The Most Important Thing You Must Do Now With the Markets Crumbling

It isn’t easy being an investor these days with the Straits Times Index (SGX: ^STI), Singapore’s stock market barometer, appearing to be in a never-ending slide.

At the time of writing (10:58 am), it’s down by 1.95% to 2,951 from yesterday’s close. It’s likely that the index will end today with another daily loss to mark six five consecutive daily declines. If we pull back the curtains a little, the index’s current level also represents a step retreat of 16.8% from its 52-week high of 3,550 that was reached only four months ago in April.

To sum it up simply, Singapore’s stock market has been ugly.

But here’s the thing, we should always expect the stock market to turn ugly every now and then. How often does the ugliness rear its head?

My colleague Morgan Housel had studied more than 80 years of U.S. stock market history to find out how often the market crashes. Although this is not a history of Singapore’s own stock market, it still can provide useful context for thinking about the depth and frequency of market declines here.

Market decline percentage Historical frequency on average
10% Every 11 months
15% Every 24 months
20% Every four years
30% Every decade
50% 2-3 times per century

Source: Morgan Housel,

As you can see, 10%-20% drops in the prices of stocks are not very uncommon things. They happen all the time. And yet, throughout all these frequent declines, the S&P 500 (a market index in the U.S.) has jumped by more than 11,000% from 18 points in 1928 to more than 2,000 today.

To borrow an analogy from the legendary fund manager Ralph Wanger, think of stocks like a poodle that’s being walked by its owner.

The owner (growth of the stock’s business) is walking from the Botanic Gardens to the Dhoby Ghaut MRT Station at a fixed pace. Meanwhile, the poodle (the stock’s price) is running all over the place, darting forward, surging to the left, dashing to the right, and straining to run backwards. But, you know the poodle and the owner will get to the MRT station eventually and at nearly the same time.

When thought of in this manner, short-term market declines (the poodle’s erratic movement) tend to lose significance when compared to the broader theme of the collective growth in the long-term earnings power of the businesses that make up the stock market.

Peter Lynch, another luminary in the investing world, once said that “everyone has the brainpower to make money in stocks. Not everyone has the stomach.” In bad times like these, with the market falling, it’s apt to bring up Lynch’s quote to remind ourselves of the most important thing we have to do now: Steel ourselves to ride through the market’s decline and not sell out at the bottom.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any company mentioned.