Investing Lessons From Chinatown

So, how long has this restaurant been open?” I asked one of the waiters, who was standing outside a busy diner in Chinatown greeting eager customers.

About 20 years” he said, with a smile.

That’s not possible, I thought to myself. I have walked down that thoroughfare at least a couple of hundred times over the years. I have never clapped eyes on that dim-sum restaurant, in all that time.

Glaringly conspicuous

But it would seem, on confirmation with some people in the know, that the restaurant has indeed been serving satisfied customers for two decades, at least.

How is that possible? How could something that is now so glaringly conspicuous have been so gallingly obscure?

The answer is probably quite simple. And it has nothing to do with me being overdue for my annual eye-test.

The how and the what

We are often so focussed on getting from A to B as quickly as possible that we forget to stop and look at the things that go on around us.

So, unless we open our eyes, we are going to miss them completely.

Peter Lynch once said: “Devote at least an hour a week to investment research. Adding up your dividends and figuring out your gains and losses doesn’t count.”

Lynch’s advice is sublime. He never actually said dividends don’t matter. What he meant was that figuring how those dividends are generated is an important part of investing. It is the “how” rather than the “what”, we should be concentrating on.

Many of us, sadly, tend to focus far too much on short-term portfolio performance, rather than the performance of the businesses that we are invested in.

Focus on the things that matter

We seem to believe, as Lynch pointed out, that adding up our dividends and figuring out our gains and losses on a daily basis really matters.

To short-term traders, it might. But long-term investors should not get too hung up with daily, weekly or even monthly price fluctuations. 

Warren Buffett also pointed out that our objective as investors is to recognise that we should always be buying businesses rather than merely stocks.

The market – and its constantly fluctuating prices – is there only as a reference point to see if anybody is offering to do anything silly.

For instance, is it really possible that Singapore Exchange (SGX: S68) can, over the course of 12 months, swing from a market valuation of S$8.4 billion to a high of S$9.4 billion, then plunge to a value of S$7.5 billion, before ending the year at S$8.2 billion?

When we invest, we are buying a part ownership of a going concern. Consequently, we should always be ready to exploit the difference between the market price of the business and its intrinsic value.

What’s more, if we haven’t bought a stock for value reasons, then it is highly likely that we will also sell for non-value reasons. To sell under those circumstances could be a mistake.

The things that count

As investors we should always be thinking of ourselves as owners of a business. That means, quite simply, that we should invest in companies with the intention of staying in the business for a long time.

The upshot is that we need to keep our eyes focussed on business results, not market prices.

Real business owners rarely, say, get a valuation of their business assets on a daily business. If they do, then they are almost certainly spending far too much of their valuable time and resources on the wrong things.

As investors, we should also be focussing our attention on the business too. We should be looking at whether revenues are growing, whether cash is being generated and whether profits are being made.

Albert Einstein once said: “Not everything that can be counted, counts”. The same goes for share prices. Just because they are constantly reported doesn’t mean it matters.

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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.