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1 Key Lesson from a Decade of Investing

Credit: andrechinn

I am fast closing in on the 10th anniversary of my first ever purchase of a Singapore stock.

Back in 20 October 2005, I made my maiden investment and bought some units of retail and commercial real estate owner Suntec Real Estate Investment Trust (SGX: T82U). My portfolio has come a long way since then. In my decade of investing, I have picked up my fair share of both winners and losers. There are learning points to be found in both categories.

Here’s a key lesson I’ve picked up from my investing journey so far:

The value of simplicity   

“Everything should be made as simple as possible, but not simpler”

— Albert Einstein

As Foolish investors, we have a choice of companies which we invite into our own portfolio. For me, the investment theses for my stocks have to be as simple as possible. “Never invest in any idea you can’t illustrate with a crayon,” the legendary investor Peter Lynch once said.

Keeping it simple can start from sticking to businesses that you can understand easily. Consider another stock holding of mine, vehicle inspection and testing unit Vicom Ltd (SGX: V01).

Car owners in Singapore may be well-versed in the company’s services. Typically, vehicles in Singapore are required to undergo inspections on a fixed schedule that depends on the age and type of the vehicle – this helps create a recurring stream of revenue for Vicom. Moreover, Vicom has a strong balance sheet with no debt and a steady track record of generating free cash flow.

It is easier for me to hold a business for the long-term if I understand the basic building blocks of its investment thesis.

In the case of Vicom, a Chinese Yuan devaluation wouldn’t faze me, for instance. Neither will China’s economic slowdown.  That’s because Vicom’s business is primarily in Singapore. Even the possible interest rate hike from the US Federal reserve is unlikely to hurt Vicom if and when it happens due to the company’s lack of debt.

By keeping it simple, I can better judge threats and opportunities to the company as they come. This is important for me as I plan to hold my stocks for the long-term (that’s where the best returns in the stock market might come from, in case you’re wondering why I aim to be a long-term investor).

A Fool’s take

There are many ways to approach investing.

Some investors believe that a difficult thesis will discourage others from studying a company, resulting in less competition. There can be merit to that thought.

However, for me, my preference is towards simple investing theses in strong companies. In my view, if you start off on the right foot (with a strong company that has a simple business), you would able to follow a company for the long haul and rely less on other aspects of investing, like the accuracy of your valuation, which can be riddled with errors.

My biggest winners have come from businesses that are easy to understand, such as the U.S.-based Mexican restaurant operator Chipotle Mexican Grill and healthcare property owner Parkway Life REIT (SGX: C2PU). Making burritos and owning hospitals is simple to grasp.

My investing approach also fits my lifestyle – keeping it simple means I do not have to tend to my companies on a daily basis. If the business keeps purring, I can enjoy a good night’s sleep and spend time on other things I enjoy in life.

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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, Chipotle Mexican Grill, Parkway Life REIT and Suntec REIT.