Is It Time To Panic?

There seem to be plenty for investors to worry about at the moment.

Just to name a few: the Straits Times Index (SGX: ^STI) is currently in bear market territory having fallen by 21% from a 52-week high in April; Singapore’s economy appears to be drifting into a technical recession; and, the Singapore dollar continues to depreciate against the U.S. dollar.

Has the time finally come for investors to officially panic? Investing can be a counter-intuitive activity. The riskiest time to invest (and thus a cause for panic) could be when the perception of risk is at its lowest amongst market participants; conversely, it may be the least risky time to invest (and thus a reason to not panic) when there’s a high level of risk consciousness in the market.

The valuation of stocks can be a good proxy for the level of risk-taking in the market (generally speaking, the higher the valuation, the more risk investors are taking on), so let’s look at that.

Seeking value

The SPDR STI ETF (SGX: ES3) mimics the fundamentals of the Straits Times Index, and so, its data can be used as a proxy for the index itself.

Currently, the SPDR STI ETF is valued at 11 times its trailing earnings. In comparison with the Straits Times Index’s average PE ratio of 16.9 from 1973 to 2010. it’d appear that stocks in Singapore can’t be considered to be expensive. Interestingly, the Straits Times Index had fallen to a single-digit PE ratio over the past 20 years in only one episode – and that was during the throes of the Great Financial Crisis of 2008-09.

To panic or not to panic

But at the end of the day, I am not in any position to tell you what to do. Investing is a highly personal endeavor, so it doesn’t make sense for me to force my investing style onto anyone. What I can do though, is to share with you what I’m seeing and what I plan to do:

  • I am (1) not selling any of my investments in a major way, and (2) not seeing many great bargains appear yet
  • I am (1) still investing, (2) most likely going to invest for another 30 to 50 years, and (3) averaging down on some of the stocks I own that have fallen in price because of the bear market.

How are you feeling now and what do you intend to do? Tell me more in the comments section below!

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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 Stanley Lim doesn't own shares in any companies mentioned.