1 Major Trap Investors May Fall Into When Analysing a Company

We Singaporean investors are a lucky bunch. There are investment choices from all over the world that we can choose from within Singapore’s stock market.

According to data from bourse operator Singapore Exchange, there are 23 regions and countries which are represented in our stock market here. Furthermore, many Singapore-based companies are bona-fide multi-national corporations with businesses spread across the globe. This geographical diversity that we as investors in Singapore can tap into can be very useful in helping us build a robust and diversified portfolio.

But, this can also be a source of potential danger. You see, there may be a tendency for us to project what we experience in Singapore (business trends, consumer tendencies, spending power of the people etc.) onto other countries.

Let’s use Jardine Cycle & Carriage Limited (SGX: C07) as an example. The company is one of the largest distributors of automobiles and motorcycles in Indonesia through its majority stake in Astra International.

If we assume that the average Indonesian would have the same purchasing power as Singaporeans, it would be a dangerous mistake. If we assume that Indonesia’s car market also faces the same limiting factor as what we have in Singapore (limited space for cars on the road), that may also lead to some faulty conclusions. If we think that population demographics in Indonesia are similar to that of Singapore, it will also be wrong.

Foolish Summary

It’s wonderful that investors in Singapore get to have global investing options. But, this privilege comes with a catch.  We cannnot use the basic assumptions we have about society and the business environment in Singapore to analyse every company in the stock market here. Every business and especially country is unique and there might thus be very important investing-related differences that we have to note.

That wraps it up for this article. For more (free!) investing tips and tricks and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

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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 shares in Jardine Cycle & Carriage Ltd.