Some people use Warren Buffet’s name or his famous surname (Did they even get his permission??) to sell you the advice to follow what he is known to do – buy the stocks of blue chip companies and hold, hold, hold.
Hang on for a moment. Just for the records, Warren Buffet is not an ordinary retail investor. He takes so much stake in a company each time he takes a position, that he or his representative gets at least a board seat to influence the company’s strategic direction where necessary. With his deep industry connections, he helps the company to reverse its fortune or further expand its business and profitability.
You, the retail investor will not be able to do what Warren Buffet does. And if you only hear one side of the story and just blindly, hold, hold, hold on to blue chips stocks like Singapore Airlines (SIA), you’ll be a very angry and disappointed investor. Since October 2010 (see above chart), SIA has never recovered from its share price of $16 and is trading at about $9.50 today.
For a company that used to make $1b in annual profits pretty effortlessly, it is now struggling to make more than $500m, unable to grow its topline meaningfully and having to contend with overcapacity, higher operating cost and intense competition as rival full fledged and budget airlines catch up. It is a blue-black company today. Its profit margins these days are less than 5%, a far cry from its glory days.
Hanging like a dead weight around its neck is SIA’s stake in Tiger Airway which is doing badly too. The lesson here is knowing how and when to cut losses to reinvest in more profitable stocks. Having good money locked in for 3 years at a loss is a grand pity when one can use the salvaged funds to ride on other good company stocks. What’s worse is that you don’t even get a board seat in SIA to air your grievances despite being a loyal SIA stockholder!
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