Investing is full of contradictions.
It is simple but not easy.
The best investing period is forever and yet no one lives forever.
Even here at The Motley Fool, we have investors who constantly contradict one another. Some of us prefer stocks that have low price to earnings ratios because it gives them a higher margin of safety. Yet, we also have investors who prefer a high price to earnings ratio because it shows that the company might have higher growth potential.
But despite differences in investing styles, one thing we all agree at the Fool is that investing is for the long-term. We are not traders of shares and when we invest, we believe we are effectively part-owners of a company. And in order for us to be able to have the conviction to lay down our hard-earned savings into a company, we all have to find this in a company before we invest: Trust
When I conduct investing research on a company, I tend to spend a lot of time understanding the management team and determining if they are trustworthy people. Billionaire investor Warren Buffett once quipped:
“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.”
If we are investing in a company for the next three to 10 years or more, would we feel comfortable if we are unsure about the character of the people running the company? No matter how attractive the financials look like for a company, if the management team is not honest and does not treat minority shareholders fairly, you as an investor might never get to enjoy the benefits that those “beautiful financials” ought to bring.
There have been many companies that have lost the trust of their investors as a result of operational mismanagement or the use of questionable accounting practices. Some foreign examples in recent years include Volkswagen AG and Mitsubishi Motors. At home in Singapore, we have Noble Group Limited (SGX: N21) and Silverlake Axis Ltd (SGX: 5CP).
For investors who are interested in such companies, I have an easy way to help you make your decision. You’d have to answer the question: Will you trust them for the next 10 years?
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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 Stanley Lim does not own shares in any companies mentioned above.