited (SGX: BN4) – here
- Dairy Farm International Holding Ltd (SGX: D01) – here
- Vibrant Group Ltd (SGX: F01) – here
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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 owns shares in VICOM Limited and Dairy Farm International Holdings.