Top 3 Investment Lessons of 2012

As the year draws to a close, it is time to look forward to the new year ahead. But before we plan for 2013, it would probably be wise to sit down and reflect on the lessons we have learnt in 2012. For if we do not learn from history, history could repeat itself and we might be left none-the-wiser.

Lesson 1 – Developing countries are still worth investing
The year 2012 can go down in history as one of the years where developing countries have picked up the slack left by the developed countries in terms of economic growth. While economic growth has been anemic or non-existent in several developed countries (US, EU, Japan etc), developing countries have been moving up steadily in terms of growth. The usual engines of growth, China and India may have slowed down a tad this year, but other countries have sought membership in this “growth club”. One country comes directly to mind, Myanmar (or Burma as the westerners often call it).

Myanmar – The Next Economic Frontier
Although Myanmar does not yet have a stock exchange (they are speaking to several operators with regard to that), there are a handful of locally listed counters here in Singapore that have businesses in Myanmar. They have been widely covered in the news and as a sign of their growing importance, analysts have begun coverage of said counters. These counters include: Interra Resources, Yoma Strategic and Aussino Group.

Source: Factset, chart on STI vs Interra Resources, Yoma and Aussino

Lesson 2 – What sounds too good is often too good to be true
This could well be playing from a broken record, but the lesson keeps coming back to haunt investors who did not pay heed to it previously. The scam of the year goes to the Genneva Gold Fiasco.

Source: Factset, chart on STI vs gold prices “Gold is not looking very good at the moment...”

While I will not go into how the gold “scheme” is considered a scam, suffice to say, many investors have called it a ponzi scheme (whereby money from new investors is paid to previous investors). Also, both Singaporean and Malaysian authorities have raided Genneva Gold’s offices for suspected offences including illegal deposit taking, money laundering, tax evasion and avoidance, false description (misrepresentation), appointment of agents without a license, and failing to lodge statutory documents.

Hence, when a scheme comes to you and offers you guaranteed returns of around 21.6 to 30 percent per annum (as in the Genneva Gold Scheme), you have got to scratch your head a few times and look carefully! The devil is in the details!

Lesson 3 – Trading on listing day is like playing with fire
Initial Public Offerings (IPOs) have that tendency to whip a crowd up to a frenzy. Investors point to the immense volume that IPOs experience on opening days and how stocks are most liquid during their opening days. Beware however, trying to grab a stock on its opening day is akin to trying to grab a falling knife. If you are lucky, you can sell out in time. If not, well, you get the picture.

If you do not, here’s a chart for you.

Source: Factset, chart on STI vs various IPOs

As you can see, the only IPO stocks that really offer that bang for each buck are CIVMEC and Maxi-Cash. The other three I am looking at all underperformed the wider STI. There were many other IPOs this year, if you are interested you could take a look at a recent article done by the Shares Investment team on IPOs or you could take a look at our IPO page .

Also, an IPO prospectus is an awfully large book if you ask me. Hence, if you feel you can afford the $2 fee for balloting, go ahead and ballot for the IPO stocks. However, try to stay clear of opening day trades. Unless, you are a day trader.

Looking forward to 2013
Although 13 has oft been referred to as an unlucky number, there is much to hope for. Hopefully, with these lessons imbued into your psyche, you would be able to better face the flow and ebbs of the economic environment next year.