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. The Straits Times Index (SGX:…
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.
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 five of them. For the other four, you can head here. With that, let’s get going:
5. Price is what you pay, value is what you get
There are many different types of investors in the market and they tend to think differently about companies.
For example, value investors may find a company such as Raffles Medical Group Ltd (SGX: BSL) to be pricey due to its high price-to-earnings (PE) ratio of around 35. But, growth investors may think that the price is justified by the company’s future growth opportunities, such as its ongoing development of a hospital in China.
To value investors, banks such as DBS Group and Oversea-Chinese Banking Corp Limited (SGX: O39) may be more attractive candidates for further study. The two banks currently have price-to-book (PB) ratios of around 1.1 each, and these ratios are both near five-year lows.
Yet, the different types of investors will all agree on one thing: paying less for a certain value is always better than paying more. So when investing, keep in mind the value you are paying for.
6. Let the market be your servant, not your master
One of the main differences between stocks and other investment assets, such as property, is the ease of buying and selling.
Liquidity can be a hugely advantageous tool for investors who know how to use it to their advantage – i.e. buying small pieces of good businesses at attractive prices.
Yet, liquidity can become a detriment to many investors, especially during periods of extreme pessimism and optimism when investors are prone to make emotionally-driven investing decisions. Right now, stock market participants in Singapore may be becoming increasingly optimistic. So when you’re investing, you have to think whether you’re letting the market lead you by the nose.
7. Have a plan – and stick to it
Benjamin Franklin, one of the founding fathers of the US, was famous for his wit. One of his well-known quotes is, “Failure to plan is planning to fail.”
As investors, planning is a mandatory part of our investment process since it allows us to do the right thing at the right time and not allow unimportant factors to affect our decision making process.
Yet, a plan is only as good as its execution. Thus, it is important that we stick to our plan, through thick and thin.
8. Be an investor, not a speculator
There are many definitions of what an investor or speculator is. But let’s keep it simple.
If we buy a stock because we think its price is lower than its intrinsic value, then we are likely to be investors. On the other hand, if we buy a stock because we think that its price is going up soon – which might due to reasons other than valuations – then we are probably speculators.
In a rising market – like the one we are in now – it is important to remind ourselves to be investors.
9. Margin of safety
The term “margin of safety” is used often by Benjamin Graham, the investing mentor of Warren Buffet.
The idea here is simple: Always pay way less than our estimate of the intrinsic value of a stock so that we can provide ourselves with a big cushion for unforeseen bad outcomes.
As stock prices rise, the margin of safety for buying stocks would become lower. In a rising market, do keep in mind the margin of safety you’re getting when you buy stocks.
I have earlier shared the link for the other four 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. The Motley Fool Singapore has recommended shares of Raffles Medical Group. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.