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What’s An Excitable Dog Doing in Singapore’s Share Market?

An individual named Ralph Wanger once told his friend Bill Bernstein the following story:

“[There’s] an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the [dog watchers], big and small, seem to have their eye on the dog, and not the owner.”

Before you wonder why I’m relating this tale to you when The Motley Fool Singapore’s an investing website, both Wanger and Bernstein are actually titans in the finance industry. And, the story is actually a great analogy for the stock market (I found it from the investment blog A Wealth of Common Sense written by investment manager Ben Carlson). The little dog is what short-term price movements look like, the owner is what the market does over the long-term, and the dog-watchers are well, investors.

Besides poking fun at his industry, Wanger’s little tale is also a great example of why it can be foolish (small ‘f’ foolish) for someone to focus on the short-term wiggles of the market.

Consider the following shares, namely Raffles Medical Group Ltd (SGX: R01), Jardine Cycle & Carriage Limited (SGX: C07), and Boustead Singapore Limited (SGX: F9D). These companies have a wide range of market capitalisations, and are involved with very different industries.

Share Market Capitalisation
Raffles Medical S$2.195 billion
Jardine C&C S$15.25 billion
Boustead Singapore S$891.4 million

Source: S&P Capital

But, they share two things in common. First, they are amongst the top 20 shares in Singapore with the highest capital gains from the start of 2004 to 10 December 2014. Raffles Medical, Jardine C&C, and Boustead Singapore have seen their share prices grow by 970%, 639%, and 440% respectively; in comparison, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), has increased by only 88.5% in the same time.

Second, despite their great long-term returns, the trio have all seen their shares clock daily losses in at least one-third of all trading days in that block of time.

daily loss chart

Source: S&P Capital IQ

So as you can see, these shares have all experienced substantial amount of losing days along their way to great long-term gains. Investors who were too focused on their daily share price movements might have missed the much bigger picture of the satisfying long-term returns they were generating as their businesses grew.

At the start of 2003, Raffles Medical, Jardine C&C, and Boustead had earned profits of S$7.05 million, US$359 million, and S$12.6 million respectively. Today, these three companies have seen their profits jump to S$88.8 million, US$887 million, and S$77.5 million respectively. The excitable dog (share price) can scupper anywhere all it wants, but the owner (the business) is fixed on getting to multi-bagger land.

For more interesting thoughts about investing and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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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.