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Has The Bull Market Run Out Of Steam?

The Motley FoolAnyone who has been on a long car journey with children in the back seat will know just how demanding the trip can sometimes be.

Generally, things tend to start off on a fairly good footing with everyone filled with excitement. But it doesn’t take long before the inevitable “are we there yet” question pops up.

What are responsible parents supposed to do in that situation?

Brutally honest

Should we ignore the question and hope that the children won’t ask it again? Or should we try to be evasive and simply say that we are almost there, even though we might be nowhere near?

Or – and this is a really tough one – should we be brutally honest and tell them that it could be hours before we reach our destination?

I belong to the school of brutal honesty. I have never believed in pussyfooting around difficult issues, which is probably why I would make a lousy politician. I don’t subscribe to flannelling and I just tell it the way it is.

Just recently, many people have asked me if the market has reached a peak. If you think about it for a moment, the question is not too dissimilar to children in the back seat of a car asking if “we are there yet”.

The question as to whether the bull market has run out of steam is not really that surprising, given its impressive performance recently.

A touch of vertigo

Since March 2009, the Straits Times Index (SGX: ^STI)  has climbed from a low of 1,456 points to almost 3,300 points – a rise of over 100% in five years. That is enough to give anyone a touch of vertigo.

But the question as to whether the market has reached a peak is typically asked by two quite different sets of investors.

The first group comprises of people who have not yet invested and are wondering if it might be too late to do so. The second group consists of investors who are wondering if it might be time to take some profit before the market drops.

But let me be brutally honest.

The Singapore market peaked in August 1988. It peaked again in July 1990. It did so again in May 1991 and in February 1996 and again in December 1999. It even reached the peak of all peaks in October 2007, when the benchmark index hit 3,875 points.

But think about this carefully.

Over the last 26 years, the Singapore market hit peaks on six separate occasions. That is roughly one every four years. But would you have been able to correctly call the market peak every time? Chances are you can’t.

A seven-bagger

Next think about this. Since January 1988, the Straits Times Index has appreciated from 830 points to almost 3,300 points today. That equates to a rise of around 268% or roughly 5% a year. Now add on 3% for dividends and the resultant annual total return is about 8%.

That might not seem like much. But it is.

If you had invested $10,000 in the Singapore stock market in 1988, your pot of money would have turned into nearly S$74,000 today. That is provided you left the money invested and resisted the temptation of jumping in and out every time you thought the market had reached a peak.

Warren Buffett once said that the basic game of investing is so favourable that it would be a terrible mistake to try and dance in and out of it. His advice applies to not only the market as a whole but to the dependable stocks you own too.

Singapore’s stalwarts

Over the last two decades, Singapore’s benchmark stalwarts such as United Overseas Bank (SGX: U11), Keppel Corporation (SGX: BN4) and Sembcorp Marine (SGX: S51) have delivered total returns in excess of 8%.

The secret to successful investing is, therefore, not to expend time and effort pondering over whether the market has peaked. Instead, invest your valuable resources on looking for those good stocks to buy to hold for the long term.

And as to whether “we are there yet”, the answer is quite simple. Time in the market will always be more rewarding than timing the market.

This article first appeared in a SIAS newsletter.

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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 Director David Kuo doesn’t own shares in any companies mentioned.