Chong Ser Jing – Pay Attention to What Drives Business Results

BIO: Chong Ser Jing is the Portfolio Manager and Co-Founder of Compounder Fund, an investment fund that invests in stocks around the world.STORY: In October 2010, Ser Jing bought six stocks. Two of these were companies in the oil industry. By the time he was selling these stocks, he had a loss of 77% and 31% from the two companies, respectively.LEARNING: Some sectors may not be worth investing in because they tend to historically generate poor returns on invested capital. Pay careful attention to the drivers of a company’s business results. Understand the difference between internal and external drivers. “There are companies whose business fortunes do not depend on the price movement of commodities. And then there are those who do. That’s a really important distinction.”Chong Ser Jing Guest profileChong Ser Jing is the Portfolio Manager and Co-Founder of Compounder Fund, an investment fund that invests in stocks around the world. Ser Jing graduated with an engineering degree in 2012, but having been bitten by the investing bug since he was in his late teens, he decided to pursue investing as a career. From January 2013 to October 2019, Ser Jing served in Motley Fool Singapore as a writer as well as a co-leader of the investing team. One of his career highlights with Fool Singapore was to help its flagship investment newsletter outperform a global stock market benchmark by nearly 2x over a 3.5-year period. Besides running Compounder Fund today with his co-founder Jeremy Chia, both of them also have an investing blog, The Good Investors, where they share their thoughts about investing and life.Worst investment everIn October 2010, Ser Jing bought six stocks. Two of these were companies in the oil industry. One company owned oil rigs, while the other supplied parts and equipment that helped keep oil rigs running. By the time he was selling these stocks, he had a loss of 77% and 31% from the two companies, respectively.Ser Jing considers these two stocks his worst investment ever because he had no idea what he was doing. He invested in them because he wanted to be diversified according to sectors. Ser Jing believed that oil and gas was a sector that was worth investing in since the oil demand would likely remain strong for a long time. His view was actually right. But, in hindsight, he was only right to a small extent and wrong in two critical areas.First, some sectors may not be worth investing in in the long run because their economic characteristics are poor. The second thing is that the global oil demand grew quite strongly from 2010 to 2016.The annual oil consumption increased from around 86 million barrels to about 97 million barrels in that period. But oil prices also fell significantly over that over the same timeframe. So, Ser Jing could not predict the oil price level. When he invested in the two companies, he completely missed out on the crucial fact that the oil price would have an outsized impact on both companies’ fortunes.Lessons learnedSome sectors may not be worth investing in because they tend to historically generate poor returns on invested capital.Pay careful attention to the drivers of a company’s business results.Andrew’s takeawaysUnderstand the difference between internal and external drivers.Actionable adviceLook deeply at what has historically driven the price of a commodity if you’re trying to invest in a company whose business results depend on the commodity’s price.Ser Jing’s recommendationsSer Jing recommends Robert Shiller’s historical database on US interest rates, US inflation, validation price, and dividend data for US stocks. The database is an incredible trove of data for investors to learn about market history to have some base rates about how stocks, interest rates, and inflation have performed in the past.No.1 goal for the next 12 monthsSer Jing has no goals for the next 12 months or the future. He has processes in place that will make him a better person and a better investor.Parting words “Most people will think about their worst investments as the stocks they bought but fell tremendously in price, maybe because of a high initial valuation. But I think a timing component also needs to be brought into the picture when thinking about this issue.”Chong Ser Jing [spp-transcript] Connect with Chong Ser Jing LinkedInBlogWebsiteAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramThreadsTwitterYouTubeMy Worst Investment Ever Podcast