Investing Lessons From Shaolin Monks

It was definitely nothing like the 2011 movie that starred Andy Lau and Jackie Chan. There was no blood and gore. There were no gratuitous scenes that would make you cringe behind the settee.

That said, the recent martial-arts display by the Shaolin Monks in Singapore was brilliantly choreographed. There is little doubt that the kung-fu Monks are very expert at what they do.

But without the aid of invisible wires, courageous stuntmen and clever camera work, some might say that the pugilistic display by the 20-member troupe was a little underwhelming, even if it was unquestionably flawless.

Whatever others might think, I thought they were very good.

Exciting times

Investing can be a bit like that too. Some investors want investing to be exciting.

But as Peter Lynch once said: “Investing is fun, exciting and dangerous if you don’t do any work.

Some investors want instant gratification. They are disappointed if a share price should fail to respond immediately in the way that they expect, after they have bought it.

But the stock market rarely works like that.

Waiting game

Very often there is no correlation between the financial success of a company and the success of its stock. We could wait for months, if not years, for a share price to reflect the company’s performance.

Over the very long term, though, there is.

In the long run, there is a 100% correlation between the company’s success and the success of its stock. That is why we have to be patient. That is why it pays to own successful companies over the long term.

Some investors, however, are unwilling to wait that long.

But the stock market demands conviction. If we are unconvinced about a stock that we have bought, then it is unlikely that we will do well with it.

A lottery

We need to remember that a share is not a lottery ticket. When we buy shares in a company, we become part owners in those businesses. That requires a huge amount of conviction.

So, trying to predict the direction of the stock over one or two years, let alone a few days, is impossible.

Sometimes the stock could even move in the opposite direction to its fundamentals. So we need to understand the nature of the companies we own.

We need to also understand the reasons why we have bought a stock.

If we have bought a stock for non-value reasons, then it is quite likely we will also sell for non-value reasons. We are at risk of becoming a victim of the market rather than a victor in the market.

So simple

Investing is really quite simple. We should buy a stock based on what it is capable of yielding over its lifetime. We do not need constant confirmation from the market as to whether we have made the right decision.

Just because the price of a stock goes up does not mean that we are right. Similarly, just because the price of a stock goes down does not mean we are wrong.

Warren Buffett once said: “I do not aim to make money from the stock market. I buy on the assumption that the market could close the next day, and not reopen for the next five years.

He went on to say: “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.

Exceptional investments

We have to remember that we don’t have to do exceptional things to get exceptional results. We just have to buy so well that we don’t ever have to sell.

So what are these companies?

More often than not, the consistent winners are the great companies we already know and like. They could be in non-growth and slow-growth industries. It could be in the Singapore Real Estate Investment Trusts that include the likes of Suntec REIT (SGX: T82U) and Keppel DC REIT (SGX: AJBU), plus a whole lot more.

But to own these companies, we need to control our emotions. If we can’t control our emotions, then we are also unlikely to control our investments.

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.