Tucked behind the well-known Race Course Road in Singapore’s Little India is a thoroughfare called Chander Road. I remember exploring that stretch of road a while ago in search of new eateries. I happened on an Indian diner that was packed with happy patrons. I found a table, sat down and ordered my meal. With these hands I then looked around for some suitable cutlery but found none. I also couldn’t help but notice that every person in the restaurant was eating with their fingers. So, in for a penny in for a pound, I started to eat my…
I happened on an Indian diner that was packed with happy patrons. I found a table, sat down and ordered my meal.
With these hands
I then looked around for some suitable cutlery but found none. I also couldn’t help but notice that every person in the restaurant was eating with their fingers. So, in for a penny in for a pound, I started to eat my masala chicken and rice with bare hands too.
If you have never consumed food this way before then I urge you to practice at home first. My initial attempts resulted in more food landing on the floor than in my mouth. But I soon got the hang of it.
But what does this have to do with investing?
Whenever we attempt a new skill for the first time it is quite likely that we won’t do very well. But that is not a good reason to throw in the towel.
The bare minimum
I recently came across some statistics about investing that made me shudder. The numbers were used to justify the 2.5% minimum interest rate paid on money held in our Central Provident Fund (CPF) Ordinary Account.
The article suggested that, historically, CPF members who invested money in their Ordinary Account (OA) did not fare very well. The data covered the period between 2004 and 2013.
It found that nearly half of those who invested via the CPF Investment Scheme lost money. Just over a third could not beat the OA interest rate of 2.5%. But about a fifth did reap gains of more than that.
The first thing to bear in mind is that the period under scrutiny covered one of the worst financial disasters in living memory. You could not have picked a worse time to test the resolve of private investors, especially those who are new to handling investments in a crisis.
The second thing to consider is that we have no specific information about the stocks these investors had bought.
With that in mind I did some number crunching. Here is what I found.
Double your money
Between 1 January 2004 and 31 December 2013, the Straits Times Index (SGX: ^STI) increased from 1,791 points to 3,167 points – a rise of 76%, which equates to an annual increase of 5.9%. If we add on another 3% for dividends, the annual total return would have been a not-too-disappointing 8.9%.
Here is something else to consider.
Between 2004 and 2013, no fewer than 22 of the current crop of Straits Times Index companies had delivered annual total returns in excess of 2.5%. They included Singapore Exchange (SGX: S68) that returned 21.8% and Sembcorp Marine (SGX: S51) which returned 25%.
If you had invested S$1,000 in both companies at the start of 2004, your combined investment of $2,000 would have turned into $16,498 after ten years.
Am I being judicious with my stock selection? Cynics might think so. So now consider this.
If you had invested S$1,000 in a basket of shares that passively tracked the Singapore benchmark index, your investment would have turned into S$2,345. In other words, the investment would have doubled after ten years.
You can do better
What’s more, if S$1,000 had been invested every year in an index tracker such as the STI ETF (SGX: ES3) since 2004, the pot at the end of the decade would have turned into S$16,466. That is not too shabby at all.
Peter Lynch once said: “If you are susceptible to selling everything in a panic, you ought to avoid stocks and stock mutual funds altogether.”
But he also said: “Everyone has the brainpower to make money in stocks. Not everyone has the stomach.”
In case you wondering, I am still not quite at the stage where I can professionally catapult the balls of rice with attached condiments into my mouth yet. But, I am no longer an embarrassment to myself. Nor am I a danger to anyone sitting near me anymore. That is what can happen if we are prepared to make an effort.
This article first appeared in Take Stock Singapore.
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