3 Things to Know Before the Stock Market Crashes

The Straits Times Index (SGX: ^STI) has run up quite a bit — almost 27% — from where it was early last year.

Investors who have been holding stocks over the past year are probably feeling a lot richer. But other investors might be wondering if we are enjoying too much of a good thing. After all, as history shows, the Singapore stock market has declined from time to time…

(This phenomenon is not unique to our local market, of course!)

Who is right and who is wrong? We’ll take a deeper look at that question by trying to understand the nature of market declines.

1. Historical odds and ends head here

2. The Oracle of Omaha speaks head here

3. Separating the signal from the noise

Whenever it may come, a market crash will feel like a punch to the gut. That same gut might be warning us that a market fall will affect all stocks equally.

But if we take a closer look, the data suggests otherwise.

In 2015, the Straits Times Index experienced a peak-to-trough fall of more than 21%. With a steep decline like that, it would be easy to assume that all stocks performed badly. You know, like a punch to the gut.

But, airline catering firm SATS Ltd  (SGX: S58) posted an increase of more than 25% in its stock price in 2015. The same went for transport operator ComfortDelGro Corporation Ltd  (SGX: C52), which saw its stock price rise more than 16% during the same year. There were good reasons for the stock price increases, too — both companies registered higher profits during the year in question.

When the next downturn happens, SATS and ComfortDelGro may not post stock price increases. But, there is a lesson for investors in the experience of the two companies.

Our eyes are often glued to stock prices because our investments are tied to the movement of stock prices. But it will serve us better if we spend time looking at the underlying business performance of a company. As SATS and ComfortDelGro demonstrated, individual stocks can climb even when the market declines.

Market crash: “When,” not “if” 

Market crashes will happen. We don’t know when. But it is not something to be feared. And look at it this way: A market decline could present us with opportunities to invest. Or as former Fool, Morgan Housel, puts it:

Do you see market downturns as a risk or an opportunity? My money’s on the latter.

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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 SATS Ltd. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.