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1 Investing Mistake to Fear in the Stock Market

Credit: Amy McTigue

Now, that’s a sight you don’t see often.

All around me were teenagers mingling, dressed up in cosplay gear. One kid, in his attempt to emulate DreamWorks character Jack Frost, was walking around barefoot on the cold tiles at Suntec City. One thing’s for sure: You can’t say that he didn’t devote himself fully to the cartoon character’s traits.

But, full devotion doesn’t always work out the way we intend it to.

Investing advice goes cold

There will be times when well-meaning investing advice can turn cold too. Some of these pieces of wisdom, when taken to the extreme, can even be detrimental to our investing results.

Here’s an oft-repeated and well known piece of advice from the billionaire investor Warren Buffett:

“Be greedy when others are fearful, and be fearful when others are greedy”

I am sure that Buffett means well with the advice above. But if it is taken too literally, it can actually lead us astray. Said another way, there can be times when we ought to be fearful together with the crowd.

This may be true for shares of China Fishery Group Limited (SGX: B0Z). The seafood supplier’s shares had fallen by nearly a fifth from S$0.27 at the start of 2015 to S$0.22 at the end of June. The share price fall could be interpreted as fearful investors dumping its shares.

But, that 18.5% discount has so far turned out to be a warning rather than an opportunity.

As my fellow Fool Chong Ser Jing pointed out earlier this year, the debt to equity ratio for China Fishery Group had been rising over the past three years. This proved to be prescient as China Fishery Group found itself in hot soup last week over debt-related problems. According to a news report, one of the company’s creditors, HSBC, is petitioning to wind up the company and its subsidiary.

China Fishery had requested for a suspension of trading in its shares this morning and its shares, based on their last-traded prices, are sitting 65% lower from the end of June this year. The company had announced on Saturday that it has appointed provisional liquidators. The debacle that is unfolding with China Fisheries is a reminder that not all cheap shares are opportunities.

Foolish takeaway

Any investing advice when taken to the extreme can work against the investor – even if it comes from one of the best investors of our time.

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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 doesn’t own shares in any companies mentioned.