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Timeless Investing Lessons Worth Passing on

Timeless Investing Lessons Worth Passing on

Every now and then, I will come across a Foolish article on investing worth passing on.

An article written by my US colleague Joe Tenebruso on Sunday was one such piece. Joe had 10 investing lessons which he wanted to pass on to his kids.

Within them are a few timeless pearls of wisdom so good that they are worth handing down to our own future generation in Singapore as well.

Here they are.

"Stocks represent an ownership stake in a real business"

As Joe explained further:

"Stocks aren't just pieces of paper or flashing blips on a computer screen. They're a legal claim on the current and future cash flow of a business and should be treated as such."

Too often, the majority of investors are influenced by the movement of share prices alone, and promptly forget that the flashing stock symbol they're buying or selling actually represents a real stake in a business.

Yesterday, Ser Jing, my colleague here in Singapore, recounted his own experience in holding onto shares of food and beverage outfit Super Group Ltd (SGX: S10) through thick and thin.

The reason why he was able to hold? That's right, he had focused on the business behind the ticker.

As Ser Jing mused, it was the cash on Super Group's balance sheet alongside its operating cash flow which aided his decision to hold to his shares.

"As such, buy shares in the best businesses you can find."

To this point, Joe shared a pertinent quote from investing maestro, Charlie Munger:

"And, by the way, the bulk of the billions in Berkshire Hathaway [Warren Buffett's company in which Munger is vice chairman] has come from the better businesses. And most of the other people who've made a lot of money have done so in high-quality businesses."

To look for good businesses, sifting through cash-rich firms may be a good place to start.

Take SIA Engineering Company Limited (SGX: S59) for instance. Over its last five financial quarters, the aircraft maintenance group has seen increasing levels of cash on its balance sheet and carried no debt. You can read more about the company here.

Source: SIA Engineering's Earnings Report

"Buy stocks with the intent of holding them for as long as you possibly can"

As a business owner, Foolish investors are looking to hold on to great businesses for as long as we possibly can. There is a good reason for that. Check out the chart below, produced by another US colleague of mine, Morgan Housel, on the difference between holding for the short term and holding for the long term:

With regard to the chart above, Ser Jing also added that its conclusions apply to the Straits Times Index (SGX: ^STI) as well:

"Measuring returns at the start of every month from 1988 to August 2013, if the index was held for a year, there's a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses."

My Foolish take

In all, Joe points out that we should focus on good businesses, and aim to hold them for as long as we can.

I hope you enjoyed Joe's musings. I know I did. Fool on!

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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 contributor Chin Hui Leong owns shares in Super Group and Berkshire Hathaway.

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