The World Cup and The Straits Times Index May Not Go Well Together, But You Should Not Be Worried

The 2018 World Cup, which will be held in Russia, is about to kick-off in a few days’ time. Many followers will be glued to the month-long football tournament which offers favourable match timings for Singaporeans. Kick-offs for the earlier matches are at 8 pm this year, with the later games starting from between 9 pm and 3 am.

The Singapore football fraternity (including me) will be busy keeping our eyes on who wins the latest World Cup.

The World Cup effect

As it was with most World Cups in the past, analysts have predicted that the Singapore stock market could take a breather when the tournament kicks off. In fact, it has been noted that trading activity tends to slow down starting in May with the Straits Times Index (SGX: ^STI) falling an average of 8.6% in two months between end-April and end-June in the past six tournaments.

The theory seems to have been proven right so far. In May this year, the Straits Times Index had declined by 5.1%. The market has been volatile thus far in June, and it may sound wise to not enter the market till the World Cup is over. Why put up with a rollercoaster ride when you can tune out from stocks and tune in to the beautiful game instead?

The World Cup sale

However, as contrary as it may sound, long-term investors should rejoice when stock prices are falling.

In his 1997 letter to Berkshire Hathaway shareholders, Warren Buffett wrote a powerful lesson on the matter:

“A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

By purchasing shares in fundamentally strong companies on the cheap during a market crash or events such as the World Cup, investors will likely be sitting on huge returns when the stock market recovers. There could just be a Great Singapore Sale in the stock market during the World Cup season.

The World Cup game plan

For this World Cup, my game plan, on top of being glued to my TV set, will be to take advantage of any short-term declines in the stock market and purchase stocks with durable competitive advantages at bargain prices.

Your game plan should be the same too. As Foolish investors with a long-term mindset, we should wholeheartedly embrace short-term blips in the market.

Benjamin Graham, the intellectual father of the value investing discipline, once mentioned the following:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

In other words, over the short-term, stocks can fluctuate wildly, but in the long-term, stocks that have strong business fundamentals tend to prevail.

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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 contributor Sudhan P doesn’t own shares in any companies mentioned.