The Straits Times Index (SGX: ^STI) is currently down by around 25% since its April 2015 peak. It’s also ugly in many other stock markets. For instance, the S&P 500 in the U.S. has fallen by 8% since end-2015. Reports about the stock market in here and other parts of the world constantly consist of words such as “panic, “tumble,” and “plunge.” Amid the market volatility, I think it might be appropriate to bring back the discussion on investing to the very basics, to remind us of what’s important and what’s not.
1. Invest for the long-term
The Straits Times Index (SGX: ^STI) is currently down by around 25% since its April 2015 peak. It’s also ugly in many other stock markets. For instance, the S&P 500 in the U.S. has fallen by 8% since end-2015.
Reports about the stock market in here and other parts of the world constantly consist of words such as “panic, “tumble,” and “plunge.” Amid the market volatility, I think it might be appropriate to bring back the discussion on investing to the very basics, to remind us of what’s important and what’s not.
1. Invest for the long-term
The Motley Fool Singapore has published thousands of articles since we opened shop in January 2013. For long time readers, you may have noticed that many of our articles revolve around a simple theme and that is, investing for the long-term.
Here at the Fool, my colleagues and I can sometimes have different investing styles and invest in different companies. But, we all view a stock as a piece of a business and not just a meaningless ticker.
We are focused on the fundamentals of a stock’s underlying business as we think that the price of a stock is ultimately tethered to the performance of its business – by investing for the long-term, we allow the qualities of a stock’s business to shine through.
2. Take advantage of Mr. Market instead of being led by him
The legendary investor Benjamin Graham had introduced the character of Mr. Market in his classic investing text The Intelligent Investor. Mr. Market is the personification of the stock market and Graham paints the character as an emotional person who will constantly tell you what he thinks your business is worth.
“Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them,” Graham wrote. But he added “often on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.”
So, we must control our own emotions and not be influenced by the market. Sure, stocks have been declining and so might your portfolio. But just because Mr. Market is throwing you a certain quote for the businesses you own and pressuring you to follow him does not mean that he is right and that we have to.
3. Price is what you pay; value is what you get
Bear in mind that the price we pay for a company’s shares is just that – a price. It does not necessarily signify the underlying value of the company.
Before we start chasing stock prices, we should ensure that we understand the businesses and are optimistic about their future prospects. Most important, we should have a rough idea of the intrinsic worth of the companies we’re interested in. When these are fulfilled, we should then buy with a wide margin of safety.
When stocks are falling, it is easy for fear and other emotions to cloud our judgement. Many investors might be tempted to sell their investments to cut their losses after sitting through days of market declines.
But, it is in times like these that it may be useful to go back to the basics again and figure out the important things to focus on.
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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.