The 1 Warren Buffett Skill That Everyone Can Learn

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“How will the slowdown in growth in China’s economy affect Singapore’s banks?” That was a question I was asked recently.

It’s also something that appears to be on the minds of many investors – executives at Singapore’s local banks have been addressing the matter of China’s slower economic growth in recent earnings briefings.

In the view of Oversea-Chinese Banking Corp Limited (SGX: O39) chief executive Samuel Tsien, there are no particular issues with the bank’s China portfolio. As for United Overseas Bank Ltd (SGX: U11), its chief financial officer Lee Wai Fai recently said that the bank is very comfortable with its exposure to China.

The comments from Tsien and Lee are reassuring for the investors in OCBC and UOB when it comes to China. But, if the banks’ share prices were to fall from here, will an investor be confident enough to hold on to their shares?

Out of bounds

Now, let me step away from Singapore’s banks for a little while and turn to two billionaire investors, Warren Buffett and Charlie Munger. Munger, who’s a long time business partner of Buffett, once commented that he thinks they have some skills that can be easily taught to other investors. This is what Munger said:

“Warren [Buffett] and I have skills that could easily be taught to other people. One skill is knowing the edge of your own competency. It’s not a competency if you don’t know the edge of it. And Warren and I are better at tuning out the standard stupidities.”

In Munger’s view, investors should know the edge of their own competency when it comes to investing. But why is that so? After all, buying a company’s shares is easy enough. It simply involves a few mouse clicks or a phone call to a broker.

Thing is, the act of holding onto a company’s shares through thick and thin is quite another matter.

The long game

The best returns in the stock market may come from holding stocks in great companies for the long-term. And if we plan to be holding a company’s shares for the long haul, then it stands to reason that we should be able to understand the business that we are buying into and the various challenges that the company may face along the way.

This brings me back to Singapore’s banks.

In recent times, challenges have started to pop up for the local banks. Beyond China’s lower growth rates, there are also potential ramifications from the oil and gas sector’s turmoil. These issues might not be the only challenges that will appear for Singapore’s banks. For some investors, such macro events may be unsettling as it can be hard to untangle how the banks’ businesses may be affected.

If that is the case, we can take a leaf out of Munger’s play book. It is well within our ability to simply hold our hands up and decide that banks may be “too hard” for us. It is also well within our ability to move on to easier companies.

By investing in companies with simple businesses that we have a better understanding of, we might be able to find the confidence we need to hold our shares through thick and thin while in search of satisfying long-term compounded returns.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.