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10 Essential Truths For The Individual Investor

There’s a mountain of information on the internet and in print about what individual investors should or should not do. But I rarely come across a convenient list of essential data or truths about investing that is meant for individual investors.

So, I decided to come up with one. You can see 10 essential truths for the individual investor below. There’s no opinion involved, just raw and unvarnished data that can help you make sense of the investing world.

1. A French survey of 14,799 retail forex traders found that 89% of them lost money over a four-year period stretching from 2009 and 2012.

2. Finance professors from New Zealand’s Massey University once tested 5,000 technical trading rules in 49 countries and found that all the rules “do not add value beyond what may be expected by chance when used in isolation.” In other words, none of the 5,000 technical trading rules generated a return that was better than a coin-flip. The study was published in 2010.

3. US-based finance professors Brad Barber and Terrance Odean once studied the trading records of 66,465 U.S. households. The result: From 1991 to 1996, the investors who traded the most performed the worst. Those who traded the most underperformed the market by 6.5% per year.

4. The US-based CGM Focus Fund gained 18.2% annually in the decade ended 30 November 2009. The fund’s investors lost 11% per year on average over the same period. The reason? Investors chased performance and bailed at the first whiff of trouble.

5. From 30 December 2015 to 20 December 2016, the price of WTI Crude Oil climbed by 42.5%. Over the same period, oil and gas companies such as EMAS Offshore (SGX: UQ4) and Ezion (SGX: 5ME) saw their stock prices fall by 56% and 39%, respectively.

6. WTI Crude Oil’s price doubled from 11 February 2016 to 21 December 2016. In that same timeframe, a collection of 50 oil and gas companies in Singapore’s stock market – a nearly complete sample of all the Singapore-listed oil and gas-related entities – saw their stock prices fall by 11.9% on average.

7. Raffles Medical Group Ltd (SGX: BSL) has seen its stock price gain 935% since the start of 2005. Its stock price has also been extremely volatile.

Maximum drawdown for Raffles Medical Group, 2005 - 2014
Source: S&P Global Market Intelligence

The chart above shows the maximum peak-to-trough loss (known as the maximum drawdown) that Raffles Medical’s stock has suffered in each calendar year from 2005 to 2014. In those ten calendar years, the healthcare provider’s stock price has experienced a maximum drawdown of 10% or more in nine years.

8. The US-listed Monster Beverage generated a total return of 105,000% from 1995 to 2015. It was the best-performing stock for that time period. Its stock has also been incredibly volatile in that period, dropping by 50% or more from a peak on four separate occasions.

Source: Morgan Housel;

The chart above gives a great idea on just how wild Monster Beverage’s stock has been. It shows when, and by how much, Monster Beverage’s stock is below its high of the previous two years.

9. Here’s a chart showing the odds of making losses in the Straits Times Index  (SGX: ^STI) from 1 May 1992 to 12 January 2016 for different holding periods (the returns do not include dividends and inflation):

Straits Times Index's odds of making losses from May 1992 to January 2016
Source: S&P Global Market Intelligence

A holding period of one day means it’s a coin-flip for you when it comes to making a gain. But when your holding period is measured in years, your odds of success goes up dramatically. For the timeframe under study, the Straits Times Index has never delivered a loss for an investor with a 20-year holding period.

10. Based on data from the US stock market from 1871 to 2012, an investor with a holding period of two months has a 60% chance of earning a positive return. A holding period of 1 year gives a 68% chance of making a gain. A holding period of 20 years or more results in a 100% chance of seeing a positive return.

Source: Morgan Housel;

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Editor's note: The original version of this article had incorrectly stated in point 9 that the chart shows annual returns for the Straits Times Index. This has been corrected.


The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Raffles Medical Group. Motley Fool Singapore writer Chong Ser Jing owns shares of Raffles Medical Group.