Saturday, January 03, 2015

Happy New Year! First Post of the 2015: Think Long Term

Happy New Year folks, it's a new year and a new start. This is a short post just to illustrate a simple point: Think Long Term. The effects of good habits and efforts show up over time. This is true for both stocks and our own personal development.

Here's two charts to illustrate this point.

Long term stock price chart for Jardine C&C

The chart above shows the 14 year price chart for Jardine Cycle and Carriage, one of the the components of our STI index. It's core business is in automobile distribution in Indonesia where its the dominant leader for both two and four wheelers. The chart above shows that it compounds value  tremendously over time. We see again and again that great companies doing great businesses compound their intrinsic values over time. While there would be ups and downs over short periods like 3-6 mths, or sometimes even over 1-2 years, like during the Global Financial Crisis (GFC) in 2009-2010, over the long run, the stock price charts of great companies and great businesses should track an exponential curve.

Long term stock price chart for SIA

Conversely, a mediocre business would follow a different chart like that of SIA's above. Over the last 14 years, one could tell that the intrinsic value of SIA did not grow. This is not to say the SIA's management is crap. SIA is well-known as one of the best run airlines in the world. It was a game-changer when it started some 60 years ago and is still a respected leader in its field today. However airline is a bad business with over 200 competitors and subjected constant external risks such as fuel prices, labour issues, high capex and maintenance costs, SARs and Ebola virus outbreaks and accidents. 2014 was a sad case of seeing our neighbour having three in one year. May the passengers and crew of MH370, MH14 and AirAsia QZ8501 rest in peace.

***

So, that's the short point today. It pays to think long term when it comes to investing. Compound interest takes time to take effect and when we buy and hold on to our winners, time takes it course and our stocks just keeps growing and paying ever bigger dividends!

Again, Happy 2015!

Post a Comment