The History of Singapore’s Stock Market

Knowing financial market history is important. That’s because it can give us an appreciation for historical odds of certain events and thus form some expectations for the future.

Obviously, history has its limits. As the inimitable octogenarian investor Warren Buffett once said, “If past history was all there was to the game, the richest people would be librarians.”

But, the kind of long-term thinking that can possibly be instilled through knowledge of history is still very valuable. My colleague Morgan Housel recently shared the following statistics for the history of the U.S. stock market going back to 1871 after adjusting for both inflation and dividends:

  • Hold stocks for less than five years and you’re at the mercy of lots of randomness. Stocks rise in about 70% of all years, but huge booms or huge busts are more common than returns of 0% to 10% a year, the historic “average” annual return people tout.
  • Hold for five years or more and your odds of success rise significantly. Eighty percent of five-year periods produced a positive result.
  • At ten years, the odds of success are solidly in your favor. Almost 90% of 10-year periods are positive, and the 10% with negative results are nearly all small losses, especially once dividends are factored in.
  • There’s no 20-year period where you’ve lost money in stocks, even after inflation.

What you can see is how time in the market is the investor’s best ally. I have a similar, though less comprehensive, set of numbers about Singapore’s own market barometer, the Straits Times Index (SGX: ^STI).

I once measured the index’s returns at the start of every month between 1988 (the earliest I can find) and August 2013 for 1 year holding periods, 10 year holding periods, and 20 year holding periods. Note that I did not adjust for both inflation and dividends (though it may be logical to expect both forces to result in more or less a wash over time). Here are the findings:

  • If stocks are held for just a year, there’s a 41% chance of making a loss. That’s just slightly better than a coin-flip.
  • A 10-year holding period dramatically reduces the frequency of losses to just 19%.
  • For a 20-year holding period, there have historically been no losses.

So, as you can probably tell, there are broad strokes of similarities between what has happened to stocks in the U.S. and what has occurred here: The longer you own stocks, the higher your odds of success become.

That’s the verdict of Singapore’s stock market history.

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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 doesn't own shares in any company mentioned.