Will This Market Fly?

Imagine being the only passenger flying on a Boeing 737-700 that normally seats around 137 passengers.

You could, if you wanted to, sit by the window and enjoy the view. But if you decided to have a snooze, you could, if you also wished, pull up the armrests, put your feet up and stretch out over three seats.

That dream came true for a woman who was flying on a China Southern flight from Wuhan to Guangzhou last month.

Whilst most of her compatriots were crammed onto an earlier flight, or worse still, left stranded at a railway station, the lucky passenger was being waited on hand and foot.

Lucky break

It seems that good things always happen to other people. But would we even recognise good fortune, if it was handed to us on a plate?

Over the past year or so, the stock market has been in severe sell-off mode. Shares that were once being sold at higher – but not overly expensive – valuations have fallen to more modest levels.

But instead of snapping up the bargains along the way, many have chosen to dump their shares, rather than buy more.

Banks, it would seem, fell out of favour, big time. DBS Group (SGX: D05), United Overseas Bank (SGX: U11) and Oversea-Chinese Banking Corporation (SGX: O35) at one point had lost around a fifth of their value in 12 months. They were on offer below their book values.

Banking woes

The market, it would appear, was gripped by indescribable concerns that the sinking oil and gas sector would drag down a host of lenders along with them.

As it turned out, nothing of the kind happened. But the market, nevertheless, fell for the media hype – hook, line and sinker.

They actually bought into the idea that another Lehman-style implosion would once again wreak havoc on financial markets. So rather than focus on valuations, they instead focussed on market babble.

But our Singapore banks proved them wrong. In fact, many banks around the world have proved the naysayers wrong.

Our three biggest banks actually posted similar, if not higher, profits than a year ago.

Sweet REITs

Do you also remember the numerous scare stories that did the rounds last year about the fragility of Singapore’s Real Estate Investment Trusts? Their distributions were, according to analysts’ reports, supposed to be under threat, for a whole host of reasons.

But according to the Business Times, half of Singapore’s REITs, stapled trusts and Business Trusts that have recently reported full-year results have lifted their annual distributions. The hikes range from 1.9% to 20.7%.

It is easy to sometimes throw out the baby with the bathwater, when we are gripped by fear.

Shoot first

But as we continue to invest over time, we should quickly realise that the market has a terrible habit of shooting first and asking questions later.

But it is precisely that trigger-happy attitude to stock-market trading that provides sensible investors with opportunities to buy shares at bargain prices.

Warren Buffett once said: “The market is there only as a reference point to see if anybody is offering to do anything foolish.”

The market’s often irrational reaction to events can sometimes wipe billions from global markets. That can be scary.

But the sensible investor will also know that the most common cause of low prices is pessimism.

This can sometimes be specific to a company, to a whole industry or even to an entire market. It is precisely that kind of pessimistic environment that we want to be in.

It is never pessimism but optimism that is the bane of the rational, long-term investor. So learn to love volatile markets.

Stock markets tend to rise over the long term. Over the long term, the odds of that happening are overwhelmingly in our favour. They might stutter every now and again. But that is just another opportunity to climb on board an empty plane, when one comes along.

A version of this article first appeared in Take Stock Singapore. Click here now  for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can 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 Director David Kuo doesn’t own shares in any companies mentioned.