The Straits Times Index (SGX:^STI) has been steadily moving up over the past year. As of its close yesterday, the STI stands at about 1.3% away from its 52-week high. This comes after the index has increased by 129% (excluding dividends) since its low on 9 March 2009 during the Great Financial Crisis.
The strong rise in share prices over the past six years may trigger the private investor to wonder if the next market crash may be just around the corner. This line of thought would not be something new. After all, history has shown that the stock market can crash from time to time.
The trick, though, is find ways to stay the course and to keep ourselves well prepared for a market crash.
Finding something to do
My US colleague Morgan Housel recently wrote an insightful piece on why we should find ways to avoid looking at the share market on a daily basis. As the avid Foolish investor may know, looking at share prices daily could have an adverse effect on your investing. Here’s a snippet of what Morgan had to say:
“If watching financial news constantly tempts you to tweak your portfolio, turn it off. If reading market forecasts has caused you to make regrettable decisions, stop reading them.
Go do something else.”
That could be good advice to follow: To find something else to do to distract ourselves so that we can stay the course. But, what is this “something else” that we can do?
Preparing an umbrella before it rains
For that, we can turn to Pat Dorsey, author of Five Rules for Successful Stock Investing. To rid ourselves of the daily glare of share prices, Dorsey suggests that the one of the best things we can do is to spend time to research companies as a “cooling off” period. This “cooling off” period can keep us occupied as share markets head higher, and then become handy when markets decide to fall.
After all, we wouldn’t want to be caught unprepared when stocks fall, do we?
To prepare, we can begin our research in many ways. For instance, it could be something like picking through a list of companies that managed to increase their dividends throughout the Great Financial crisis.
Some of the stand-outs include companies such as aircraft engineering outfit SIA Engineering Company Limited (SGX: S59), and vehicle distributor Jardine Cycle & Carriage Limited (SGX: C07). Both companies raised their dividends by more than 30% during the crisis, when the global economy was in chaos. You can read more about SIA Engineering here, and Jardine C&C here.
There is no need to follow the drumbeat of the share market, and worry about when the share market will fall. It will, eventually. But until then, your time may be better spent researching companies that you would be willing to put some money behind. And when the markets fall, you will be glad that you had already put in the hours of research up-front.
I’d like to show you a smart tweet from Morgan regarding future market corrections:
Investing: every past crash viewed as an opportunity, every future crash viewed as a risk.
— Morgan Housel (@TMFHousel) October 7, 2014
To end on a personal note, I would prefer to see future market crashes as opportunities. How about you?
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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 Chin Hui Leong doesn’t own shares in any companies mentioned.