Let's talk about food! Had a bowl of bak chor mee for lunch at the canteen. Well it costs $3.50; let's be honest, it wasn't the tastiest bak chor mee in my lifetime but it did give me an epiphany which deserves a post.
You see, I have frequented this particular canteen and sometimes I will order the spaghetti bologanise for lunch, which costs $5.50. What struck me was how the time and effort to prepare both dishes are similar - put the noodles in hot water for a few mins, wring it dry, add the sauce (which has been prepared likely from a central kitchen) and its ready. And to me personally, both dishes cooked in this particular canteen provided the same level of satisfaction, "fullness" and the quantity of meat given was roughly the same. So why should I be paying $5.50 for one and $3.50 for the other when they are giving the same utility?
In a CNA interview, Dr Leslie Tay talked about the idea of culinary prejudice and how people tend to put foreign food on a higher stead than local food. How is this related to investing?
Perhaps local investors have been putting blue chip names at a higher stead and this why the local stock market seems to ascribe a higher valuation (price point) to blue chip companies than their lesser well known counterparts; which means we may find smaller-cap stocks which are selling at a lower P/E or at a higher dividend yield to their well known counterparts of a similar industry. It is true that big names deserve a premium, however it is up to us as investors to question if such a wide price differential be warranted?
What are your thoughts? Have investing in lesser well known but well run companies been worth it?