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Our Biggest Investing Mistake

For lunch one day last week I had a plate of some of the most delicious Roast Duck and Rice at an eating house on Beach Road….

…It was then followed by a quick walk around the corner to Liang Seah Street for a bowl of authentic Green Bean Soup for dessert….

…that was followed by a cup of freshly pulled Teh Tarik at a Kopi Tiam on North Bridge Road.

Welcome to lunchtime with Kuo.

Bizarre behaviour

Scuttling from one eatery to another might seem a little bizarre for people who are not familiar with the eating habits of Singapore diners. But it is really not that big a deal for us to visit two or more food outlets, when we go out for a meal.

It is partly because of the vast choice of good food outlets that we have here in the Lion City.

It is partly because of our discerning palate.

It is also because it is relative easy to get from one eating place to another.

We know what we want and we know where to get it.

Many of us recognise that whilst a particular restaurant might be good at preparing, say, roast meats, it might be a challenge for the same kitchen to dish up appetising deserts.

Dishy dividends

Investing is a lot like that too.

When we invest, we often find that it can be rare for a company to deliver, say, both capital growth and dividends at the same time. Consequently, we need to root around for the best offerings.

Here in Singapore, we can choose from a plethora of stocks for our portfolios. In fact, there are around 700 listed companies on the Singapore market. That’s quite a collection of companies.

So, it is important to be discerning. It is also important to consider how any one of those 700 stocks could fit into our portfolios.

Real Estate Investment Trusts (REITs), for example, could be a good source of regular income. They could include Suntec REIT (SGX: T82U), Ascendas REIT (SGX: A17U) and SPH REIT (SGX: SK6U). They might not be as good at delivering capital growth, though.

So knowing why we might want to own a particular stock is vital.

Compare and contrast

Let’s say we buy a stock for its dividends. One of our many considerations should, therefore, be how the payout compares with the yield on other asset classes.

We might also want to consider if the company is capable of generating a good return on shareholder funds. Additionally, we might want to look into whether it has grown and could continue to grow its dividends.

Those should be some of our main considerations.

But here’s the thing: We should not become overly fixated with the share price after we have bought the stock. We should have bought so well that we shouldn’t need to continually check on what the market might think.

We should approach growth stocks in a similar fashion. So focus on the things that matter. That could mean considering companies that are inexpensive relative to their potential to grow.

What’s the story?

Try to look for a story line to follow too. That can be a good way to monitor the company’s progress.

Consider also businesses that are not burdened by onerous loans because companies that have no debt can’t go bankrupt.

Albert Einstein once said: “Not everything that counts can be counted, and not everything that can be counted, counts.

That applies to investing too.

As investors we are constantly bombarded with data, opinions and information. But it is important to determine what is important and what isn’t.

The share price is one of easiest things to monitor. But it is probably the least important to follow.

Instead, make sure that a company is delivering on its promise. Or as Peter Lynch once said: “Confusing the price with the story is the biggest mistake an investor can make.

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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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.