3 Investing Lessons You Should Remember as the Singapore Market Hits a 7 Year High – Part 2

Last week, my Foolish colleague Ser Jing noted that Singapore’s market barometer, the Straits Times Index (SGX: ^STI), had hit a new seven-year high when it closed above 3,500 points in mid-April for the first time since 12 December 2007.

To illustrate further, the Straits Times Index had hit 3,549 points on 12 December 2007 and subsequently fell to a low of 1,456 on 9 March 2009.

With such tumultuous periods in the past, it may be tempting to think that we are ripe for stock market turbulence ahead given that we’re past the 3,500 level again.

But instead of worrying, we may want to take investing lessons from the past so as to better prepare ourselves for the future.

With that, I would like to share three lessons I have learnt over the past seven years.

You can jump in here for the first lesson.

Lesson 2: The Biggest Gift from the Global Financial Crisis

There is plenty to worry about these days.

Interest rates are threatening to rise in the future and China’s economy looks to be slowing down. In the event of a recession, Singapore-listed companies may suffer as well. Oh, and did I mention that the Straits Times Index is trading near a seven year high?

Thing is, instead of spending our time worrying about what could or could not happen, our time could be better spent at looking at the historical performance of companies during the Global Financial Crisis.

If there is one big outcome from the crisis, it is this: The gift of real life financial data-points on how companies performed during a recession. In fact, I think that’s the biggest gift of the Global Financial Crisis.

With these figures, we may not be left guessing on whether or not our companies can perform during a recession. We may not need to speculate on threats or opportunities. All we had to do was to study the company’s actions during the previous crisis. The businesses that do well despite the crisis may form a watchlist of companies for the future.

Take real estate fund manager ARA Asset Management Limited (SGX: D1R) for instance. The graph below summarises the firm’s revenue, net income, operating cash flow, and free cash flow since 2007.

ARA Asset Management's operating profit, operating cash flow, free cash flow, and net income

Source: S&P Capital IQ

With all four financial metrics climbing through 2008 and 2009, it may not surprise Foolish investors that the company’s share price has followed suit – shares of ARA Asset Management have jumped by 126% in price since 12 December 2007.

In short, stop worrying and start studying companies which have businesses that managed to perform well during the Global Financial Crisis. The greatest gift of the worst economic calamity of our generation (so far!) is just a few clicks away.

Click here for the next lesson in the series!

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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 owns shares in ARA Asset Management.