Can you remember what happened in one eventful week in the middle of October? It was an exciting five days. Our Straits Times Index (SGX: ^STI) posted its biggest weekly rally since May 2009, last week. So, why didn’t someone ring a bell on the Monday to warn us that the market was about to take off? How selfish is that? Bell ringer Truth is, no one will ever ring a bell to tell you: “Hey, I think it would be a good idea to pile into the market today because it is going to be up by over 7%,…
Can you remember what happened in one eventful week in the middle of October? It was an exciting five days. Our Straits Times Index (SGX: ^STI) posted its biggest weekly rally since May 2009, last week.
So, why didn’t someone ring a bell on the Monday to warn us that the market was about to take off? How selfish is that?
Truth is, no one will ever ring a bell to tell you: “Hey, I think it would be a good idea to pile into the market today because it is going to be up by over 7%, by the end of the week.”
That is why it is important to be in the market all the time, regardless.
That said, some people like to think that it is possible to predict the best and the worst times to be in the stock market. But that is just wishful thinking.
Fits and spurts
The best days of the stock market can come in fits and spurts, which, even with the benefit of hindsight, would not have been easy to identify.
For instance, the week commencing 2nd February 1998 would have been a fantastic time to be in the market. The benchmark surged 21% that week.
The 4th May 2009 would have been another fabulous time to have some Singapore shares tucked away in our portfolios. The Straits Times Index jumped 16% that week.
In fact, the Straits Times Index has risen some 263% since 1987. That is even before dividends are factored in. With reinvested dividends, the total return works out to be around 8% a year. That is impressive.
A small handful
But the best returns of the stock market have come from just a handful of weeks – just 210 days to be precise. Or put another way, the 28 years of returns from the Straits Times Index boils down to the returns achieved from a few months.
That is why being a long-term buy-to-hold investor can make sense. Or as Peter Lynch once said: “I’m always fully invested. It’s a great feeling to be caught with your pants up.”
I am sure there are many so-called “knowledgeable” experts who will tell you why they think the stock market went up that week in October. They might refer to investors who were pessimistic about China but have since returned to the market.
A bear squeeze
They might refer to a renewed interest in commodities, following a fall in the US dollar. They could refer to the disappointing American jobs numbers that has forced the US Federal Reserve to re-think its timing for an interest rate increase.
Some might even point to bearish traders who have been selling share they don’t own but have been forced to buy them back. So if you hear someone talk about a bear-squeeze, they are not referring to cuddling a panda.
And how can we forget about the Trans-Pacific Partnership. Some will point to the yet-to-be-ratified trade deal between the 12 countries in the Pacific Rim.
In reality, though, nobody really knows why the market does what it does in the short term. The market is only there as a reference point to catch out anyone who is willing to do something crazy.
A mugs game
You can join in the craziness, too, if you like. But be warned – speculation is a mugs game. We should also take, with a big pinch of salt, anyone who claims to be able to second-guess the market.
Instead, just focus on the things that matter. That means continually investing money in the market, as and when you have money to spare because when the next surge comes along, you want to be caught with your pants up.
And when favourable opportunities present themselves, just as they did over the summer, simply add to your holdings. It is really as simple as that.
A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.