The Motley Fool

What Does the Year of the Pig Bring for the Stock Market?

It’s time of the year again when we come together for a family reunion, indulge in good food and have the weight loss resolution on the back burner.

It is also the time when some of us look at Feng Shui predictions to see what the new year brings for our health, career and finances. Out of curiosity, I took a look at what the Feng Shui masters are telling us regarding the stock market in the Year of the Pig.

Gloomy times ahead?

For the Pig year, wood and earth industries should do well. These include the fashion, media, education and environmental sectors. Sectors such as property, mining, insurance, and computer software may also see an uplift.

On the contrary, water and metal industries may underperform. Sectors that may not do well in the Pig year include shipping, transport, communication, and banking.

Overall, it looks like it’s not an excellent time for investors.

The Pig year represents the termination of fire, according to the experts. Therefore, the forecast is that the general economy will be gloomy. Looking back into history, the last Pig year was in 2007, which marked the start of the Great Financial Crisis.

It doesn’t sound too good for the economy and the stock market in general, but we should not be worried.

Common volatility, uncommon profits

Volatility in the stock market brings about opportunities to buy wonderful businesses at low prices.

From 1993 to 2017, the Straits Times Index (SGX: ^STI), Singapore’s stock market benchmark, saw some volatile periods. During the time frame, there were:

  • 870 trading days when the Straits Times Index lost 1% or more;
  • 242 days with a loss of more than 2%; and
  • 90 days when the daily decline exceeded 3%.

However, during the same period, the index more than doubled. And this is not even factoring in dividends.

If you were savvy enough to pick up some stocks every time the stock market fell from 1993 to 2017, you could be sitting on market-beating returns.

Focus on your game plan

So, instead of shunning the stock market in the 2019 Year of the Pig, we should be staying invested throughout any volatile market conditions and picking up cheap stocks. By staying vested in shares, we would not be trying to time the stock market, which is an exercise in futility.

Not only should we be invested at all times, we should also have a game plan on what we are going to do during volatile times. As mentioned in an earlier article here, we could prepare ourselves for a stock market crash (if it happens) by:

1) Having some opportunistic funds;

2) Creating a shopping list with the exact trigger price; and

3) Taking action during the market crash.

If volatility strikes again in the new year, we should be prepared with a plan, like the one above, and stick to it. What we should not be doing is fleeing from the stock market out of fear.

The Foolish takeaway

Billionaire investor Warren Buffett once said:

“You pay a very high price for a cheery consensus. It won’t be the economy that will do in investors; it will be the investors themselves. Uncertainty is actually the friend of the buyer of long-term values.”

When the market is euphoric, valuations run high, and you can’t get stocks on the cheap. However, many investors like to invest in such a market as rising stock prices give validation that their pick is right.

On the contrary, when the market outlook is poor, share prices would be depressed. That is the best time to buy stocks. But investors shun stocks like a plague as falling stock prices after buying the shares are hard to stomach. If our investment time frame is long though, we would be embracing uncertainty – including falling stock prices – as that would allow us to buy great businesses at low valuations.

So, in the Year of the Pig, even though the prediction for the stock market is not so rosy, we must have the mental fortitude to stay invested and even pick up shares on the cheap.

With that, I wish all of you a happy, healthy, and prosperous Chinese New Year!

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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.