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What If…The Entire Stock Market Halts

Ser Jing - What If... The Entire Stock Market Halts (pic)

Last Thursday night, the Nasdaq exchange in the USA had to halt trading for three hours due to certain technical glitches before trading resumed.

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The outage prompted a flurry of discussion in the American financial media (as a quick Google search of ‘Nasdaq halt’ would attest to) and even led a trader to proclaim that “the markets are broken.”

This got me thinking, what if a similar situation happened here in Singapore? What if the Mainboard as well as Catalist exchange, both run by Singapore Exchange (SGX: S68), experienced a “flash halt”? What would you have done?

While there’ll likely be plenty of teeth-gnashing and finger-pointing from others, flash-halts or even flash-crashes would not garner the same kind of reaction from me.

You see, that’s because I did not invest in shares thinking I’ll need up-to-the-minute quotes for its value. I buy shares because I think its business is and will be a lot more valuable five to 10 years from now compared to its most current market quote.

While I might be wrong in my assessment of value in certain businesses, the accuracy of my assessment is not, in any way, linked to how often I get an update on stock prices.

I am invested in the American stock market with shares that trade on the Nasdaq exchange. Some of these companies include tech giant Apple, bakery-café operator Panera Bread, and video-games maker Activision Blizzard. That meant I couldn’t move any money I had in those shares in the three hours when the Nasdaq was down.

But did it bother me? Not one bit. I actually realised there was a problem with the Nasdaq last Thursday night before I went to sleep and decided… that I should go to bed. And for the record, I slept soundly.

The reason I was not concerned was because I’m invested in those companies for the money-making ability of their businesses and not for the money-making ability of their shares.

I think that’s an important distinction that Foolish investors have to make – Fools invest in businesses, not tickers.

Whether the Nasdaq halts for three hours or three weeks (or even three months!), it would not stop shoppers from buying an iPhone or iPad from Apple, stop people from buying bread at Panera’s cafes, or stop gamers from buying the Call of Duty or Diablo games which Activision Blizzard is famous for.

So while it’s true my money in them were frozen for a little while, the trading halt did not affect my investing thesis in them at all.

Similarly in Singapore, if ever there were computer glitches or errors causing temporary troubles in the stock market and your feathers get ruffled, take a step back and think back to the reason of why you chose to own the shares of certain companies in the first place.

Is it likely for oil-rig operators to stop ordering rigs from offshore-engineering firm Sembcorp Marine (SGX: S51) because of a crash or halt in its share price due to faulty computer algorithms? Would vehicle owners and drivers stop sending their vehicles to Vicom (SGX: V01) for inspections due to a technical-glitch-induced issue with its share price? Would consumers even think about where Super Group (SGX: S10) is trading at now when all they want is to have a sip of their instant coffee?

Or, would the 30 companies that make up the Straits Times Index (SGX: ^STI) – including some of the biggest businesses in Singapore like SingTel, Singapore Airlines, and DBS –  stop their work just because the STI’s stock quote went offline?

The likely answer to those questions would be an emphatic “No!”

To be fair, in the event of flash-crashes, flash-halts or problems of similar ilk, there will likely be negative short-term or even long-term implications for companies that run stock exchanges or who are actively involved in the trading of securities. But for the most part, most businesses would go about their day normally and that’s something investors have to remember.

Foolish Bottom Line

The whole Nasdaq snafu also brought to mind, a famous quote by American billionaire investor Warren Buffett. He said, “I never attempt to make money on the stock market. I buy on assumption they could close the market the next day and not re-open it for five years.”

Buffett thinks about his stocks like how he would think about them if he owned the entire business outright.

It’s an apt description and timely reminder of the mind-set that investors in the stock market should have. Think like a business owner and treat your shares like what it was meant to be: an ownership stake in a living, breathing business and not some flashing light on a computer screen that gets troubled by – arguably – inevitable technical glitches.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns shares in Apple, Panera Bread, Activision Blizzard and Super Group.