I was moved to tears when I read about retail investors who lost their money in Hyflux perpetual security. Some of them lost six-figure sums, hard-earned cash meant for retirement.

The Straits Times reported on a couple that lost more than $100,000 because Temasek had invested itself in Hyflux. The national investment fund released a statement stating that it had ended its investment in Hyflux from 2006, more than 13 years.

I believe this couple weren’t the only ones who invested in Hyflux because Temasek had an ownership stake in the water- and power company. I have heard so many investors say that stocks are a safe or good investment because Temasek, or another big-name investor, has a stake.

(Aside note: I find it amusing that some retail investors who have confidence in Temasek’s backing also complain about Temasek mismanaging CPF monies. Temasek claims it does not manage them.

Recently, I was moved to tears by the story of retail investors who lost their money in Hyflux perpetual security. Some of them lost six-figure sums, hard-earned cash meant for retirement.

The Straits Times reported on a couple that lost more than $100,000 because Temasek had invested itself in Hyflux. The national investment fund released a statement stating that it had ended its investment in Hyflux from 2006, more than 13 years.

I believe this couple weren’t the only ones who invested in Hyflux because Temasek had an ownership stake in the water- and power company. I have heard so many investors say that stocks are a safe or good investment because Temasek, or another big-name investor, has a stake.

(Aside note: I find it amusing that some retail investors who have confidence in Temasek’s backing also complain about Temasek mismanaging CPF monies. Temasek claims it does not manage them.

If Temasek or Li Ka-shing invest in Warren Buffett, then surely they – along with their phalanx analysts and advisors – must have done all the due diligence.

Yes. You can be certain that a large investor will do their research thoroughly before they commit that much money. But, just because a well-known investor invests, doesn’t mean that you should. Why?

Here are five reasons you shouldn’t invest in stock because a large-name investor owns it.

1. Different financial goals and needs exist.

Warren Buffett is multibillionaire and one the wealthiest men in the world. You can be certain that he doesn’t invest to save for retirement. He won’t retire, but I think so. One business magnate may be investing to take over a rival company. A sovereign wealth fund invests to increase a country’s wealth and safeguard its national interests. They all invest for different reasons, including strategic or economic.

You have your own investment goals and financial needs. You might be investing to save for retirement or to generate passive income. What makes sense to a large investor might not make sense to you.

An example: If you are seeking dividend income, an investment in Apple might not be right for you. It pays such a low yield (1.5%), regardless of Buffett’s ownership. Always consider your investment objectives and personal needs before you make any investment decision. It may be better not to invest in it.

2. Different risk tolerances exist.

Every person reacts differently to uncertainty. While some people enjoy the excitement of discovering a new place, others have a heart attack because the taxi driver chose a different route to work this morning.

Investors also have different tolerances for uncertainty and risk. Some investors won’t hesitate to invest in high-growth stocks that could crash at any moment. Others are unable to bear the idea of losing all their money and prefer safe investments such as government bonds.

Ask yourself this question: What would you do if your investment’s value dropped by 5% over a year?

What if it fell by 10%?

What if it dropped to 40%

Your risk profile will help you decide which investments to make and which ones to avoid.

If you are not able to tolerate risk, then investing in Netflix simply because an investment guru has it stock is probably a bad idea. To give you an example, Netflix crashed to $418 at its peak, then plummeted to $233 before recovering to $363 in the last 12 months.

3. Different time horizons exist

Warren Buffett once said that his favorite holding period was ‘forever.’ Although no one believes he will last that long, this proves that Buffett is an extremely long-term investor. Coca-Cola was one of his most successful stock investments. It was purchased in 1988. Buffett is willing to wait 10-20 years to realize his stock investment. Do you want to wait so long? Are you willing to wait so long?

This is a return to our first point, which was about determining your financial goals and needs. If you are nearing retirement and require passive income to cover your living expenses, investing in stocks that take five years to grow but pay no dividends in the interim might not be a good idea. A REIT with a stable dividend every three months may be better.

5. Different access rights to information are available

This is why many people copy big-name investors. They trust that they have greater access to analysis, research and information which allows them to make better investments.They have both a greater circle of expertise and a greater informational advantage.

This is a double-edged weapon.You can’t just copy a large investor and not do your research.It would be difficult to know what their exit strategy is or when they might decide to sell the stock.

Temasek, for example, invested in Hyflux as part of an “initiative to support growth of small and mid-sized enterprises in promising sector sectors”. So, unless you had access to the same information Temasek had, it’s impossible to know what Hyflux’s entry and exit strategies were.Assuming that you had the opportunity to invest in Hyflux in 2003, it was only publicly listed in 2007.Even if you had the same information, would Temasek have met your investment goals?It is highly unlikely.

One could argue that it doesn’t matter what the objectives of a large investor are, as long as money is being made.It’s true that blindly following a plan can still result in a profit.Not Every investment will be a win, even for the big guys.If you have lost money, you will be left cursing the big investors for making such a terrible mistake.Realistically, you may not have fully understood the risks or the reasoning behind the investment but you chose to take the plunge.

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