The Importance of Monitoring

I guess I cannot emphasize this more - but monitoring is one of the aspects of investing which an astute and dedicated investor CANNOT miss out on (the caps are intentional to highlight the significance of this activity). By "monitoring", I mean not just monitoring business news about the health of the economy and the latest industry trends and news, but also to monitor, on an almost microscopic level, the corporate announcements and strategic moves made by the companies you own (as well as do not own). I will elaborate below......

The lack of monitoring is actually the leading cause of failure to obtain a decent and sustainable return in the stock market. After all, doing the research is only the first part in an investment decision - we must still stick around to ensure things are going smoothly, and beat a hasty retreat when things are not going as planned or if we discover we had made a flawed judgement call. I've actually met many friends who express surprise when their investment falls in value sharply, as in the case of Jurong Technologies where a few of my friends expressed surprise and amazement that it was suspended. A simple cursory glance at the financials would have told something, and the frequent announcements made on SGXNet would have alerted one to its potential troubles and its eventual suspension due to inability to service their debts. I am really surprised when friends approach me for simple, basic information about the companies they own as this information is readily available on SGXNet or the Company's website. This seems to imply that most people are just lazy - they do not bother about where their money goes and do not seem to care what happens to the company in which they are part-owners of. This heck-care attitude can only lead to financial disaster because if you do not put in effort and time into growing your wealth, then it's like a plant which has not been watered and given sunlight!

After scanning through the book "Your Money and Your Brain" by Jason Zweig for a third time, I came across a section which mentions what we should monitor, and how it will help us in our investing journey and also to hone and sharpen our investing acumen. Apparently, monitoring just the companies you own is insufficient as it only allows you to learn about what you are vested in. In fact, the book mentions that in addition to that, we also have to monitor companies which we had sold as well as companies we thought of buying but eventually did not. For companies which one has sold, we should continue to monitor it to see if we had made the right decision then to divest; or if the decision was based on incomplete information or flawed logic. For example, though I had divested Swiber some time back, I still keep up with corporate news surrounding Swiber. In a way, I would think that we can learn and see if our original views for divesting (or investing) were right and this can help us to test our principles and philosophy and assist us in refining it further. Selling an investment which subsequently does very well would also allow one to classify it as a mistake in selling too soon (mistake of commission) which one will do well to learn from.

As for monitoring of companies which we planned to buy but did not, the aim is to assess if this turns out to be a mistake of omission! A good example I can quote is Rotary Engineering, which appeared on my radar around Feb or Mar 2009. I did some reading up and due diligence on the company but decided against investing it in due to comments made by the Chairman Mr. Chia Kim Piow about the long-term prospects of the industry (i.e. oil storage tanks). I was also not too comfortable about their net margins and was unsure of their competitive strengths in terms of being able to clinch mega-deals. It turned out that I was very wrong as Rotary had announced a SGD billion dollar deal a few months back and the share price has rocketed from a mere 20 cents (yes, with cum dividend of 2 cents to boot) to the current S$1.20, a 6-bagger. Such "sins of omission" should be monitored closely for it helps us to crystallize our thoughts on why we avoided it in the first place and why we should have chosen it. Of course, the key here is to stay focused and rational and not to "jump on the bandwagon" just to prove yourself right and in the process, throwing caution to the wind and ignoring proper margin of safety.

So the task of monitoring rests squarely on the shoulders of investors, and those who are corpulent and tardy in getting information risk losing most or all of their capital. The act of monitoring cannot be emphasized more and I spend most days checking for any corporate updates and reading up more on the companies I own (as well as those I wish to own!). Investing is a continuous learning process and we can never claim to be good enough at it. We should, as investors, constantly cast a critical eye on our own portfolios and try to re-balance them now and then to maximize returns. On the flip side, I should also caution against buying and selling frequently just for the sake of re-balancing. What I mean is that if an investment fails to meet our original stringent criteria, it should be divested and the proceeds allocated to a more promising company.