The Straits Times Index Had Hit a 52-Week High Last Week – But Don’t Feel Smug!

Singapore’s market barometer, the Straits Times Index (SGX: ^STI), has enjoyed quite a run since the start of 2009, almost doubling since then. Last week, the index set a new 52-week high thus extending its bull-run.

Although a bull run can be bountiful for our pockets, it would serve the Foolish investor well if we didn’t feel smug at precisely this moment.

Everyone loves a bull market

Along with this sentiment, my colleague (and part-time Wall Street Journal columnist) Morgan Housel had these wise words to share:

“Everyone loves a bull market. You can make money without much effort. But that feeling can be dangerous, because it can increase your confidence more than your ability.

If you have done great as an investor over the past five years, check your ego at the door. Almost everyone has done well. The true test of investor skill is how you react during times of panic and distress.”

Said another way, if our own portfolios are hitting new highs, we should not be too quick to pat ourselves on the back.

Instead, we may be better off looking through our portfolio to see if the growth in share prices are justified by their underlying business growth. If we do so, we may be better prepared for the next market crash.

Markets will crash one of these days

The share markets will eventually fall hard one of these days (it’s just that nobody knows when).

So, instead of feeling smug when the market’s at a high, the best thing to do might be to study companies which you would like to have in your portfolio but only at lower prices. Companies that increased their dividends during the Global Financial Crisis of 2007-09 may be a good place to start.

In this case, aircraft engineering outfit SIA Engineering Company Limited (SGX: S59), and vehicle distributor Jardine Cycle & Carriage Limited (SGX: C07) may fit the bill. Both companies raised their dividends by more than 30% when the global economy was in chaos. You can read more about SIA Engineering here, and Jardine C&C here.

Furthermore, when the market’s at a high, you may want to consider keeping some cash on the sidelines so that you can take advantage of any market corrections.

It might not be for everyone, but having a cash cushion could help keep some of you calm in times of market chaos. And when you can calmly make investing decisions when everyone else around you is losing their head, your portfolio may just thank you in the future.

Keep these thoughts in mind as the markets rise, fall, and eventually, rise again. As Morgan counsels – keep your ego in check. Stay Foolish, folks!

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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.