Unfortunate Truths About Stock Market Downturns

There are truths and then, there are unfortunate truths.

In some ways, investing can be like learning to ride a bicycle. You’ll never know how it turns out until you get on one and start pedaling. As for those who have learnt how to ride, I’m pretty sure they can attest to how scary and exciting it can be during the very first time (it was, for me at least!).

Staying the course when learning to ride a bicycle is great fun, especially when you get to experience the moment when you can balance yourself on two thin, slender, and moving wheels.

But staying the course with investing can be a lot harder. That’s especially so during stock market downturns. Here are a couple of quotes explaining why that’s so.

“Saying “I’ll be greedy when others are fearful” is much easier than actually doing it”
– Morgan Housel

As of its close yesterday, Singapore’s market benchmark, the Straits Times Index (SGX: ^STI), sat at around 17% below its 52-week peak that was reached on 16 April 2015.

The steepness of the index’s fall suggests that many stock market participants are – to borrow a famous quote from billionaire investor Warren Buffett – being fearful while others are fearful instead of “being greedy while others are fearful”.

In short, investing may not be as easy as it looks. But there are things we can do to make it easier and more enjoyable.

Earlier this year, I wrote about keeping a watchlist of shares ready for times like these. I didn’t write it because I knew that the market will crash this year; my timing was pure luck. In fact, it’s always a good idea to have a watchlist ready because crashes are a feature of the stock market.

The good news is that market crashes can be fun and very profitable if you have a watchlist of companies on hand, and a cash cushion you’ve built up over time that’s ready to be deployed.

“In the end, everyone agrees that it’s the long-term that matters until the short-term starts happening”
– Josh Brown

It can become harder to tune out the noise when the going gets tough.

Newswires today are filled with stories of awful things like China’s slowdown in economic growth, interest rate hikes, and much more. When you line them up together, the collective taste seems awful.

And yet, when we look at the data that matters, it can often tell a different story.

The SPDR STI ETF (SGX: ES3) – a proxy for the market barometer, the Straits Times Index – has turned in an annualized total return of 7.9% from its inception on 11 April 2002 to the end of July this year. And, this has happened despite the multitude of scary headlines that have dominated the papers since 2002.

It is this long term view that our eyes should be focused on, and not the short term troubles that are gleefully portrayed by the financial media.

A  Fool’s take

When it comes to learning to ride a bicycle for the first time, there’s a tendency for us to stick to it till we get it. It is the freedom of transport and sense of accomplishment that riding a bicycle offers that far outweighs the possible pain that accompanies the falls we may experience from the learning process.

Learning to invest offers a different kind of freedom. If we do it well over time, we may find ourselves with more time to spend on the people and things we truly love.

Grow your wealth in the years to come through a FREE subscription to The Motley Fool’s weekly investing newsletter, Take Stock SingaporeSign up here!

Like us on Facebook to follow our latest hot articles. 

The Motley Fool's purpose is to help the world invest, better. 

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.