Investors Take Note: Some Stocks Fall – And Stay There

So, Singapore’s stock market, as represented by the Straits Times Index (SGX: ^STI), has fallen by over 20% currently from a recent high of 3,550 points reached on 16 April 2015.

Some individual stocks – both within and outside the index – have made even larger declines over the same time period. For instance, in the blue chips category, we have stocks such as Noble Group Limited (SGX: N21), Sembcorp Industries Limited (SGX: U96), and City Developments Limited (SGX: C09) that have fallen hard.

Company Price decline:
16 April 2015 – Today
Noble 62.9%
Sembcorp Industries 46.0%
City Developments 29.3%

Source: S&P Capital IQ

Investors looking at those tumbling stock prices may be tempted to make a quick punt in the hopes that a rebound may be on the way. But in investing, it’s worth noting that some stocks fall – and then stay there.

If we go back six years ago to the start of 2010, companies such as Global Yellow Pages Limited (SGX: AWS), Ezra Holdings Limited (SGX: 5DN), and Swiber Holdings Limited (SGX: BGK) are a few examples of stocks that have moved in only one direction since: Down.

Global Yellow Pages, Ezra, and Swiber's share price history since start of 2010
Source: S&P Capital IQ

A glance at their business results provide some strong clues for their stock market performances – their earnings have simply been decimated over the years as you can see in the chart below. Investing legend Peter Lynch once said that “there’s a company behind every stock – if the company does well, the stock does well. It’s not that complicated.” The reverse is true too: If the company does poorly, the stock does poorly.

Global Yellow Pages, Ezra, and Swiber's earnings per share (EPS) since 2010
Source: S&P Capital IQ

Banking outfit J.P. Morgan released a report in 2014 which showed how nearly 40% of all stocks in the Russell 3000 index in the U.S. since 1980 had suffered a permanent decline of over 70% from their peak value. In other words, it can be common for stocks to fall hard and stay there.

When investing, try to avoid anchoring to a stock’s past prices. Just because a stock has traded at a certain level in the past does not mean it will necessarily revisit those previous heights or even come anywhere close to it in the future. It is far more important for us to focus on the stock’s future business prospects.

For more analyses, insights, and important updates about Singapore's stock market, sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you 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 writer Chong Ser Jing doesn't own shares in any companies mentioned.