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The Truth about the Dangerous World of Investing

I recently came across a two-year old article by The Economist titled Another year of living dangerously.

In it contained a line that read, “This was supposed to be a stress-free year for the global economy.” I was drawn to this by my American colleague Morgan Housel in his own article titled The World Is So Much More Dangerous Than You Think.

It made me question: Has there ever been a year where the global economy – or by extension, the world – where there wasn’t any crisis-induced stress? Morgan asked something similar in his article too and if we sit down and think carefully about it, the answer’s a resounding “no”.

A short trawl of history would have thrown up one major crisis after another; we’ve always lived in danger. Morgan has a list of panics and crisis that runs from 1990 to 2011. I’ll add on a partial list of what has happened since:

2013 (so far): Cyprus bank bailouts; US government shuts down; ongoing Thai uprising

2012: Speculation of Greek exit from Eurozone; Hurricane Sandy

I’ll dare to wager that each time a bad event happens, it’s always ‘unprecedented’, or ‘catastrophic’. Sure, many people have suffered through all the crazy and bad events the world has endured – and I’m in no way belittling them – but perhaps we ought to realise that bad things happen, all the time.

Morgan quoted historian Arnold Toynbee as saying that history is “one damned thing after another.” And Toynbee is right – if ‘damned’ means bad, then it’s true that history is one bad thing after another.

Yet, society has progressed immensely. Just 50 years ago, men could only look at the moon and wonder what it felt like to step on it. Now, we talk on cell phones beamed up to satellites that orbit the Earth. In 1990, cell phones were the size and weight of bricks. Today, our cell phones contain computers that are light-years ahead of the ones that took the Apollo 11 to the moon more than 40 years ago – and we can even slot our current phones into our pockets with space to spare.

And here’s something else for some perspective. From 1990 till today, that’s close to 24 years of constant crises. Yet, the global economy has displayed remarkable resilience and even managed to prosper. For instance, the GDP of our nation, Singapore – a country so tethered to the rest of the world’s economic health – has jumped from S$83b in 1990 to S$305b last year.

How has our stock market done? Our GDP grew by 267% from 1990 to 2012 and in reflection of such economic growth, the Straits Times Index (SGX: ^STI), a collection of some of the largest publicly traded companies here, gained 110% from 1,500 points to almost 3,167 in the same period.

I went to pull up the earliest records of stock-price data I could find for the blue chips and found that there was a handful with records stretching back to the start of 1992. And, the numbers are quite remarkable:

Jan 1992 Today % Change
Keppel Corporation (SGX: BN4) S$1.110 S$11.3 918%
Oversea-Chinese Banking Corporation (SGX: O39) S$1.177 S$10.35 780%
Singapore Press Holdings (SGX: T39) S$0.394 S$4.27 982%
Singapore Airlines (SGX: C6L) S$2.711 S$10.53 288%
Jardine Cycle & Carriage (SGX: J36) S$2.617 S$35.6 1260%
SembCorp Marine (SGX: S51) S$0.56 S$4.39 683%
Average 819%
* Prices on Jan 1992 are adjusted for dividends, stock splits, rights offerings, and spin-offs

Source: S&P Capital IQ

The average return for those six blue chips in close to 22 years was 819%. That equates to an annual return of around 10.7% a year. And all an investor had to do was to buy them, and then have the mental fortitude to hold on as innumerable horribly-unfortunate events played out over the years across the globe.

In Morgan’s article I referenced earlier, he wrote: “Once you look back at the success business has achieved during crisis after crisis, panics tend to smell like opportunities.” Those are wise words to heed.

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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 doesn’t own shares in any companies mentioned.