We have come a long way since 9 March 2009. That was the day when the Straits Times Index hit a low of 1,457 points. Today, the benchmark stands at around 3,200 points. A return of more than 100% over the five-and-a-bit years would strike me as being more than decent. But it seems that all it takes to unsettle stock market investors is a sprinkling of volatility and a dusting of uncertainty. Who let the dogs out? Nothing ever changes. Investors, as always, want to know who let dogs out. Who, they ask, is responsible for ruining the bull…
We have come a long way since 9 March 2009. That was the day when the Straits Times Index hit a low of 1,457 points. Today, the benchmark stands at around 3,200 points.
A return of more than 100% over the five-and-a-bit years would strike me as being more than decent. But it seems that all it takes to unsettle stock market investors is a sprinkling of volatility and a dusting of uncertainty.
Who let the dogs out?
Nothing ever changes. Investors, as always, want to know who let dogs out. Who, they ask, is responsible for ruining the bull market?
I have seen the finger of blame pointed at China, the Eurozone, Janet Yellen, Ebola, falling oil prices, the global economy and Syria. It was even pointed in the direction of the Umbrella Revolution in Hong Kong.
Did I miss out anyone? Oh yes, Vladimir Putin. How could I possibly have forgotten him?
Shooting fish in a barrel
In other words, no one has any idea why stocks have fallen. But fall they have. And rather than openly admitting that they don’t know, experts make wild guesses wrapped up as considered opinions.
What is indisputable is that since March 2009, the Straits Times Index (SGX: ^STI) has more than doubled. Anyone who invested in Singapore shares at the low point should have enjoyed some quite impressive gains.
Picking stock market winners at the bottom of the market was almost as easy as shooting fish in a barrel, blindfolded. Jardine Cycle & Carriage (SGX: C07) has gained 377%; Jardine Matheson Holdings (SGX: J36) has improved 239% and Keppel Corporation (SGX: BN4) has put on 167%.
I don’t know about you but, whilst the gains have been welcome, I can’t help but find them a little odd. Before I tell you why, though, let me share with you something that happened at a meal I had with an old colleague.
My chocolate fondant moment
When I met my old friend for lunch, we both perused the menu with interest. But when the waiter came to take our order, my guest said he would start with the chocolate fondant. Yes, that’s right. He wanted to start with dessert.
Diplomacy, it has to be said, has never been one of my strong points. So, I couldn’t help pointing out to him that traditionally diners would start with a starter, which is why starters are so called.
Convention would also suggest that this is followed by a main course. And desserts are normally eaten at the end of the meal, not at the beginning.
But my guest pointed out that nowhere is it written that puddings have to be eaten last. He also pointed out that he might be too full at the end of the meal to enjoy his chosen sweet. So, why should he let unwritten convention spoil his lunch?
There is simply no answer to that kind of logic. But what does it have to do with investing?
No one can possibly deny that stock market investors have enjoyed good returns over the last five years. However, convention suggests that bull markets should start with a recovery by cyclicals. These are companies that tend to be closely tethered to the economy. So as an economy pulls out of recession, it would seem logical that cyclicals improve first.
But not this time around.
An unconventional recovery
Instead of cyclicals leading the stock market rise, it has been defensive blue chips that have done well. Traditionally, these lumbering giants, which pay generous dividends, tend to lag a rising market. But the question is why have they done so well?
The obvious answer could be because interest rates have been so appallingly low that investors have warmed to dividend-paying shares for income. And rightly so. Another, though perhaps contentious, reason could be because the economic recovery has yet to happen. So, cyclicals could still have their day in the sun.
This is not an invitation to start buying cyclical stocks now. Far from it. Instead, consider taking a leaf from the diner who eats his dessert first. Feast on what you like. You don’t have to follow convention when investing because there isn’t one.
This article was first published in Take Stock Singapore.
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