When I was a university student, we published the results of our project that covered the behavioral bias of human nature - in particular related to investment decisions.
Today, I address 3 key thoughts about the week:
1. Home Bias & the problem of investing in your own backyard
I was watching at a google talk by Meb Faber recently. And it appears that the problem with most investors is that they focus a lot on just investing in their home markets creating a concentration risk that affects the upside of the wealth accumulation process. Feel free to catch the story below as he talks about CAPE (Shiller 10 year ratios) as well as the problem of home bias.
Mebane Faber: "Global Value: How to Spot Bubbles, Avoid Market Crashes, and Earn Big Returns"
Lesson: The opportunity sets are larger overseas and it may be good to look outside your country.
2. Problem of coat-tail investing & the problem of laziness
People that invests on hot tips, following fund managers, bloggers, insiders etc.
The problem with this is that it creates a culture of laziness - and I find myself guilty of these in recent times when I have less time. The damaging effect of thinking that others have done the homework and that we can just hop on board rather than taking the effort to think and rationalize each decision...
Think about what happened with Noble Group (negative cashflow), Sabana Reit (bad interest rates and declining DPU) and the likes of it....if we do not take the effort to do our homework...we are really setting up ourselves up for trouble - if you just buy a stock because a famous investor is onboard, you wouldn't have appreciated the process of reaching that outcome, this would make you a speculator and you would be the first to flee when the price starts falling.
Lesson: Be objective, think it through. Don't let the price or the investors affect your need to do due diligence and make good judgement about a business.
3. The rise of e-commerce and the inability of companies to adapt
Amazon Prime is here - and certainly the ultimate challenger is here to take on all our incumbents. Think retail malls, f&b, Singpost etc etc.
Companies that would survive this onslaught may be the ones that build a strong brand loyalty, and how companies do that will have been through building up great customer experiences. I strongly believe that capitaland's strategy of managing retail malls is the best-in-class and they are probably onset to replicate this to cover a large part of China.
On the flipside - companies like Singpost may be in trouble. Notwithstanding bad acquisitions with failure of corporate governance, Singpost appears to be the milking of an old cow - as mail service drops, they attempted to acquire TradeGlobal which resulted in a massive writeoff in the tune of about 180m. Tails of insider transactions and you wonder why nobody is punished as yet.
Recently I also tried to purchase something from Amazon through vPost. Long story short, vPost provides really bad customer service and incomplete instructions when you are shipping items that do not compile with their 5000 pg articles.
Lesson: eCommerce is here to stay. But to invest in this industry, you need to be aware of how the companies adapt and create an enduring experience for their customers to keep coming back - easy to say, hard to execute. On a sidenote, dear vPost- I probably will never buy from you again. Bad financials, bad management and horrible customer experience - it is now increasing clear why Alibaba prefers to build a logistics arm in Malaysia rather than ride on Singpost one. Jack Ma to launch Alibaba's regional distribution hub in Malaysia: sources
