08 July 2015
How To Be Right When Investing - Buy Good Companies at Bad Times
David Kuo
Dear Foolish reader,
Tucked away in the heart of Singapore’s Chinatown is a chef who, it is reckoned by many, makes some of the best soya-sauce chickens in town.
I had a feeling I was going to be in for a special treat, when I eyed the long queue of customers, who were patiently waiting in line for their turn to be served.
Of course, long queues do not always equate to good fare.
But in this case, there was something a bit different. The customers were evidently regulars, judging by the cordial rapport between chef and patrons.
All gone
As luck would have it, though, the racks were depleted by the time it was my turn to be served. There was not even a giblet in sight.
So, I made another attempt the following week. But, again, luck was not on my side - there was nothing left the second time around, too.
Thankfully, it was third time lucky. I finally got what I wanted. And it was clear from the very first mouthful of the golden-brown chicken as to why diners are prepared to wait, uncomplainingly, in line.
Waiting for the right stock to come along is a bit like waiting for that first taste of the succulent soya sauce-infused chicken. In other words, we should never feel that we have to settle for substitutes, if there is nothing in the market worth buying.
Be right
We are not paid to be busy - we are paid to be right.
Warren Buffett once said: “You do things when the opportunities come along”.
He added: “I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a thing.”
All too often, though, people buy stocks for all the wrong reasons.
They buy for reasons that are not based on fundamentals, which invariably end in selling for reasons that are not based on fundamentals. They are the reason for the erratic price swings, which are, quite often, unrelated to what is actually happening to the underlying businesses.
But as long as we understand why price swings happen, then we can capitalise on it.
Greed, fear and folly
Investing should never be about chasing fads. Nor should it simply be because prices are rising, as many Shanghai and Shenzhen investors have recently discovered.
Warren Buffett once pointed out: “The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.”
Investing should be about trying to estimate the yield on an asset over the lifetime of the asset. That is how we make money from shares.
Speculation, on the other hand, is predicting what the market might do next, which is nigh on impossible. That is how we lose money from shares.
One-time events
So focus on picking good stocks at good times and stay with them as long as they remain good companies.
The Singapore market has many examples of companies that have delivered solid returns for investors over the long term. They include in no particular order of “goodness” Keppel Corporation, Dairy Farm and Jardine Cycle & Carriage.
They might be unloved right now as a result of unusual circumstances.
But excellent opportunities happen when superior businesses are hit by one-time event that depress the stock price in relation to their intrinsic values.
Be sure to follow us on Facebook for the latest in Foolish investing.
'Til next time ...
Dear Foolish reader,
Tucked away in the heart of Singapore’s Chinatown is a chef who, it is reckoned by many, makes some of the best soya-sauce chickens in town.
I had a feeling I was going to be in for a special treat, when I eyed the long queue of customers, who were patiently waiting in line for their turn to be served.
Of course, long queues do not always equate to good fare.
But in this case, there was something a bit different. The customers were evidently regulars, judging by the cordial rapport between chef and patrons.
All gone
As luck would have it, though, the racks were depleted by the time it was my turn to be served. There was not even a giblet in sight.
So, I made another attempt the following week. But, again, luck was not on my side - there was nothing left the second time around, too.
Thankfully, it was third time lucky. I finally got what I wanted. And it was clear from the very first mouthful of the golden-brown chicken as to why diners are prepared to wait, uncomplainingly, in line.
Waiting for the right stock to come along is a bit like waiting for that first taste of the succulent soya sauce-infused chicken. In other words, we should never feel that we have to settle for substitutes, if there is nothing in the market worth buying.
Be right
We are not paid to be busy - we are paid to be right.
Warren Buffett once said: “You do things when the opportunities come along”.
He added: “I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a thing.”
All too often, though, people buy stocks for all the wrong reasons.
They buy for reasons that are not based on fundamentals, which invariably end in selling for reasons that are not based on fundamentals. They are the reason for the erratic price swings, which are, quite often, unrelated to what is actually happening to the underlying businesses.
But as long as we understand why price swings happen, then we can capitalise on it.
Greed, fear and folly
Investing should never be about chasing fads. Nor should it simply be because prices are rising, as many Shanghai and Shenzhen investors have recently discovered.
Warren Buffett once pointed out: “The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.”
Investing should be about trying to estimate the yield on an asset over the lifetime of the asset. That is how we make money from shares.
Speculation, on the other hand, is predicting what the market might do next, which is nigh on impossible. That is how we lose money from shares.
One-time events
So focus on picking good stocks at good times and stay with them as long as they remain good companies.
The Singapore market has many examples of companies that have delivered solid returns for investors over the long term. They include in no particular order of “goodness” Keppel Corporation, Dairy Farm and Jardine Cycle & Carriage.
They might be unloved right now as a result of unusual circumstances.
But excellent opportunities happen when superior businesses are hit by one-time event that depress the stock price in relation to their intrinsic values.
Be sure to follow us on Facebook for the latest in Foolish investing.
'Til next time ...
Labels: Stock Trading System
