3 Quick Things to Note as the Stock Market Falls

Yesterday, the Straits Times Index (SGX: ^STI) closed at 3,193 points, which represents a 10% decline from the market benchmark’s peak this year.

With the likes of blue chips like SembCorp Industries Limited (SGX: U96) and Keppel Corporation Limited (SGX: BN4) falling by way more than 10% over the past 12 months, these recent developments in our local stock market may give investors reasons to feel queasy.

To help deal with the situation, here are three points to note.

1. Volatility is normal

Maximum drawdown for Straits Times Index, 1993 - 2014

Source: S&P Capital IQ

Although the Straits Times Index’s 10% decline from a recent high that we’re seeing now may feel terrible, we have to remind ourselves that volatility in the stock market is very normal. The chart above, which plots the maximum peak-to-trough loss (known as a drawdown) that the Straits Times Index has suffered in each calendar year between 1993 and 2014, makes the point clear.

Keeping in mind that it’s the underlying business performance of a company that we should always focus on, it’s worth knowing that drops in the price of a stock may not always reflect how the firm’s business is doing.

2. You can ease into the marke

Investing does not have to come down to us making only ONE single buying decision. Instead of dumping all your cash into the stock market at a sole point in time, consider spreading out your dollars over time.

As my colleague Morgan Housel has shared before, one way is to deploy our cash in phases. The table below shows Morgan’s thinking behind his cash-deployment strategy; it’s based on the historical frequency of declines of certain magnitudes for the U.S. stock market.

Cash deployment table

Source: Morgan Housel,

The table above can give us some food for thought on how we deploy our cash. It can also help us keep our emotions in check by laying out how common declines of 10% to 20% can be .

3. You can consider smaller allocations and build from there

There will be times when we purchase a stock only to see its price fall by 10% or more shortly after our purchase.

If you feel really uneasy with such stock price movements, it could be a symptom of you having committed too much money to a single company. To help with combating such a situation, here’s what I’ve shared in a previous article about the importance of sizing our investments:

“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.”

I hope that the three simple points above can help you better-navigate a stock market that may be making you feel jittery right now. In investing, control over our emotions is incredibly important.

Want to discuss more? If you do, then come meet David Kuo and the rest of the Fool Singapore team on August 15! 

Please join us at Invest FAIR Singapore on 15 August. (Suntec Centre, Booth B-16). Come chat with us at our booth, and see our MAS-licensed Director, David Kuo, give his official SGX investor presentation.

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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.