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Lessons from 2016: The Boy Who Cried Wolf  

2016 is drawing to a close.

As the curtains come down, I thought it would be a good idea to have a series of articles looking back at the events of the year to draw lessons from them. This is the third part of the series.

Note: Here’s the first article in the series, here’s the second, and here’s the fourth.

In January this year, a Royal Bank of Scotland (RBS) analyst made a bold call.

“Sell Everything” the analyst cried. It will be a “cataclysmic year” he warned. He predicted that major stock markets around the world could plummet by a fifth.

Financial markets seemed to be spooked by the analyst. The US-market barometer, the S&P 500, started 2016 at a touch above the 2,000 mark but then fell to as low as 1,810 in February.

The RBS analyst’s call sounded dire and ominous. But, his predictions also turned out to be wrong.

With less than a month to go in 2016, the S&P 500 closed above 2,190 points last Friday, higher than where the index was at the start of the year. Closer to home, the SPDR STI ETF (SGX: ES3), an exchange traded fund that mimics the fundamentals of the Straits Times Index (SGX: ^STI), is up by 2% for 2016 so far.

Scaring ourselves senseless

“The key to making money in stocks is not to get scared out of them”

– Peter Lynch

It’s easy to get scared out of stocks when someone makes a dire call. That’s especially so when you have your hard-earned money on the line. Losing a fifth of your money in a year is not going to be fun, to say the least.

But instead of listening to bold prognosticators, it could be a better use of our time to look at the performance of the businesses around us.

Will the analyst’s call discourage Singaporeans from buying more Curry’Os from Old Chang Kee Ltd (SGX: 5ML)? Or will it stop Singaporeans from shopping in one of Sheng Siong Group Ltd’s (SGX: OV8) many supermarkets islandwide?

Over the long-term, it is a company’s business performance that drives its stock. Instead of worrying about predictions on how the financial markets will move, focus instead on businesses and how they will perform.

That’s another lesson to heed as we head to 2017.

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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 contributor Chin Hui Leong doesn’t own shares in any companies mentioned.