It may seem like a distant memory now, but stock markets around the world – Singapore’s included – began trading in 2016 with ample fear and anxiety. Many market indexes ended up falling between 10% and 20% in the first few weeks of 2016.
Fast forward to today, and many stock markets appear to be in a completely different mood. The Dow Jones Industrial Average and S&P 500 in the US are near all-time highs, fueled by expectations of an economic boom that may come from the policies of the country’s new president, Donald Trump.
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The Straits Times Index (SGX: STI) in Singapore has been climbing too. After touching a low of around 2,500 points in early 2016, it is today at 3,122 points, nearly 25% higher. At the index’s current level, it is also within a hair’s breadth of a 52-week high of 3,178 points.
Blue chip stocks within the index, such as Keppel Corporation Limited (SGX: BN4), Sembcorp Industries Limited (SGX: U96), and DBS Group Holdings Ltd (SGX: D05), were shunned by investors just a few months ago. Today, they are all up by over 40% from their respective lows in 2016.
In the last 14 months, the stock market in Singapore and other parts of the world have swung from being pessimistic to optimistic. I see that little has changed economically, though many may argue otherwise. But as markets are now materially higher than where they were in early 2016, it is important that investors are mindful that they are not swayed emotionally by the fear of missing out.
I want to share nine important things for investors to keep in mind with the Singapore stock market near a 52-week high. In this article, I will be writing about four of them. For the other five, you can head here. With that, let’s get going:
1. Warren Buffett’s first rule: Don’t lose money
Warren Buffett, one of the most successful investors in the world today, has an important rule when he invests: Don’t lose money.
In fact, Buffett would rather invest in an investment that gives a lower return but comes with a low risk of losing him money, than an investment that might give him a higher prospective return but comes with a high risk of losing his capital.
2. Warren Buffett’s second rule: Don’t forget rule number one.
Buffett’s second most important rule in investing is not to forget the first rule. The importance of not losing one’s capital can be illustrated with the mathematical calculations below.
If you lose one-third of your capital, you need to increase your capital by 50% just to break even. If you lose 50% of your capital, you need a 100% increase to break even. Losing your capital has a big impact to your portfolio’s long-term performance.
3. Markets operate in cycles
The financial markets have a strong cyclical element to them. Though we cannot predict when the market will reverse itself, we know that downturns will happen. It’s important to keep this in mind and be prepared to act when the market declines.
4. Being a contrarian is useful
In the stock market, winners tend to be the ones that go against the crowd for the right reasons. When plenty of people are buying stocks, it’s useful to think if they are buying for the right reasons.
I have earlier shared the link for the other five important things investors should keep in mind, but here it is again for convenience.
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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 Lawrence Nga doesn’t own shares in any companies mentioned.