The Hidden Link Between Crises And Investing

Map of ThailandLast night, very tragic news surfaced on how Flight MH17 from Malaysia Airlines had crashed near the Russian-Ukraine border. 295 people were aboard the plane when it crashed and Ukraine officials have stated that all of them are dead.

Some view it as a sign of escalating tension between Russia and Ukraine (the two nations have been locking horns for months now due to territorial disputes) and the development prompted Bloomberg headlines such as the following: “S&P 500 Tumbles, Treasuries Rally on Crises in Ukraine and Middle East”.

I’m in no way downplaying the immense magnitude of the human tragedy involved with MH17, but with the S&P 500 (a widely-followed share market index in the USA) falling 1.2% overnight seemingly on geo-political uncertainty, I was reminded of the experience of Thailand’s share market.

In December 2013, anti-government protests in Thailand successfully forced then Prime Minister Yingluck Shinawatra to dissolve the country’s House of Representatives and schedule a general election.

The Thai share market reacted with fear due to the escalating political tension during the period. The SET Index, Thailand’s market barometer, fell from its October 2013 high of around 1,480 points to around 1,220 in January 2014. That is a fall of 17.5% in just two months.

Although the situation worsened after that with the military launching a coup d’état in May and enforcing martial law shortly thereafter in the same month, the Thai market’s mood seemed to be more way more buoyant after January with the SET Index rebounding to its current level of around 1,530 points. That is a rally of 25.5% in just six months. Comparatively, the Straits Times Index (SGX: ^STI) only appreciated by around 4% to its current level of 3,299 points in the same period.

Do Not Be Affected By The Media

The situation in Thailand is actually a nice lesson about what it means to be an investor.

When investing, emotional control is very important. Each time we read or hear what is being discussed in the media, we should try to take a step back and think about the whole situation. It is not to say that the media is always wrong, but it’s often the case where, as investors, we have to ask the question: Is the situation really as bad as it seems?

If we are able to spot instances where the market has overreacted to certain situations, we might be able to find a buying opportunity as an investor.

In the case of Thailand, the country had survived and prospered despite having faced 11 military coups in the last 72 years, excluding the most recent one. If the country could survive that many political crises for more than seven decades, the odds are on the country’s side that it can soldier on through its latest troubles. When placed in that context, the SET Index’s fall between October 2013 and January 2014 might seem unwarranted and could be an example of how a profit-opportunity could be found in the event of an overreaction.

Foolish Summary

Although geo-political tension or other types of crises in general might not always be a buying opportunity for investors, it is something that’s worth pondering.

The next time you hear something really negative on anything that might be related to investing, ask yourself “Is it as bad as it seems after looking at it through the lens of history?”

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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 Stanley Lim doesn’t own shares in any companies mentioned.