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The 1 Thing You Need To Survive This Bear Market (And Others In The Future)

Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI), had reached a recent peak of 3,550 points this year in mid-April. Yesterday, it closed at 2,792, representing a 21.3% decline. As of the time of writing (1:57 pm), it’s down by a further 1.35% to 2,754.

A bear market is defined as one in which stocks have fallen by 20% from a recent high – so as you can see, stocks in Singapore are wrestling with a bear at the moment. But as if that isn’t worrying enough for investors, there’s also a chance that Singapore may be entering into a recession soon – when it rains, it pours.

It’s in testing times like these when it can be useful to fall back on the wisdom of the masters, those who’ve been there and done that, as a guide for navigating rough waters.

One such master would be Peter Lynch, manager of the U.S.-based Fidelity Magellan fund from 1977 to 1990. In his time leading Magellan, he produced compound annual returns of a staggering 29% per year, helping to turn every $10,000 invested with him in 1977 into $280,000 by the time he packed up his bags at the fund.

In his 1993 book Beating the Street, Lynch shared about something investors need to do in order to survive bear markets and recessions (emphasis mine):

“Keeping the faith and stock picking are normally not discussed in the same paragraph, but success in the latter depends on the former. You can be the world’s greatest expert on balance sheets or p/e ratios, but without faith, you’ll tend to believe the negative headlines…

…What sort of faith am I talking about?

Faith that America will survive, that people will continue to get up in the morning and put their pants on one leg at a time, and that the corporations that make the pants will turn a profit for the shareholders.

Faith that as old enterprises lose momentum and disappear, exciting new ones such as Wal-Mart, Federal Express, and Apple Computer will emerge to take their place.

Faith that America is a nation of hardworking and inventive people, and that even yuppies have gotten a bad rap for being lazy.”

Lynch was talking about America, but his words are entirely applicable for Singapore too. We have to keep the faith that things will get better, eventually.

Singapore’s economy has survived numerous scares since the nation gained independence in 1965. Events like the Asian Financial Crisis, bursting of the dot-com bubble, SARS, and the Global Financial Crisis, have all happened over the past 20 years. And yet Singapore has endured and even prospered. From 1995 to 2014, our nation’s gross domestic product (GDP) has more than tripled from S$124.6 billion to S$390.1 billion.

Lynch’s words are a reminder that investing in the stock market is a long-term bet that we humans are always striving to improve our lives in aggregate. Hiccups – even severe ones – are bound to be happen from time to time in the economy and the business environment. But, like my colleague Morgan Housel suggests, it does pay to be a long-term optimist who expects terrible things to occur regularly. Keep the faith, Fools.

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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 writer Chong Ser Jing owns shares in Apple.