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Why You Shouldn’t Care About Where the Market Is Heading

Ser Jing - Three Facts About The Straits Times Index To Put Market Ups-and-Downs Into Perspective (pic)

I’ve been busy with gatherings and dinners during this holiday season. It’s great fun to be able to enjoy the company of family and friends while polishing off plate after plate of splendid dishes. And, it’s even more fun if I get to talk about investing (What? Discussing annual reports and financial statements does not seem exciting to you?) at the same time.

Fortunately for me, I did get to engage in the topic of investing quite a fair bit. It was during those talks where I noticed the following question, or a similar variant, pop up frequently: “Where is the market headed next?”

I found that to be an interesting question because I’ve honestly never given it much thought. That’s because as an investor who’s interested in shares of individual companies, where the market will go in the next year or two tells me nothing about what I really need to know, which is how well a company’s business would be doing in the next three, five, or even 10 years.

Where the market moves can’t save you…

Someone working with a perfect crystal ball back in March 2009 might have told you that the Straits Times Index (SGX: ^STI) would have rebounded by some 115% from its financial-crisis-driven low of around 1,460 points to 3,127 points today.

But, that wouldn’t have done you any good at all if you had owned land-transport company SMRT Corporation (SGX: S53), which was part of the benchmark index at the time. SMRT’s shares have lost some 12.7% of its value since March 2009, even after accounting for dividends.

Its dismal share price performance wouldn’t be much of a surprise if we took a quick glance at its financials. Profits for the company have been slashed by three quarters from S$163m for the 12 months ended 31 March 2009 to S$44m over the last 12 months. The company’s profit margins have shrunk dramatically as it struggled to control rising costs while finding itself unable to fully adjust the transport fares that its customers are paying.

…. Where the market moves can’t hurt you either

On the other hand, let’s assume that you had found another perfectly accurate seer back in 11 Oct 2007 (the day the Straits Times Index closed at its pre-crisis peak of 3,876 points) who correctly foresaw how the Straits Times Index would be some 19% lower today as compared to its level back then.

That wouldn’t have fazed you one bit if you owned shares in companies like commercial testing and inspection firm Vicom (SGX: V01), conglomerate Jardine Cycle & Carriage (SGX: C07) and food & beverage retailer BreadTalk Group (SGX: 5DA), and had confidence in their long-run corporate performance.

Vicom

Jardine C&C

Breadtalk Group

11 Oct 2007: Earnings Per Share

S$0.166

US$0.953

S$0.022

Today: Earnings per Share

S$0.302

US$2.33

S$0.042

% Change

82%

144%

93%

11 Oct 2007: Share Price*

S$1.35

S$15.54

S$0.404

Today: Share Price

S$4.95

S$35.31

S$0.92

% Change

266%

127%

128%

*Share Prices on 11 Oct 2007 are adjusted for dividends, stock splits, rights-offerings, and spin-offs.

Source: S& Capital IQ

From the table above, we can see how the three shares have had huge market-beating returns while reporting great growth in their corporate profits.

Foolish Bottom Line

According to my colleague David Kuo, “The key to investing is…to look for opportunities in the market regardless of what stock market indices might say.”

And to look for opportunities, investors should be focusing their energies on learning more about the corporate performance of individual companies. That is what truly creates value for investors over the long-term and is not something that can be divined from the movement of a market index.

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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 writer Chong Ser Jing doesn’t own shares in any companies mentioned.