3 Investment Mistakes
Looking back at my past investments, I realise that for companies to realise their full potential it usually takes 4 to 5 years. In today’s article, I would be writing my investment thesis I had at the point of investing in the following 3 companies and where I went wrong.
Investment Mistake – Singapore Post:
The very first stock I bought was Singapore Post and it was solely based on the reasoning of wanting a stable stock which will constantly pay dividends year on year. Subsequently, given how the slow mail business was a dying industry, earnings started to decline resulting in the fall in share price to the low SGD0.80. While the company still consistently paid dividends year on year, I decided that with the sudden spike in prices, it was my cue to exit this stock. I remembered reading many reviews that there was too much optimism in the market especially for a business that was dying off.
Looking at it now, who would have anticipated that Singapore Post would have done a joint venture with Alibaba reviving what most thought was a ‘dying’ business. Looking at all the past DCF models analyst were created at that point in time, there was no way anyone could have expected this move.
Investment Mistake – Comfort Delgro Corporation:
With Comfort Delgro, I felt that the company controlling more than 50% of the fleet of taxis in Singapore and trading at much lower multiples than SMRT, it was definitely a good stock to add to my portfolio. Furthermore, Comfort Delgro offered overseas exposure, something that SMRT was unable to offer. Hitting the low SGD2.00, I ran my numbers again. Although, based on a fair FCF yield, I estimated a fair price for the company should be approximately SGD2.50, I reasoned to myself that I was expecting too much from the company and it seems to have plateaued.
Looking at it now, who would have anticipated that the Government’s move to overhaul the bus industry by restructuring it to a ‘government contracting model’ to encourage greater competition and to ease operator’s capital expenses. Previously, Comfort Delgro’s 75% owned SBS Transit have reported losses in their bus businesses due to the high cost of operations.
Investment Mistake – QAF Ltd.
With QAF, it was one of my first forays using a Graham-method of buying stocks below NAV. With a NAV of approximately SGD1.00, I felt that at the price of SGD0.70, it offered sufficient margin of safety. Furthermore, with its simple business of selling bread – Gardenia & Sunshine, I felt it was definitely a classic Graham stock to buy. However, what resulted me to sell the stock was probably behavioural bias as I saw the company suffering a few quarters of negative FCF. Looking at it now, the company has hit my initial target price of SGD1.00.
While I did make profit from all these 3 investments, what I realised was that I could’ve done much better if I waited longer with a timeframe of 4 to 5 years. Like with the case of Singapore Post, what we all thought was a dying business managed to turn itself around through the joint venture with Alibaba. Perhaps even with QAF, after a few quarters of negative FCF it still managed to revert back to normalised levels. The point I’m driving at would be that with these long-standing businesses, there is no point trying to forecast where they may be 10-years down the road. Our main aim should just be identifying companies that are cash-rich with minimal debt, having a long company history and offering a decent margin of safety. Having taken care of our downside would our outperformance come over time.
To end it off, I would like to share a research done by Fidelity. The company did a study of their investor’s accounts to find out who were the best performers and their strategy in outperforming the markets. What they realised was that the accounts that did the best, the investors have already passed away. While the ones that came next, the investors had forgotten that they had an account with Fidelity. From this study, we can see that investing is simple, but not easy. Even knowing that the secret to getting such outperformance is just by doing nothing, how many would really have the willpower and patience to do nothing for the next 4 to 5 years?