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Should We Be Timing The Market?

Take a look at the chart below. It shows the movement of Singapore’s market barometer, the Straits Times Index (SGX: ^STI), over the past five years.

STI Chart
Source: S&P Global Market Intelligence – Straits Times Index (Last 5 Years)

Looking at the chart, it’s likely that you’d find that the market has not been impressive. In fact, the Straits Times Index had fallen by 10% over the timeframe given in the chart.

Does this mean that long-term investing is dead? Let’s assume that there’s an all-knowing trader and he was able to time the market correctly over the past five years.

So, he bought at the trough in January 2012 and sold at the peak in March 2012. He then bought again at the trough in June 2012 and sold at May 2013. He repeated the cycle nine months later, buying in February 2014 and selling in May 2015. For all his troubles, he had pocketed a total gain of 80%.

It’s not that simple…

Buying at the bottom and selling at the peak sounds great in theory. With the benefit of hindsight, it looks easy too. But, it’s not so simple in practice.

For starters, how would we know when would the market bottom and when would it peak? More importantly, most of us are hardly going to be investing for just a few years. For me personally, I do not think I would stop investing till the day I die and according to actuarial statistics, that day is probably more than 40 years away.

So, even if we had managed to time the market nicely for a few years, can we ensure that the indicators we’re monitoring would continue to work over the entire time span we’re investing for?

A simple way

I do not have answers to the questions I posed in the last two paragraphs above. Maybe there are indeed people in the market who can time their entries and exits from stocks accurately for decades. (I’ve yet to meet one though.) But even without the ability to know the future, there’s still a simple way we can invest.

Company Total returns (with dividends reinvested) over past 5 years
Riverstone Holdings Limited (SGX: AP4) 404%
Comfortdelgro Corporation Ltd (SGX: C52) 133%
Raffles Medical Group Ltd (SGX: R01) 126%

Source: S&P Global Market Intelligence

The table above shows the total returns that Riverstone, Comfortdelgro, and Raffles Medical, have delivered over the past five years. Those are the returns an investor could have gotten simply by buying and holding those shares.

Foolish Summary

What does this show? In my opinion, it shows that long–term investing works. But, investors have to be careful which company they choose to bet on for the long-term. In a way, good stock-picking is essential for great long-term inventing results.

So, what are the key takeaways here? Invest in great companies. And, invest for the long-term.

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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 does not own shares in any companies mentioned above.