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15 Crucial Things to Know As an Investor

Credit: Simon Cunningham

I’ve previously made a list of 10 crucial things that investors should know. I have five more to add to the list to bring the count to 15. Let’s get going.

11. Mixing economics and investing can be dangerous. Gold prices in Australia had climbed by nearly 10% annually from A$620 per ounce in 30 September 2005 to A$1,550 in 15 September 2015. But, Australian gold mining stocks – as represented by the S&P / ASX All Ordinaries Gold Index – had declined by nearly 4% over the same period.

An economic trend and a stock’s performance can be miles apart – bear this in mind.

12. Anchoring on past prices can be a painful thing for your portfolio because there are many stocks that fall hard and then fail to bounce back. As of 15 January 2016, there were 813 equity listings in Singapore. A stunning 41% of them were down by least 50% from an all-time high that had occurred before 1 January 2010.

13. Stocks with high valuations need not crash even when there’s a general market decline. A good case in point is healthcare services provider Raffles Medical Group Ltd (SGX: R01).

One year ago on 17 February 2016, Raffles Medical’s shares were valued at 33 times their trailing earnings at a price of S$4.01. Today, Raffles Medical’s shares are trading at S$4.06 for a small gain of 1.2%. In contrast, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), has declined by a fierce 23% over the same period.

14. But, investors should still pay attention to valuations. It’s a very important determinant of a stock’s future returns.

Back in 25 May 2015, Jason Holdings Limited (SGX: 5I3) was trading at a price of S$0.64 and was carrying ridiculous price-to-earnings and price-to-book ratios of 330 and 9.4, respectively. Today, after falling by a massive 90% over the past one-and-a-half-years, Jason Holdings’ shares are exchanging hands at just S$0.062 apiece.

15. Nearly 70 years ago in 1949, the investing great Benjamin Graham wrote that “The investor’s chief problem – and even his worst enemy – is likely to be himself.” Recent experiences have shown how right he is.

In the decade ended 2009, the CGM Focus Fund, run by investor Ken Heebner, had gained more than 18% annually. That’s a phenomenal performance. The CGM Focus Fund’s investors, however, had enjoyed even more amazing returns: They had lost 11% per year over the same period. The main reason for that massive discrepancy was that the fund’s investors had chased after the fund when it was rising (thus buying high) and bailed when there were temporary declines (thus selling low).

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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 owns shares in Raffles Medical Group.