I’ve been writing for The Motley Fool Singapore for close to two years now and have penned more than a thousand articles (time – and pen – really does fly when you love what you’re doing!) since I started. Along the way – and because of the time I have to tease, tweak, and tear through vast amounts of stock market data – I have managed to come across interesting information and insights about the market’s behaviour which can (hopefully!) help individual investors better manage their own investing behaviour. Here are five such insights. 1. It is way more important…
I’ve been writing for The Motley Fool Singapore for close to two years now and have penned more than a thousand articles (time – and pen – really does fly when you love what you’re doing!) since I started.
Along the way – and because of the time I have to tease, tweak, and tear through vast amounts of stock market data – I have managed to come across interesting information and insights about the market’s behaviour which can (hopefully!) help individual investors better manage their own investing behaviour.
Here are five such insights.
1. It is way more important to avoid the losers than it is to find the winners.
A common question I hear often from investors is this: “What can I buy now?” But for me, the better question should be, “What shouldn’t I buy now?”
Amongst the 818 shares listed in Singapore that data provider S&P Capital IQ has data on currently (shares which have been delisted are not in the list), a full 44% have prices now which are down by 50% or more from their all-time highs; the peaks for the 44%-group had also occurred prior to 1 January 2010, so it’s very likely that these catastrophic losses are permanent.
Given how easy it is to land on a share which might deliver massive long-term losses, it really does make sense to think about what to avoid rather than what to buy. As the economist Erik Falkenstein once said, “In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.”
2. It can take lots of time – and I mean plenty – for a great business to deliver returns for investors; but the rewards can be oh-so-sweet.
Back in March 1999, healthcare provider Raffles Medical Group Ltd. (SGX: R01) was earning S$3.7 million in profit and priced at S$0.545 per share. Fast forward to 15 November 2008, and Raffles Medical was earning S$31.5 million in profit… but still priced at S$0.56 per share.
Investors who remained patient though, have been amply rewarded as Raffles Medical is now trading at S$3.89 (that’s a 614% gain since March 1999) and cashing in a profit of S$88.8 million.
3. The market is very volatile over the short-term, but there’s still an unmistakable upward movement over the long-term.
From the start of 1988 to the end of 2013, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), has grown from 834 to 3,167 points. That’s an annual compounded return of 5.27% (the unmistakable upward trend); if we factor in a dividend yield of, say, between 2% and 3% per year, an investor in Singapore’s share market would be looking at total annual returns of around 8%.
But how volatile had the market been over the short-term? Just check out the chart below, which plots the distribution of returns for the Straits Times Index in each calendar year from 1988 to 2013.
Source: Yahoo Finance
In the 26 full calendar years between the start of 1988 and the end of 2013, there have been eight separate years where the index has logged a yearly gain of 20% or more; there have also been four separate years where the index has lost 20% or more. As my colleague Morgan Housel likes to say, “History doesn’t crawl; it leaps.”
4. The longer you hold shares for, the higher your odds of making a profit.
The Straits Times Index has been kind to long-term investors. If I measure returns (unadjusted for dividends and inflation; though it’s likely that both effects will cancel each other out over the long-term) at the start of every month from 1988 to August 2013, there has never been a rolling 20-year period where long-term investors (i.e. investors who bought and held for 20 years) have made losses.
Trigger-happy investors who have a holding period of just one year would see only a 59% chance of sitting on a gain.
5. There is a yardstick to measure value for the whole market.
Just as investors can use the price/earnings (PE) ratio to help give some perspective on the value to be found in individual shares, we can do such a thing as well with the overall market.
On that note, the Straits Times Index has a long-term average PE ratio of 16.6 stretching from 1993 to 2012. This can be used by investors as a rough guide-post (note the word rough) to determine if there’s value to be found in the overall market in Singapore. And in case you’re wondering, the SPDR STI ETF (SGX: ES3) has a PE ratio of around 13.4 now; the SDPR STI ETF is a close proxy for the actual fundamentals of the Straits Times Index itself.
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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 writer Chong Ser Jing owns shares in Raffles Medical Group.