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How Low Can The Straits Times Index Go?

Over the past two months or so, the Straits Times Index (SGX: ^STI), which is tracked by two Exchange Traded Funds (ETFs) – the SPDR STI ETF (SGX: ES3) and the NIKKO AM Singapore STI ETF (SGX: G3B) – has been steadily declining.

From its recent peak of 3,357 points on 12 September 2014, Singapore’s market benchmark fell by 6% to a low of 3,150 on 16 October before recovering slightly to 3,215 today.

Such a decline in the space of a month might be scary for investors, especially newcomers. But, what if this is only the beginning of a much larger decline? What should we as investors do?

Buy shares like you would buy groceries

I can only speak for myself, but if shares were to fall, I would be buying. This is because market volatility and market declines should not be feared by investors. Instead, they are opportunities for us to find great bargains.

If we are long-term investors in the share market, it’s likely we are net-buyers of shares.  If that is the case, should we not be happier if the price of a share is lower due to temporary volatility as that means we can buy more with our dollars? Yet, most investors are fearful to buy when they do experience a market decline.

When it comes to the share market, logic seldom applies. For example, if you enjoy shopping, would you be happier to shop during the annual Great Singapore Sale, or would you enjoy buying more when retail shops start jacking up their prices?

I trust that the answer to the question above is obvious. Yet, when it comes to the share market, investors rush to buy when they see share prices moving up but prefer to stay on the side-lines when there is a “Great Singapore Sale” going on. Why is that the case?

Long-term is too long

The problem here is that the long-term is just simply too long for most people even though they know that they need to be long term investors.  Buying a share and holding it for years and decades as the business grows requires strong will and discipline – and those are traits which might be in short supply for some investors.

If we can all adopt a long-term mind-set, seeing current market volatility as an opportunity would become obvious. So, how low can the Straits Times Index go? The lower the better I say.

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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.