How I Think At Market Highs

I bought a cake the other day from one of Singapore’s many excellent patisseries. I then ate it. What else was I supposed to do with it? It would only have gone stale if I had left it.

So, contrary to the popular saying, it is possible to have our cake and eat it too.

All that has changed is that the cake has gone from something that was potentially useful to something that is actually beneficial.

Something similar applies to investing.

Musty money

If we leave money in the bank, then it will slowly lose its value. It could even go stale. And there is nothing more unappetising than musty money.

Cash should, therefore, be put to work, if we want it to grow and stay relevant. Study after study has shown that money invested in shares should grow over the long term.

This is especially applicable today when many investors are wondering if now could still be a good time to invest. After all, many markets around the world are at or near their multi-year highs.

In situations like this, it is always useful to take a step back to look at where the global economy is today and where it could be in ten years’ time.

A decade from now

It is never easy to prophesy, especially about the future. But as investors we should try and picture, as best we can, what we think the world could look like in a decade’s time.

If we try to do that regularly on a rolling ten-year basis, then that should give us a better perspective about why we should buy shares. It could even point us in the direction as to what we should buy.

Thing is, investing should not be about plonking down a wad of cash in the morning and hoping that we could reap a handsome reward before the day is out. Investing is about putting our money to work now in the expectation of having more money in the future.

Today the Straits Times Index (SGX: ^STI) stands at around 3,400 points. Where it could be in ten years’ time is anyone’s guess. But chances are it could be higher than where it is now.

A great investment

That said, it is still important to remember that the stock market is merely a place where people go to buy and sell shares. They do so by offering or bidding for assets.

Let’s say we buy a S$100 asset today that pays a dividend of $5. Let us also assume that the asset can raise its payout by 10% a year. If it can do that consistently, then we should recoup our investment through the payouts alone in about 11 years.

Most people would agree that the S$100 has been invested well. And they would be right.

But now think carefully about what has not been mentioned.

Buy so well

At no time have we talked about the share price.

When we invest in shares, we become part owners of a business. That might sound fusty and old-fashioned. But it is a fact.

If the business does well, then we, as shareholders, should do well too. Consequently, the daily share-price fluctuations – as buyers and sellers vie for the asset – are meaningless.

So instead of focussing on the daily share-price movements, concentrate on looking for good businesses that will be bigger and stronger in a decade’s time. I do.

Warren Buffett once said: “Buy so well, you don’t have to sell.”

He is right. That is really what investing is all about.

If you can do that successfully, then you could not only have your cake and eat it too but you could even have more cake than you could possibly eat in the future.

 A version of this article first appeared in Take Stock Singapore. Click here now if you would like your FREE subscription to Take Stock – Singapore delivered direct to your inbox.

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can 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 Director David Kuo doesn’t own shares in any companies mentioned.