I recently happened upon a store in a popular shopping mall in faraway London. It was unlike any store that I had ever seen. There were no doors to keep people in or shut people out. There were no logos or fascias to let you know the name of the establishment you were about to enter. There were no queues of people waiting for a cashier to pay for their purchases. Why? Because there were no cashier counters to be seen, anywhere. Yet, there were streams of people, armed with shopping bags, walking out of the store. Open-minded It was,…
I recently happened upon a store in a popular shopping mall in faraway London. It was unlike any store that I had ever seen.
There were no doors to keep people in or shut people out. There were no logos or fascias to let you know the name of the establishment you were about to enter.
There were no queues of people waiting for a cashier to pay for their purchases. Why? Because there were no cashier counters to be seen, anywhere.
Yet, there were streams of people, armed with shopping bags, walking out of the store.
It was, unmistakably, an Apple store. It was open-plan like no other open-plan store I have ever come across.
A member of staff even gave me a personal tour.
It was a revelation from start to finish: a ceiling that can be raised and lowered for easy cleaning; power sockets that pop up with the wave of a hand and a lighting system that is synchronised with the conditions outside the shopping mall.
And then the sales assistant said something that stopped me in my track: “If you want to succeed, you have to think different.”
How true! That not only applies to retailing but to just about everything that we do – particularly when it comes to investing.
Peter Lynch once said: “You’ve got to go into places where other investors, and especially fund managers, fear to tread, or, more to the point, invest.”
One of the problems that we, investors have is that we have been conditioned to conform. Whether we know it or not we are conformist. We are afraid to “think different”, which tends to lead to mediocrity.
Many of us, for instance, buy when markets are rising and sell when markets are falling. But as Warren Buffett pointed out: “The dumbest reason in the world to buy a stock is because it is going up.” Yet many of us do that, time and again.
However, some of the best bargain could be found in industries that are surrounded with the most doom and gloom.
Or put another way, to make money we must be prepared to do something that others won’t because they have rigid mind-sets. They are conditioned to think like everyone else.
Consider the banking sector in the wake of the Great Financial Crisis. At the time, shares in DBS Group (SGX: D05) had fallen from around S$24 to S$6. Share in OCBC (SGX: O39) plunged from S$9.50 to less than S$4 and UOB (SGX: U11) sank from S$24 to S$8.
Fundamentals vs. sentiment
Yet the banks were still delivering near double-digit Returns on Equity. In other words, they were generating over ten dollars of profit on every dollar of shareholder dollar invested in them. Their fundamentals were still strong even though the sentiment in them was weak.
Unsurprisingly, shares in the three banks have doubled or even trebled since then.
Currently, the oil and gas sector is shrouded with the most doom and gloom. Some experts are even forecasting a total obliteration of the industry. They claim that this time things are different.
But as Warren Buffett pointed out, things are only different, if our time horizons are not long enough.
Many investors are impatient. They want instant gratification. Consequently, they quickly ditch lousy industries in favour of popular ones. But hot stocks in hot industries are probably some of the ones that we should avoid the most.
As a place to invest, the lousy industry could be better than a great one. Why? That’s easy because in a lousy industry, the weak drop out and the survivors get a bigger share of the market.
But to succeed we have to look for companies with strong fundamental and learn to be patient.
Patient investors in the banking industry were amply rewarded. Patient investors in the oil and gas sector could be similarly rewarded, provided they learn not to be scared out of their investments.
A version of this article first appeared in Take Stock 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 Director David Kuo doesn’t own shares in any companies mentioned.