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Stocks That Bear Fruit

Is that a chiku?” I asked the friendly greengrocer on Serangoon Road.

No, it is a longkong” he replied politely. “You want to try one?” he asked.

I did. I liked it, and I even bought a bag of the brown, Ping-Pong shaped fruits to take home with me.

To the untrained eye, a longkong looks pretty much like a chiku, which in turn could pass for a longan on a hazy day in Singapore. But the three edible fruits could not be more different in both taste and texture.

Know your fruit

Mind you, despite their apparent similarities, it doesn’t take too long – even for an amateur, such as me – to distinguish between them.

Investing can be a bit like that too.

Just as most plants bear fruits, our Singapore stock market continually bears a growing and varied of crop of shares, too. The stocks can be very different to each other in taste and texture, even if some of them might seem alike.

For instance, Jardine Matheson (SGX: J36), Keppel Corporation (SGX: BN4), Sembcorp Industries (SGX: U96), Jardine Cycle & Carriage (SGX: C07) are all conglomerates. But they could not be more different to each other.

They have operations in very different geographic regions, they have exposures to different industries and they have quite different valuations.

So, knowing exactly what we are buying is important.

Knowing The Story

It can mean the difference between, say, taking home a jackfruit on the bus and being unceremoniously ejected from every form of public transport in Singapore because you happen to have a durian in your shopping bag.

So, knowing as much about the stocks we buy is a good way of stopping us from ditching good companies, simply because their share price might have fallen in turbulent markets.

Remember confusing the price of a stock with the story behind the stock is probably one of the biggest mistakes many of us can make.

Winning The Lottery

Peter Lynch, one of the most outstanding investors of our time, once said: “Stocks aren’t lottery tickets. There’s a company attached to every share.

But to have the confidence to hold onto a stock in both good times and bad, we need to fully understand the story behind the business.

That will help us sidestep an opinion we might read in the morning papers or an off-the-cuff comment we might have heard on the evening news.

We need to remember that markets today are dominated by herds of professional investors. They often have plenty to say, especially when it comes to explaining why they might be performing badly.

Beating The Market

But contrary to popular belief, the herd of professional investors actually makes it easier for us, the amateur investor, to do well. We just need to ignore them, if we want to outperform the market.

The problem that many of us have, though, is to try to invest like an institution. If we do that, then we are most likely doomed. That is because, in many cases, institutions do not perform very well, at all. Around two out of three of them can’t even beat the market.

So think carefully about the stock you own. Also think carefully about any new stocks you might want to add to your portfolios.

Whenever I add new stocks to my portfolio, I spend as much time and effort in choosing them, as I would when I choose my fruits. I learn as much as about them as possible.

Write It Down

What’s more, I write down why I have bought the stock, so I never forget. It is so easy, two or three years down the line, to forget why a particular stock is in your portfolio.

Remember also that there are no right or wrong portfolios – just one that is right for our temperaments. So have a plan, write that down, too.

Building a portfolio can be a bit like putting together a fruit salad. Anything goes. But only add as many different fruits as you can handle.

Anyone for a durian and papaya salad?

A version of this article first appeared in Take Stock Singapore. Click here now  for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows 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 Director David Kuo doesn’t own shares in any companies mentioned.