1 Simple Way You Can Be a Better Investor in the Coming Year

With only a few more days before the end of 2015, it looks likely that this year will be another down year for the Singapore stock market.

Compared to the start of the year, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), is currently down by around 16% at 2,853 points. At that level, the index is also hovering close to 20% below its peak this year that was reached in April.

But as tough as the situation might seem to be, it is also quite normal, historically speaking.

My colleague Chong Ser Jing had put together a graph which shows the maximum peak-to-trough loss (this is known as the maximum drawdown) of the Straits Times Index in each calendar year from 1993 to 2014.

Maximum drawdown for Straits Times Index, 1993 - 2014
Source: S&P Capital IQ

In the past 21 years, the Straits Times Index has declined by 20% or more from peak-to-trough in nine years. That’s close to half the time.

As we approach the close of 2015, we should take the opportunity to look back and pick up lessons for the coming years ahead.

Learning from the past

Taking notes about our investments can give us clues on how to improve our investing. The great thing about taking notes is that it could also be one of the easiest things that you can do to be a better investor.

Noting down our thoughts on a company and checking back later on helps us understand what we may have got right and what we had missed. It also keeps us honest and helps us to avoid hindsight bias, which has the pernicious effect of making us think that we’re smarter than we are (hindsight bias often causes us to exclaim “I definitely saw this coming!” when in actual fact, we didn’t).

Additionally, the act of taking notes helps us discern whether our stock market gains or losses were a result of luck or a good process. Ideally, when our investments do well, it is down to our judgement rather than a lucky event. Investor James Montier highlights the difference between a good and bad investment process in the chart below:

Table for good and bad investment process

The Motley Fool has a Tug-of-Fools series with Shares Investment which covers both the bull and the bear thesis of a company. Here’re a few examples:

In the spirit of learning, it could be instructive to look back and see what has happened to the trio of companies above and where we can improve, as investors, for the coming year.

Meanwhile, you can pick up some investing tips through a FREE subscription to Take Stock SingaporeSign up here for The Motley Fool's weekly investing newsletter that will teach you how to grow your wealth in the years ahead. 

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.