Investing Lessons From A Bowl Of Fish Soup Noodles

Yum! There is nothing quite like a steaming bowl of Fish Soup Noodles, when it comes to local comfort food.

Fish Soup Noodles have been around in Singapore for about as long as I can remember. And I am old enough to remember a lot.

They are as readily available as, Hainanese Chicken Rice and Bak Kut Teh. But for some inexplicable reason, they don’t quite share the same cachet as the other two.

That said, lots of hawkers, dedicated eateries and even some well-established restaurants all claim to serve the best, if not the definitive, Fish Soup Noodles.

How much?

Prices can vary, a lot, though. It can cost between just a few dollars at some hawker centres to around $20 at some restaurants.

So how much should we pay for a bowl of the bee hoon in milky fish broth?

Putting a price on it is not easy. It can be almost as difficult as putting a price on a share that you might like to buy.

We could go down the relative valuation route, if we want. In other words, we could look at the prices charged by the different establishments for comparison. Effectively, we are pitting one restaurant’s price with that of another.

It is then a straightforward matter to arrive at some kind of conclusion – whether rightly or wrongly – that the one with the lowest price could be the one that offers the best value.

Relatively easy

Relative valuation is simple, which is why many of us like to use it. Just think about the way we compare insurance quotations, annuity rates, interest paid on savings accounts and the cost of airline tickets.

Some of us value shares in a similar fashion. We might compare, say, a bank such as DBS Group (SGX: D05) with its peers such as Oversea-Chinese Banking Corporation (SGX: O39) or United Overseas Bank (SGX: U11), to draw some conclusions about which could offer better value. We might even compare them against banks across the causeway that could include Malayan Banking Berhad (KLCI: 1155.KL)(KLCI: MAYBANK) and Public Bank Berhad (KLCI: 1295.KL)(KLCI: PBBANK).

But back to my Fish Soup Noodles, which is where I would rather be. How could we possibly know if all the prices are too expensive, at the same time?

In other words how would we know that we are not being overcharged, even if we should choose the cheapest?

Absolutely easy

One way around the problem is to use absolute valuation, which is the antithesis of relative valuation.

In the case of the Fish Soup Noodles, we could estimate how much the ingredients might cost and where the eatery is situated. Then add on an appropriate amount for labour and profit, and we should have some idea of fair value.

The point about absolute valuation is that it doesn’t depend on pitting one cook against another chef. But we do need to work out if the fish used is pomfret, snakehead or grouper.

Our toolkit

Absolute valuation can also be used to value shares. We should all have it somewhere in our tool kit. Here’s why.

Warren Buffett once said: “Investing is an activity of forecasting the yield of an asset over the lifetime of the asset.

With absolute valuation, we are not at the mercy of the whims and of the market. Instead we can invest, comfortable in the knowledge that we are reaping the yields of assets, regardless of what the market might be doing.

Isn’t that what investing is all about?

As Benjamin Graham once noted: “You are neither right nor wrong because the market agrees with you. You are right because your analysis is correct.”

In case you are wondering, my favourite Fish Soup Noodles is prepared by an eatery that is just a stone’s throw from Bugis Junction. Where is yours?

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.