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The Stocks You Should Buy During Volatile Times

Everyone loves a bargain, but not everyone manages to get one.

We had plenty of bargains coming our way in recent months. First, it was the Christmas sale—a chance to play Santa, and pick up presents for your loved ones.

Even better, the gifts will be at a discount.

Barely a week later, and it was time for a New Year’s sale. And, before the Christmas trees came down, the Chinese New Year lanterns were already adorning shopping malls island-wide, welcoming the Year of the Dog. Of course, we will need another round of sales. After all, it is customary to pick up new clothes to look our best, and what better way to do that than to have our new attire at a discount.

Sadly, not everything bought during these sales period turn out to be bargains.

If you snagged a $200 vacuum cleaner for $100, that would seem like a bargain. That would not be the case; I would argue if you already had a vacuum cleaner that was working well, and didn’t need another. It would be even less of a bargain if the new vacuum cleaner sat in your storeroom for the next year, unused.

As always, we should be vigilant on how we spend our money. A good sale is not an excuse to pick up things that you don’t need.

That thinking should extend to the stock market as well.

The Oil and Gas Massacre

In 2014, oil prices got cut in half, falling from its high of over US$110 to US$50. Along with it, shares of oil and gas companies started declining.

Keppel Corporation Limited’s (SGX: BN4) stock price fell by more than 21% in 2014, while shares of SembCorp Marine Ltd (SGX: S51) became cheaper by 26% over the same period. Other companies, like Ezion  (SGX: 5ME), fared worst, experiencing dive of more than 40%.

Around that time, investors started chattering about the bargains in the oil and gas space. For the bargain hunters, it must have felt like walking into a big sales bonanza where everything was off 20% or more. Shares were on discount everywhere, they said.

Ordinally, I would agree, but there was something about the investor’s behaviour that did not sit right with me.

For one, I found that many of these bargain-hunting investors have not owned or studied an oil and gas company before. They knew very little of an industry that has traditionally been very cyclical; quite a number of them were buying oil and gas stocks for the first time.

I was even more disturbed by the bravado of bold investors who appeared to be convinced that the oil price decline was a short-term phenomenon, and the stock price declines presented a once-in-lifetime bargain. As they reasoned, when oil prices return, they would be sitting on handsome profits. That could turn out to be true, but all the same, I was still unsettled by the unrestrained attitude.

I was troubled enough to pen an article to raise questions over the bargain hunting crowd that had turned up in droves.

As I wrote the article, I did not know where the oil and gas market would go. I certainly did not expect oil prices to linger below US$60 per barrel, for the most part, in the ensuing years. I could well have been wrong, and oil prices could have recovered. However, I would still stand by the questions that posed in my 2014 article.

I would pose the same questions for today’s stock market.

Be Greedy While Others Are Fearful?

2017 was a solid year in Singapore’s stock market.

The Straits Times Index (SGX: ^STI) rose 18.1% during the year. With dividends reinvested, the total return of the index was 22%. For investors who are waiting for a downturn to invest, the volatility at the start of 2018 has been welcomed.

While the stock price declines are not quite as deep as the one we saw in 2014, for every stock that you are considering, ask yourself these questions:

1. What is your financial goal? As an example, some investors might be looking to build a stream of income.

2. How does the stock help you achieve your financial goals? Using the same example, you would look for companies that offer a dividend that is well-covered.

3. Does the current volatility serve up lower stock prices for the companies that your portfolio needs?

4. Are you comfortable missing out on gains which happen to stocks that your portfolio does not need?

I hope that the questions above would provide a simple framework that can be used to guide you on the all-important decision of picking the right stocks for yourself.

In my book, the best stocks to buy are the ones that help you advance towards your financial goals. I wish you the best of luck.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.