How To Make Money In Any Market

So there I was, standing at the bottom of a broken escalator on Scotts Road. If you know the Orchard area, you will know exactly the one that I am referring to.

That particular set of moving-steps seems to break down quite regularly, for some inexplicable reason. I sometimes wonder if it has ever worked at all.

So as I patiently waited for the people in front of me to gingerly ascend the sorry-looking stationary metal steps, I watched the reaction of the other stair-climbers.

Two people decided it was just too much effort. So after grumbling about the defective contraption and groaning about incompetent mechanics, they decided to take an alternative route.

Utter despair

But have you noticed how defective escalators can provoke a range of emotions from people.

Utter despair is probably the most common response. Such, I guess, is the high expectations  of excellent service that we have become accustomed to in Singapore.

So, when something such as a set of moving-steps stops moving, people get noticeably frustrated, while others are at a loss as to what they should do.

Something similar happens in the stock market.

The market is, according to some people, supposed to move higher over time. Some people even expect it to move higher every day. But when it doesn’t, people get discouraged.

No guidance

Little do people appreciate that there are many non-listed companies in Singapore that go about their daily business without any guidance or interference from the market, whatsoever. These businesses generate income, they produce cash and they deliver profits to the owners of those companies.

But as soon as a company is listed on the stock exchange, we somehow expect the market to accurately reflect the prospects of the company on a day-by-day basis, if not on a minute-by-minute or second-by-second basis.

And when it doesn’t, we get frustrated. We somehow think that the market has broken brown, just like a broken escalator.

Too quiet

How many times, for instance, have we seen city scribblers moan about the lack of trading activity in the market? But have you ever wondered why there should even be any activity in the market at all?

Warren Buffett once said: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

That should be the attitude that we adopt when we invest.

Between 2002 and 2004, the Straits Times Index (SGX: ^STI) did absolutely nothing. In April 2002, the benchmark index stood at around 1,800 points. By April 2004, it was at around 1,800.

In April 2009, the index after rising to 3,500 points fell to 1,800 points again. Today, the index is almost at 3,000 points.

But over the last 14 years, an investment in the Singapore stock market through an Exchange Traded Fund, such as the STI ETF (SGX: ES3), has returned around 7%. That doesn’t strike me as being a terrible place to have kept our money over almost a decade and a half.

Watch our 60-second video explaining Exchange Traded Funds here.

We don’t need constant confirmation from the market that our decision to buy stocks has been correct. We just need to be confident enough in our own convictions.

Benjamin Graham said: “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning is right.

Investing disciples

Price fluctuations should only have one significant meaning for investors. They merely provide us with opportunities to buy sensibly when prices fall. They might also provide opportunities to sell should prices rise significantly.

At other times, it would be much better if we forget about the stock market altogether.

Instead of fretting over why markets might be too quiet, we should focus on the things that really matter. These could include the returns we reap in the form of dividends and the operating results of the companies that we are invested in.

That is a far better use of our time.

Markets have a terrible habit of making mountains out of molehills. Just like those who make mountains out of broken escalators.

For me, an escalator can never be broken. It merely becomes a staircase.

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.