Singapore’s stock market, like those of many bourses around the world, has seen some strong moves on the downside lately. Take for example, the Straits Times Index (SGX: ^STI), Singapore’s most widely-followed market benchmark. In August, it had experienced a fall of more than 12% at the bottom from the month’s high. With such rocky moves, it’s only understandable if you’re feeling jittery about your investments. To help soothe some fraying nerves and to help us prepare for any potentially deeper falls (no one knows what will happen to stocks in the near future!), I’ve picked up some of my…
Singapore’s stock market, like those of many bourses around the world, has seen some strong moves on the downside lately.
Take for example, the Straits Times Index (SGX: ^STI), Singapore’s most widely-followed market benchmark. In August, it had experienced a fall of more than 12% at the bottom from the month’s high.
With such rocky moves, it’s only understandable if you’re feeling jittery about your investments. To help soothe some fraying nerves and to help us prepare for any potentially deeper falls (no one knows what will happen to stocks in the near future!), I’ve picked up some of my favourite pieces of sage advice from the legendary investor, Warren Buffett.
1. “We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.”
Falling stock prices are not a bad thing. Even for those who are fully-invested, the dividend income that’s flowing in can also help to snap up some bargains when stocks fall.
2. “In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace.”
Control of emotions – more so than things like “arcane formulae” or “computer programs” or price signals – are what largely determines our success in investing.
Even the best of stocks can fall from time to time while they’re making their way to long-term greatness – if you do not have the emotion to stomach temporary price declines, then you may well lose out on the ability to partake in the magical phenomenon that is compounding.
3. “In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.”
During episodes of market declines, it’s important to remain focused on the underlying businesses (the playing field). A fall in a stock’s price does not necessarily mean that its business is in trouble.
4. “[W]hat makes sense in business also makes sense in stocks: An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.”
Let’s say you’re the sole owner of a business that you know has a good chance of earning materially higher cash flows and profits over the next 10 or 20 years. Would you be willing to sell your entire stake just because some random person walks up to you and says that your business is worth 50% less today than it is six months ago?
It’s the same with stocks. As an owner of a stock, we’re literally part-owners of a living, breathing business with employees who are (hopefully!) doing their best each day to grow the company.
5. “We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen…A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them.”
Now that stocks have been on a roller-coaster ride over the past few weeks, there may be market commentators who start coming up with grand theories about what the economy or the stock market will do next.
But, like Buffett says, we can still invest successfully without having to bother with such forecasts (which are often wrong!).
6. “If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither. On daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.”
In here, Buffett lays out a few simple characteristics that a company ought to have if it wants to grow sustainably over the long-term. If you can find companies with such traits in the event of a further decline in stocks, you may have just found yourself some wonderful long-term bargains.
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.