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 winners and losers. There are learning points to be found in both.
Here’re two key lessons I’ve picked up from my investing journey so far:
Lesson No. 1: The value of simplicity – click here
Lesson No. 2: The power of long-term investing
“People want instant gratification, but that’s a guaranteed way to lose money in stock investing. From one year to the next, the stock market is a coin flip: it can go up or down. The real money in stocks is made in the third, fourth and fifth year of your investment, because you are participating in the company’s earnings, which grow over time.”
– investing maestro Peter Lynch
I am in agreement with Lynch’s quote above. In my view, the best returns in the stock market come from the simple act of holding great companies for the long-term.
Allow me to show you why.
Below are my three oldest holdings, namely, Suntec REIT, online streaming giant Netflix Inc, and restaurant chain owner Chipotle Mexican Grill. Each stock has been held in my portfolio for at least eight years. I have summarized the date at which I had bought the shares as well as my returns so far.
Source: Google Finance; stock price as of 7 October 2015; Netflix and Chipotle Mexican Grill are quoted in US dollars
For some context, Singapore’s market benchmark, the Straits Times Index (SGX: ^STI), had rose by ‘only’ 33% since the time of my Suntec REIT purchase.
You may think that I foresaw those outsized returns when I bought them. But the truth is, I didn’t have special insight that made me certain that the companies above would return me multiples of my initial investment.
If I knew Netflix or Chipotle would be such wonderful investments, it would have been rational for me to just bet solely on the best horse in the race. But I didn’t – I diversified amongst companies which I thought had a fair chance of having materially larger businesses over the long-term.
What I did have was patience to let the management teams of those three stocks to drive their underlying businesses to greater heights. When that happened, the stock price followed.
Patience also made a difference to my long-term returns in Suntec REIT. Accumulated dividends over the past ten years have contributed an additional 85% return to my 136% in capital appreciation from the REIT.
To be sure, long term investing doesn’t always work out. As I alluded to earlier, I have had my share of losers as well. But, when you hold onto the winners through the years, they may outweigh the losers by a wide margin. After all, the most you can lose in a stock is 100% while the most you can gain is theoretically infinite.
A Fool’s take
There are many ways to approach investing.
My preference is towards investing for the long-term in great companies with simple investing. My investing approach also fits my lifestyle where 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.
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 Netflix, Chipotle Mexican Grill and Suntec REIT.