Commentary: Temasek’s punishment over FTX sets unrealistic expectations for investing

HINDSIGHT IS 20/20

The point is, hindsight is always 20/20. We are all considerably wiser after the event. What is worrying, however, is that the Temasek investment team and senior managers that were responsible for investing in FTX have had their compensation cut. There has been no word as to how severe the reduction will be.

From a position of optics, the cut in compensation might satisfy some critics. But we must ask how the punishment could affect the way that Temasek will invest going forward.

Could it instil a more cautious approach to investing at the company? And could a more careful approach adversely affect its future returns?

Will the investment teams within Temasek now choose to always err on the side caution and run the risk of missing out on above-market returns through a fear of being wrong?

EVEN WARREN BUFFETT GETS IT WRONG, SOMETIMES

On that point, it wasn’t that long ago when Warren Buffett openly admitted that he had overpaid for his stake in the merger of Kraft Heinz. He had to write down his investment by US$3 billion.

That makes Temasek’s write-off of US$275 million a drop in a bucket by comparison. It also highlights the fact that if someone who is as experienced as Buffett can make a mistake, then we can all be fallible, too.

The thing is, nobody ever thought of criticising or chastising Buffett for his mistake. Investors in his Berkshire Hathaway vehicle accept that not all his bets will pay off every time. What really matters is whether the portfolio is moving in the right direction.

The unpredictability of investing in shares was highlighted by one of the best investors of our time, namely, Peter Lynch. He said: “In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten”. So, why would we expect Temasek to be right every time?