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Are you suffering from willful blindness when it comes to investing?

Rupert Murdoch testified in the phone spying case that he was not aware that such activities were taking place under his watch. The court ruled that he is willfully blind and cannot be made not responsible for the actions.

The interesting thing was the analysis done on whether CEOs like Rupert and Enron’s convicted CEO were living in their own world as up till the last moment they still believe that they are right.

In all these cases one thing stood out in common in that these CEO build IP a totalitarian system where no one is suppose to cross the defined structure.  The CEO surrounds himself with loyalist who keeps in line with the direction and those that asks questions were ultimately thrown out.

Sounds very much like the Temasek holdings episode.

One wonders whether we made the same psychological mistakes as Rupert Murdoch when it comes to investing.

What works now will always work

For us young investors, we often fall into not asking enough questions about how well what we do works over a longer period of time. In other cases, what works or doesn’t work now will always be the trend on the long run.

“We all succumb to the tendency to readily accept information that confirms our sense of ourselves and discredit data that doesn’t fit our dominant ideologies. And when tired, human minds fall back in stereotype and received wisdom”

If we made money then that method will always work and it will always work that way. Talk to veteran traders have told me that the playing field changes, what worked for you will be turned against you.

SPH will always be that great dividend stock because it is affiliated to the dominant political party.

SMRT is a “pa si buay zhao” business, meaning it will always be a mainstay that makes it a great investment.

You can safely purchase property at any price because PAP will make sure the price doesn’t go down

Industrial reits are definite better investment then shipping trusts as buildings will last longer than ships or aircraft.

Guarding against this form of blindness

As investors, we have to build in a systematic checklist when viewing investing methods, strategies, businesses that allows us to make more impartial evaluation

  • Disprove. And always invert. This is what I learn from discrete maths. If you believe SMRT is a good investment, start off with a premise that SMRT sucks, and find evidence that SMRT sucks value wise, business revenue wise, dividends versus other business. If you keep looking yet cannot find much things bad about SMRT then u may have a gem there.
  • Verify by doing qualitative and quantitative analysis.  Some good things that came up in working with my boss is that people will always be able to argue about opinions. Drill down to data of past historical earnings, and SWOT analysis would help eliminate lazy analysis
  • Make it a habit to read from both perspective. For every bullish article on the market or stock make it a point to read a negative or bearish one.

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Wednesday 9th of May 2012

hi Temperament, i sort of thing it can still be a viable investment. but u need safety.

i would probably consider at PE 10. but u really have to see how they go about solving the problem and whether they issue perpetuals or debts to finance that.


Wednesday 9th of May 2012

Ya lol! Every counter can be a good investment until either the economical/political climate, business fundamentals and market sentiments change. i use to think SMRT is a "sure bet" too until now. Actually it still is in a way. That is a bank can go bankrupt but SMRT will still be there unless we have discover a new "flying saucer" mode of transport. So at a "correct" price of entry, it is still a good counter to invest. Can you tell me at what price(value)you would buy? But maybe not as some people think the high dividend yield of the past may be over for good. Yes? i am waiting to see what PAPY going to do then i will decide. Never mind if you think it is most probably too late then. Because there is always the next opportunity to buy at the the price you want(value).

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