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28 Surprising And Important Things About Investing Every Investor Should Know

Photo credit: Rafael Matsunaga. Licence: http://creativecommons.org/licenses/by/2.0/

Over three months ago in early January 2017, I shared 27 surprising and important things about investing that I think every investor should know.

These things come from my 10-plus years of being a student of investing. Earlier today, a really interesting fact about the stock market I learnt of recently resurfaced in my mind, thereby prompting me to add to my ever-expanding list of surprising and important investing things.

Here’s Number 28:

28. The stock market’s best long-term winner can make you vomit with fear and pain over the short-term

The US-listed energy drinks maker Monster Beverage generated a total return of 105,000% from 1995 to 2015, according to an article penned by former Fool Morgan Housel. The company was literally the best-performing stock in the US for that 20-year timeframe.

But, Morgan also added in his article that Monster Beverage’s stock had dropped by 50% or more from a peak on four separate occasions between 1995 and 2015. The stock actually lost more than two-thirds of its value twice, and more than three-quarters once.

So, in a period when Monster Beverage had the best long-term performance amongst every other US stock, there were short pockets of time when the company’s stock price movement were vomit-inducing for its investors.

Monster Beverage’s experience outlines an essential truth about investing: There’s no long-term gain without short-term pain.

In Singapore’s stock market, healthcare services provider Raffles Medical Group Ltd (SGX: BSL) is a great example, though it’s nowhere near as dramatic as Monster Beverage. Since the start of 2005, Raffles Medical’s stock price has gained 883%. Here’s a chart showing the maximum peak-to-trough loss (known as the maximum drawdown) that the company’s stock suffered in each year from 2005 to 2014:

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

For the timeframe under study, Raffles Medical’s stock experienced a maximum drawdown of 10% or more in nine years. In 2008, the company’s stock price even dropped by 60% from top-tick to bottom-tick.

Seeing our stocks fall over the short-term can be an emotionally draining affair. I know – I’ve been through it. But, simply knowing how common short-term volatility in the stock market is – even with huge winners – can help us prepare ourselves better mentally when investing for the long-term.

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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 writer Chong Ser Jing owns shares in Raffles Medical Group.