An Investing Guru Says We’d Better Run for Our Lives

Recently, I chanced upon an article from the online business news publication, Business Insider. The headline of the article screamed: “Legendary investor Jim Rogers expects the worst crash in our lifetime.

When I first read the article, I felt a wave of panic rush over me. For those unaware, Rogers was the ex-business partner of billionaire investor George Soros.

From 1970 to 1980, the duo ran the Quantum Fund together and invested so well that the fund generated a total gain of 3,365% in that decade. Rogers left Soros in 1980 and subsequently travelled the world. His travelling adventures were chronicled in books, one of which was Investment Biker: Around the World with Jim Rogers.

According to the 2014 book Excess Returns, in Rogers’ years as a professional investor, he beat the market by an average of around 30% per year. That’s an amazing accomplishment, which lends weight to Rogers’ comments on the financial markets—and which is why I felt that initial wave of panic.

But here’s the thing…

After a few minutes, my fear subsided. Why? Because of investment manager Ben Carlson’s tweet shown below:

Turns out, Rogers had been calling for a severe market crash to happen in every single year since at least 2011. And he has been wrong the whole time.

Since the start of 2011, the S&P 500 in the US has gained 93%. In Singapore, the Straits Times Index  (SGX: ^STI) has remained flat.

Some of our local stock market’s marque companies, such as DBS Group Holdings Ltd  (SGX: D05) and Singapore Telecommunications Limited  (SGX: Z74), have seen their share prices increase by 45% and 23%, respectively. Let’s not forget that the two companies have had some difficulties in the past few years – struggles with loans given to the oil & gas industry in the case of DBS Group, and the emergence of formidable new competitors in some of its key geographical markets in the case of Singtel.

When hearing of an investment legend saying the market’s going to crash – even one with a great track record of investing success – it’s worth remembering the example of Rogers. I’m not trying to take a dig at Rogers here. His past accomplishments in the financial markets absolutely deserve respect. I’m using him here for two reasons.

On predicting crashes

Firstly, it’s to show how difficult it can be even for the best investors to guess when the market’s going to crash. Carlson also has some data to show just why that’s so. In a recent Bloomberg article, Carlson looked at all the bear markets for U.S. stocks since World War II and noted the level of various indicators (things such as the market’s valuation and the inflation rate) at the start of each bear market episode. Here’s what he found:

Source: Bloomberg

As you can see from the table above, there’s simply no clear pattern. Bear markets have started when stocks were expensive as well as when they were cheap. Low as well as high inflation rates were also seen at the onset of a bear market. The same goes for the dividend yields for stocks as well as the 10-year Treasury yield.

Staying calm

Secondly, it’s to remind Foolish readers to never panic when the headlines start blaring that certain investors are calling for the markets to crash. Check back on that person’s history of calling out market crashes. They may just be like a broken record – repeating the same old message time and again… without being right!

Which brings us to an important question: How should investors deal with market crashes?

Here’s the thing. Stocks will rise, and they will fall again someday. No one knows when stocks will crash, but they will. But that’s no reason to be scared out of them.

Going back to Carlson’s study on bear markets since World War II, the S&P 500 has jumped by over 15,700% since 1947. Singapore stocks have done fine over the long term, too. Over the past 10 years, the Straits Times Index has gained 31% in total, including dividends.

That’s not a good return by any measure, but at the very least, our investment capital was protected, even through a massive crash in 2008 and 2009. (Some individual stocks have done much better over the same period. A good example would be Jardine Cycle & Carriage Ltd  (SGX: C07). The conglomerate has seen its stock price climb 211%.)

I mention the Jardine Cycle & Carriage return because at Stock Advisor Singapore, the Motley Fool Singapore service on which I serve as an analyst, we are focused on individual stocks. And we’re picking them once a month, come rain or shine. We want to find wonderful companies that you can invest in for the long term.

A version of this article first appeared in Take Stock Singapore. Data as of 13 June 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 writer Chong Ser Jing doesn't own shares in any companies mentioned.