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There’s Always Something to Worry About

worry There are a few events that are on the cards that may worry investors. The first is the possible strike on Syria by US. The second is the tapering of monetary stimulus by the US Federal reserve. The third is the reaching of the debt limit by the US in mid-October.

Then there is the nomination of the new Fed Chairman. Larry Summers, the favoured candidate to take over Ben Bernanke, has a preference towards rapid unwinding of the massive U.S. monetary stimulus that has supported the economy. To top it all off, the poorest US market performance occurs during the month of September according to the Stock Trader’’s Almanac and October saw lots of market crashes such as Black Monday, the Great Depression and the crash of 1987.

What are investors to do with so many events that are set to happen that may spook the market?

To answer that, let’s hear what Warren Buffett has to say. During the Berkshire Hathaway annual general meeting in 2012, when asked if systemic risk fears ever caused them to be afraid to buy stocks, he answered that in the past 53 years, he and Charlie Munger have never had a discussion about buying or selling in which they talked about macro-economic affairs. If they find a business that they like and can understand, they purchase it no matter what the Fed is doing or what is going on in Europe. There is always going to be bad news. He bought his first stock in June of 1942 when the US was losing the war. Stocks were also cheap and he wrote an article about it in October 2008, when the market was plunging. He knew that the panic would flow into the economy but that the US would not go away. Charlie and Buffett look at value of businesses but not at the macro-economy.

Morgan Housel from The Motley Fool said that for the past 150 years, the US has had nine major wars, 33 recessions, a half dozen financial crises, and an uncountable number of really awful things happen to the economy. However, the S&P 500 index still delivered an average annual return of 6.6%, after inflation during the same period.

In Singapore, the Straits Times Index (SGX: ^STI) rose from 834 points at the start of the 1988 to around 3048.4 points today, representing an annualised gain of 5.3% over the past 25 years. This was despite the 1997 Asian Financial Crisis, the 2000 dot-com bust, the 2003 SARS outbreak and 2008/2009 Great Financial Crisis (GFC).

Individual stocks like Super Group Limited (SGX: S10), Dairy Farm International Holdings (SGX: D01) and Jardine Strategic Holdings (SGX: J37) have given investors returns of 1000% or more for the past ten years. These stocks have gone past the peaks seen before the GFC, creating massive value for shareholders who had the discipline to hold on to them.

Foolish Bottomline

Warren Buffett once quipped that the time to be greedy is when everyone is fearful. To do that, investors should not be focused on what macro-economic event is about to happen next. They should instead be focused on the value of the company that they want to invest in and buy them when the price is beaten down relative to the value. The upcoming ‘events’ such as the imminent war on Syria, tapering of monetary stimulus and the reaching of the debt limit may cause huge market corrections. Are you ready to take advantage of it?

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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 Sudhan P doesn’t own shares in any companies mentioned.