“What on Earth is that?” I asked. “It’s a pomelo”, I was told. Oh Really? I have been around the block a few times. I’ve have probably eaten more pomelos than some people have had hot dinners. But the fruit in front of me was the ugliest thing I had ever seen. It didn’t look like any pomelo that I have ever clapped eyes on. It was disfigured; it was badly blemished and it bordered on being grotesque. I doubt if anyone would have given it a second glance. They might, but only to toss it straight into the nearest…
“What on Earth is that?” I asked.
“It’s a pomelo”, I was told.
Oh Really? I have been around the block a few times. I’ve have probably eaten more pomelos than some people have had hot dinners.
But the fruit in front of me was the ugliest thing I had ever seen. It didn’t look like any pomelo that I have ever clapped eyes on.
It was disfigured; it was badly blemished and it bordered on being grotesque.
I doubt if anyone would have given it a second glance. They might, but only to toss it straight into the nearest bin.
But how wrong could we have been, if we had done just that.
It would have been a crying shame to have rejected the unattractive pale green fruit on its appearance alone. The succulent segments inside the membranous material were some of the most delicious that I have tasted in all my years of pomelo-eating.
Investing can be a bit like that too.
How often, I wonder, have we rejected an investment simply because it looked unattractive, superficially?
In a similar vein, how often have we recoiled from investing because market conditions seemed unappealing?
It is a natural response.
But to make money from investing, we need to do something that others won’t do because they are too fixed in their ways. For instance, some people will only buy when the market is rising or showing signs that it could rise.
Doom and gloom
But Warren Buffett once said that we should be fearful when the market is greedy. He also urges us to be greedy when the market is fearful.
So we should be looking at stocks when they are unloved the most.
One thing that we could do is to take a closer look at industries that are surrounded with the most doom and gloom.
This can happen from time to time.
For instance, when brokers turned bearish on certain industries for reasons that are at best specious, sentiment can quickly sour from one of radiance to one of sheer despondence.
Enter the lemmings
Like a leap of lemmings that follow each other off a cliff, analysts were scrambling over each other to downgrade Singapore’s Real Estate Investment Trusts last year.
They drove the valuations of some REITs to significant discounts below their intrinsic values.
CapitaLand Commercial Trust (SGX: C61U) fell to a price-to-book of 0.7; Suntec REIT (SGX: T82U) was valued at 30% below its book value and Mapletree Logistics Trust (SGX: M44U) fell to 22% below its Net Asset Value.
So, speculation that Singapore’s property market was heading for a correction led some investors to ditch their investments on the say-so of pundits.
How wrong could they have been?
If they had only hung onto their investments, they could have been better off today.
What’s more, if they had the conviction to buy whilst others were reeling, they could have taken advantage of those who were unconvinced.
Lessons from Brexit
Pessimism can be contagious, especially in times of uncertainty. But it is particularly in times of uncertainty that we should ignore the noise and pay closer attention to fundamentals.
So, just as we should never condemn a fruit by its appearance, we should not judge a market by what others are doing.
If the fundamentals of a company are positive, we should try to look beyond unpleasant market conditions. We might even find some juicy fruits.
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.
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.