To some, the stock market seems to have hit some pretty rough seas in recent months. That view may not be too far off from reality. The graph below shows the average daily change by month for Singapore’s widely followed market benchmark, the Straits Times Index (SGX: ^STI), for 2015 so far. There are two striking things about it: First, the average daily change has gotten larger; second, the daily change has often been negative in May and June (and so far, for July). Source: Yahoo Finance; author’s calculations Meanwhile, there’re a bunch of scary events happening concurrently with the Straits Times…
To some, the stock market seems to have hit some pretty rough seas in recent months.
That view may not be too far off from reality. The graph below shows the average daily change by month for Singapore’s widely followed market benchmark, the Straits Times Index (SGX: ^STI), for 2015 so far. There are two striking things about it: First, the average daily change has gotten larger; second, the daily change has often been negative in May and June (and so far, for July).
Source: Yahoo Finance; author’s calculations
Meanwhile, there’re a bunch of scary events happening concurrently with the Straits Times Index’s turn for the worse starting in May: A rout in Chinese stocks; a recent trading halt at the New York Stock Exchange; the ongoing Grexit debacle in Europe; and, the spread of the MERS disease. I’m sure I have left some important things out, but you get the point.
All the above can easily cause stress for you and I, the common investor. But it doesn’t have to be that way. If we know what is making us stressful, then we may be able to find ways to manage it.
The numbers are “whispering” to me to sell
Looking at the day to day movements in the stock market may lead you to miss the forest for the trees. The downward movements of the stock market in the past two months may give us the impression (a wrong one, if I may add) that things are terrible right now.
But if we zoom out from the daily twitches of the stock market, and take a look at the longer term view, we may see a totally different picture:
- At the time of writing, the Straits Times Index is down by only around 8% from this year’s peak. This is actually a small movement when compared to the index’s historical annual drawdowns.
- And despite having suffered huge peak-to-trough losses in most years (the drawdowns), the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index – has still conspired to achieve a long term annual total return of 8.6% since its inception on 11 April 2002.
As such, consider the simple action of not watching daily stock price movements. When you think about it, how the price of a stock moves in a day is unlikely to give you any valuable information in making sound investment decisions for the only term that matters, the long term.
Size your investing appetite
If you are feeling “stressed out” by the stock market today, that’s a possible symptom of you having committed too much money into the stock market or into a particular stock.
I have written an earlier article on the importance of sizing our stock positions according to our own appetite of risk. If the movements of a particular stock is making you queasy, you may want to consider the possibility that you’ve either invested in something or invested an amount, that’s outside of your comfort zone.
Bear in mind that keeping a calm mind in times of stock market turbulence is of paramount importance if you want to achieve investing success (you can’t invest well if you panic and sell during market declines). If you are feeling stressed out and are not able to make a rational decision, it can hurt your returns. Paring back your investments to a level you feel comfortable with may be an important consideration.
A Fool’s take
I’m fortunate to be surrounded by investing buddies who are able keep a calm demeanour even in the face of rough seas in the turbulent stock market. I have also strived to keep my portfolio allocations within my own comfort zone so that I do not feel much stress to sell stocks when things head south over the short term.
If we can keep ourselves focused on the long term, the odds of getting satisfying and lasting gains may be in our favor.
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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.