How To Invest Like It’s The Bottom Of The Great Financial Crisis (And Why It Can Be Dangerous)

The Great Financial Crisis of 2008-09 was a harrowing and rewarding time for investors.

It was harrowing because Singapore’s market barometer, the Straits Times Index (SGX: ^STI), fell by two-thirds from peak-to-trough during the crisis; it was rewarding because the bottom of the crisis was a fantastic time for investors to snap up bargains.

Take the Straits Times Index for instance. It has more than doubled to 3,400 points after bottoming-out at around 1,450 points in March 2009.

Investors who had invested in the index back then through exchange-traded funds like the SPDR STI ETF (SGX: ES3) would be sitting on a similar level of gains even before accounting for dividends.

Given that such strong returns could be found at the bottom of the crisis, wouldn’t it be great – from an investing standpoint – if there are shares that are cheaper now as compared to back then?

Such shares can be quite rare – and it’s not really surprising considering that the Straits Times Index’s price-to-earnings (PE) ratio had jumped from 6 at the start of 2009 to nearly 14 today – but they still exist.

PE ratio history for Cityneon Holdings, Hyflux, and Swiber

Source: S&P Capital IQ

As you can see in the table above, the trio of Cityneon Holdings Limited (SGX: 5HJ), Hyflux Ltd (SGX: 600), and Swiber Holdings Limited (SGX: AK3) would belong to that rare group.

Despite their enticing valuations though, a warning here’s needed: Cheap shares can also become expensive losers if their business fundamentals deteriorate in the future.

In fact, Swiber can serve as an instructive example. The offshore services provider had a really low valuation more than six years ago at the start of 2009. But, with Swiber’s earnings per share having declined by 40% from S$0.223 back then to S$0.135 today, the company’s share price has done much worse over the same duration with a 66% fall from S$0.555.

Even with a low valuation, it’s important for you to wade in with your eyes wide open to all the potential risks involved.

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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 does not own any companies listed above.