What Christmas Shopping Can Teach Us About Investing

Merry Christmas Folks!

Lately, I’ve been walking along the main shopping street in CunXi Road in Chengdu, China, shopping for Christmas presents. Just like capitalism, Christmas celebrations seem – to me at least -to have been successfully ’imported and assimilated’ in China.

As I walked the streets, a thought came into my mind: “Investing is just like Christmas shopping.” Let me try to explain my thoughts.

Buying the right products

First of all, both investing and Christmas shopping relates to buying something. That’s obvious, but so what?

When we shop, we will need to decide what category of products to buy – food, apparels, IT gadgets etc. If we decide that we want to go for IT gadgets, we need to choose between products like laptops, mobile phones, tablets etc. Should we decide to buy a mobile phone, we will then need to choose between the many different brands like Apple, Xiao Mi, Samsung and more.

Similarly, before we invest, we need to decide which asset class to invest in. Should we invest in equity, debt, real estate, or others? If we want to invest in equity, then we need to decide which industry to focus on. When the industry selection is made, we will need to select a company from that industry to invest in.

Value for money

Secondly, in Christmas shopping or investing, we want to get the most value out of our money. While we do want bargains, make no mistake – we are not just trying to buy cheap stuff.

For example, let say we are looking for a phone, and we manage to unearth a brand new iPhone on sale due to a Christmas promotion. Thing is, Apple seldom discounts its products. So, it seems like we are getting some good value here – a good phone, at a discounted price. So we buy that phone. Again, it’s an obvious decision.

Similarly, in investing, we try to search for good value by investing in a good company that is selling at a discounted price.

For example, the oil and gas industry is currently battered due to the decline in the price of oil. Good companies with big exposure to the oil and gas industry, like SembCorp Industries Limited (SGX: U96) and Keppel Corporation Limited (SGX: BN4), are selling at a discounted price if you were to compare their current price-to-earnings (PE) and price-to-book (PB) ratios with their historical averages. If we understand these companies well, maybe it’s a good time to invest.

Keppel Corp and SembCorp valuation table
Source: S&P Capital IQ (click table for larger image)

So I have two questions for you now. Have you bought your Christmas presents for all your Christmas parties yet? And, would you like more investing tips and tricks and to keep up to date on the latest financial and stock market news in Singapore?

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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 Lawrence Nga does not own shares in any companies mentioned.