15 Surprising Things About Investing Every Investor Should Know

Earlier this month, I had shared 13 surprising things about the investing world that I think every investor should know. These things come from my experience over the past three-plus years as a writer and analyst with The Motley Fool Singapore and over the past decade-plus as a keen student of investing.

Even more surprising things had sprung into my mind lately, so here are the 14th and 15th to add to the list:

14. Painstaking investing research can still result in horrible returns.

Billionaire investor Bill Ackman is someone who can do some serious work on a stock before he invests. In an old presentation given by Ackman’s investing firm Pershing Square, there were details of the extent of the firm’s research on the U.S.-listed drugs maker Valeant Pharmaceuticals International.

According to the presentation, Pershing Square had signed a confidentiality agreement with Valeant in February 2014 that allowed the investing firm to “conduct substantial due diligence.” To give you an idea of how much brain sweat Pershing Square had expended, here’s a sample of the work the firm had done on Valeant:

  • Meetings with Valeant’s board of directors in person
  • “Extensive” interviews with Valeant’s management
  • Review of Valeant’s research and development pipeline
  • Selective country-level due diligence

Based on a regulatory filing, Valeant’s stock had ended up being roughly a quarter of Pershing Square’s U.S. stock portfolio as of 31 March 2015. But despite the extent and intensity of Pershing Square’s research, the Valeant investment has been a really tough one so far – from 31 March 2015 to today, Valeant’s stock price has crashed by a stunning 84% from US$198.62 to US$31.89.

Hard work need not always translate into good results in the world of investing.

15. Being a blue chip does not automatically mean a stock’s a good investment.

In Singapore’s stock market, the term “blue chip” is used to describe a stock that’s part of the local market barometer, the Straits Times Index (SGX: ^STI). The term also carries a positive connotation in the sense that blue chips are often seen as established companies with stable businesses.

The current version of the Straits Times Index was the result of a revamp that took place on 10 January 2008. The initial 30 constituents included companies such as Cosco Corporation (Singapore) Limited (SGX: F83) and Olam International Ltd (SGX: O32).

The two companies have different businesses, but they have a common thread tying them together – their shares have done horribly since 10 January 2008 as the following table illustrates.

Cosco, Olam, share price table
Source: S&P Global Market Intelligence

You can see in the table below how the profit of the two ex-blue chips have changed since 10 January 2008. I trust it’s obvious to note that both of them have seen their profit shrink drastically over the years.

Cosco, Olam, earnings per share table
Source: S&P Global Market Intelligence

The key takeaway from the experience of Cosco and Olam is that what really matters in investing is how well a stock’s underlying business will do in the years ahead, not its current status or reputation. It may pay to bear this in mind.

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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 writer Chong Ser Jing doesn't own shares in any companies mentioned.