25 Things Everyone Should Know About Investing

Credit: Simon Cunningham

In no particular order of merit.

1. Stocks can rise and fall by 30% or more despite there being hardly any change to their business fundamentals. For more – see here

2. Blue chip stocks in Singapore can be very poor long-term investments. This includes big local firms such as Sembcorp Marine Ltd (SGX: S51) and City Developments Limited (SGX: C09). For more – see here

3. There’s been no historical connection between the performance of Singapore’s stock market and economy. For more – see here

4. Valuations in the market can swing to extremes. Example: the Straits Times Index (SGX: ^STI) had a price-to-earnings (PE) ratio of 35 in 1973 and just 6 at the start of 2009. For more – see here

5. The Straits Times Index had an average PE ratio of 16.9 from 1973 to 2010.

6. Historically speaking, the longer you had stayed invested in the Straits Times Index, the lower your odds of losing money. For more – see here

7. Large daily declines in the Straits Times Index can be very common. There have been 5,812 trading days from the start of 1993 to 12 August 2015. In that group, there have been 238 days in which the index had suffered a daily decline of 2% or more.

8. The Straits Times Index has always suffered painful short-term declines while on its way to making healthy long-term gains. For more – see here

9. Stocks don’t necessarily rebound after falling hard. During the Great Financial Crisis, the Straits Times Index had bottomed-out on 10 March 2009. As of 28 January 2016, there were 566 stocks in Singapore’s market that (1) S&P Global Market Intelligence had data on at that time, and (2) were listed back on 10 March 2009. Of that group of 566, 177 shares were trading at least 30% lower on 28 January 2016 as compared to where they were on 10 March 2009 even though the Straits Times Index had nearly doubled over the same period.

10. Going against the investing crowed could possibly induce real physical pain. For more – see here

11. Investors with horrible long-term track records can still have hundreds of millions in dollars to manage. Take the Hussman Strategic Growth Fund for instance. It had lost 3.78% per year over the 10 years ended 8 April 2016, according to data from Morningstar. Yet, it still has US$625 million in assets under management.

12. Great long-term winners in the stock market can be really agonising stocks to hold over the short-term. Solid examples include Riverstone Holdings Limited (SGX: AP4) and Raffles Medical Group Ltd (SGX: R01). For more – see here

13. A commodity producer’s stock can be a lousy investment even if the price of its commodity actually rises. For more – see here.

14. Compounding is a truly wonderful thing. 99.5% of multi-billionaire Warren Buffett’s net worth came after his 50th birthday. He’s 86 this year.

15. A $10,000 investment compounding at 10% annually will become $108,000 after 25 years. A $10,000 investment compounding at 10% annually will become less than $75,000 after 25 years if annual investment fees of just 0.99% are deducted. Fees really matter in investing.

16. Individual investors can remain remarkably calm even when the markets tank. For more – see here

17. Companies in horrible industries can be wonderful investments. The airline industry has a reputation for delivering poor returns for investors. But in the 30 years ended 2002, the best performing stock in the U.S. market was Southwest Airlines.

18. Investors can have poor results even when they are invested in a great fund. In the decade ended 2009, the CGM Focus Fund had gained 18% annually. Its investors? They had lost 11% per year. The reason? The fund’s investors had bought and sought at essentially the wrong times (bought high and sold low).

19. The stock market can be easier to predict over the long-term than over the short-term. For more – see here

20. Professional investors can sometimes be unable to invest in the best way they can for you. For more – see here

21. Fund managers can still make money even when the stock they hold goes bankrupt. For more – see here

22. Nobel Prize winners in economics have run hedge funds that went bust. For more – see here

23. Sticking to the topic of smart people failing in investing, MENSA’s investing club in the US had generated returns of 2.5% per year in the 15 years ended 2001 even when the S&P 500 (a US stock market benchmark), had returned 15% annually. Intelligence is not the most important thing in investing. For more – see here

24. Valuation models that had worked for 50 years can stop working. For more – see here

25. There may be good reasons why the financial markets are bound to crash from time to time (we just dont know when!). For more – see here

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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.