Last week, we had a little drama in Singapore’s investing landscape when Yangzijiang Shipbuilding(SGX:BS6) plunged more than 20% from $1.29 to hit a 2.5 year low at $0.86. It has then recovered to about $1.01 currently. For more info, you can click on the link below;
It has stirred up tons of discussions among investors and speculators. However, this post is not about YZJ and whether it is time to break open your piggy bank to buy their shares. I’m just using it to illustrate the fact that investing is simple, but not easy.
In layman terms, investing is about buying a thing worth $1 at $0.50, it is simple but actually the guts to buy somthing worth $1 that falls to $0.50 is not easy.
Working on spreadsheets is simple, but resisting temptation to tweak your formulas to fit your version of reality is not easy.
Calculating book value of a company is simple, but understanding whether that book really has value or is a value trap, is not easy.
Calculating past growth and profitability ratios for a business and is simple, but actually trying to understand a business deeply enough to forecast its future growth is not easy.
Knowing that a business has moat as seen from its superior profitability and clean balance sheet is simple, but understanding whether this moat is sustainable or fleeting is not easy.
Knowing the results that numbers shout out of financial statements is simple, but knowing which of those results are signal and which are noise is not easy.
Understanding that money can multiply 10x in 20 years when you do DCA is simple, but sitting through these 20 years patiently when others are cashing in after having made 5x is not easy. I think you get my point.
Coming back to YZJ, their numbers are very pretty, even more attractive than ever with the dip in share price. This is the simple part, but whether it is time to activate your warchest is not easy.
Ironically, only 2 weeks ago, one of the local research house issued a “Buy” call on YZJ citing huge orders wins and discount to global peers. I’m not saying that they are dead wrong nor am I laughing at their misfortune (my initial reaction is more like a “oh wells” kind of moment), but they did not identify the Beijing probe as a key risk to their assumptions. It is not easy, how many people really saw it coming?
Math helps you know the price of a lot of things, which is simple. But it’s your mindset that helps you really know the value of it, which is not easy.
Of course, basic math is a prerequisite for becoming a smarter investor. But if you need math to tell you whether you are doing the right thing in investing, you are doing something seriously wrong.
Cheers.