A Singaporean Warren Buffett 5 comments

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After two weeks of obsession with politics and the election, it's time to go back to economics. And what better way to return to our favourite topic than to examine the feasibility of a Singaporean Warren Buffett?

Well, not talking about the Wallstraits Sage in this case, but rather my train of thoughts was triggered by reports of a Mr Roger Koh growing $80,000 into $800,000 within 4.5 years., as reported by the New Paper last Sunday (see link).

My first thought was that this is of course a manifestation of the survivorship bias. Out of the approximately 200,000 local retail investors, it would not be surprising that there are a few who have made stupendous returns --- that is what a normal distribution in statistics would predict. And obviously these cases would make the press: the mass media always love a good inspiring story (or a sad story, for the opposite tail end of the normal distribution), and the ecstatic investor would be eager to let the whole world know about his miraculous performance anyway. As Nicholas Nassim Taleb explained in his book Fooled By Randomness, he would be far more convinced of an individual's skill factor being responsible for an outstanding performance if the sample size was small.

Well, we should not take anything away from the investing efforts of Roger Koh, and let's say that his success was a result of great stockpicking: quite possible since he seems to have captured the great performances of HTL, Best World, TPV and Unisteel in his portfolio. What it suggests is that academic billiance might not be a key factor in investing success; Mr Koh only holds a business diploma. He even sounds a bit naive: [quote]"I also want to give back to society by donating blood 100 times before I reach 50. I have since donated blood 42 times."[end quote] Financial prudence appears to be a strong factor for his success: he doesn't buy on credit, does not gamble excessively, and he puts his money to use instead of spending or saving it in the bank. Indeed, the bestseller "The Millionaire's Mind" has found a disproportionate number of "ordinary" millionaires who share such personal traits. And of course, the Sage of Omaha is the most famous example of such humble living despite great personal wealth.

As a matter of fact, this lack of academic credentials has also set me thinking further about whether academic intelligence could actually be an impediment to investing success. I have discussed this issue before in an article: "Is Too Much Knowledge A Good Thing?". Some discussion and exchanges regarding the investment merits of the textile industry with other forummers in the Channelnewsasia forum over this past week, and then the real-life examples in Roger Koh here versus some academically accomplished friends who insist in buying only solid stocks like Food Junction and Asia Pacific Breweries, form further evidence (in my mind) of academic brilliance constituting a significant psychological obstacle to risk-taking which ultimately produces muted investment returns.

Finally, the million-dollar question: any Singaporean Warren Buffett around? Any comparison to the legendary investor must boast a long-term track record: I believe there are other individuals besides Roger Koh with a great investing record over these 4-5 years which has seen a bottoming and spectacular recovery of the market; a track record over 20-30 years would provide a more convincing comparison because it will eliminate the survivorship bias of numbers and of time. But more importantly, one should recognise that the legend of Warren Buffett lies not just in his investing acumen, but also his genius in finding the best source of cheap capital to bring his investing skills to bear upon --- the insurance float; most people would have just looked to borrowing money on margin or stuck to their own (small) capital base. There might be some who can compare to Warren Buffett with respect to such investing and business acumen (though certainly not in wealth) in Singapore today, but I suspect they are found among successful businessmen who know how to optimise and multiply their capital, rather than among ordinary retail investors.