Long-Term Investing in Singapore’s Stock Market: The Facts

When I first started my job at The Motley Fool Singapore as an investment writer more than two years ago, I noticed there was a distinct lack of information on how Singapore’s stock market had looked like through the long lens of history.

No one should ever invest by looking only at the rearview mirror. But having historical context is also very important because without such information, it’s hard to have a basis for judgement on what’s in store next.

To help plug the gap, here’re some cold, hard facts about what long-term investing looks like in Singapore.

1. Volatility in the market tells you nothing about future returns

Chart of Straits Times Index's volatility

Source: S&P Capital IQ

Check out the chart above, which plots the number of days in each calendar year from 1993 to 2014 in which the Straits Times Index (SGX: ^STI) had gained or lost more than 1%.

You can see that 1998 and 2008 were especially wild years, 2000 was clearly volatile, and 2005 and 2013 were eerily quiet. How did the market do in the subsequent year for each of the quintet?

  1. 1998 was a volatile year – 1999 saw the Straits Times Index rocket by 78%.
  2. 2000 was certainly jumpy as well – the Straits Times Index went on to lose 16% in 2001.
  3. 2005 was an exceptionally quiet year – 2006 saw Singapore’s market barometer gain 27%.
  4. 2008 was a real roller-coaster – 2009 saw the index do really well with a 57% jump.
  5. 2013 was library-like – 2014 was a decent year in the market with the Straits Times Index climbing close to 8%.

With such examples, how volatile the market has been in the past can tell us nothing about future returns.

2. Your odds of success go hand-in-hand with how long you’re invested for

I once measured returns at the start of every month from 1988 to August 2013. These are what I got:

  1. Hold the index for a year, and there’s a 41% chance you’d be sitting on negative returns (without adjusting for both dividends and inflation; there’s a reasonable chance that the effects of both will cancel each other out over the long-term though).
  2. Stretch that holding period to 10 years, and chances of suffering a loss fall to 19%.
  3. Double that holding period to 20 years, and there were simply no losses.

It’s important to point out that most of the 20-year blocks of time under study included most or all of the following periods of tremendous financial upheaval for Singapore: the Asian Financial Crisis (1997), the Dotcom bubble crash (2000), the SARs attack (2003), and the Great Financial Crisis (2008-09).

3. Great stocks can take incredible amounts of time to reflect their greatness – but the reward for patience can be fantastic

Healthcare services provider Raffles Medical Group Ltd (SGX: R01) was trading at S$0.545 per share at the start of March 1999, with a profit of 1.22 cents per share. By 15 November 2008, the company’s earnings had nearly sextupled to 5.84 cents per share – but its shares were selling for S$0.56.

Today, Raffles Medical’s shares are exchanging hands at S$4.01 apiece – a 635% increase from March 1999 – and the company’s profit is at 15.94 cents per share.

4. Short-term volatility melts away into significant long-term gains

Return distribution for Straits Times Index

Source: S&P Capital IQ

The chart above plots the distribution of returns for the Straits Times Index in each calendar year from the start of 1988 to the end of 2013. And as you can see, the market barometer has been very volatile over the short-term.

Over those full 26 calendar years, the index has seen four years whereby it has lost 20% or more. There were another three years where it lost between 10% and 20% of its value over a 12 month period. In other words, the market barometer has spent nearly one-third of the time clocking losses.

And yet, since the start of 1988, the Straits Times Index has grown from 834 points to more than 3,400 today, giving rise to an annual growth rate of 5.4%.

So, what do you think about long-term investing in Singapore? Chime in with your thoughts in the comments section below!

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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.