Buoyed by optimism in global growth, markets remain close to record highs.
For many investors, market highs feel like a time for opportunities in new investments.
Record highs can be exhilarating, but they can be lethal, costly mistakes.
The decision to pivot in for quick wins and trade in for new trendy stocks can be very tempting, but the regret of acting too impulsively is almost a culture.
Follow as we break down five common and expensive mistakes that you can avoid during the market’s record peaks.
Mistake #1: Chasing Momentum
If everyone is rushing in to purchase that stock, it must be the right call, right?
When stock prices are at their all-time highs, the thrill of picking a stock that is increasing in value is almost addictive.
But the momentum can reverse quickly, especially when price moves are driven by speculative trading rather than solid fundamentals.
If the stock in question was purchased at the peak of a momentum rally, then the buyer will run the risk of being the last buyer in the unit, needing to hold the stock for a long time or incur heavy losses.
For example, Seatrium Ltd (SGX: 5E2) has seen sharp rallies on oil price news, hit a 52-week high of S$2.60 per share in February 2025, but swiftly dipped to a 52-week low of S$1.62 by April 2025.
For investors who had bought the stock at its high, they would still be holding onto it seven months down the road, as it has yet to rebound to S$2.60.
What should you do: When it comes to investments, focus on business fundamentals, not just price action.
Evaluate important metrics such as the company’s competitive edge, sustainability of its margins, and revenue growth.
Mistake #2: Overconcentrating on “Winners”
Putting too much money on that one hot stock or sector can be risky.
When a stock or sector is performing strongly, it’s tempting to keep piling in.
Many investors are convinced that doubling down on a winner is a sure bet.
However, even the very best of companies can slip.
Being overexposed in a single stock or region can give your portfolio unnecessary risk.
A simple regulatory change, economic shift, or industry downturn can easily eliminate your years’ worth of gains.
Singapore banks’ stocks have been performing well in recent months, especially DBS Group Holdings Ltd (SGX: D05).
Despite its steady increase over the years, DBS’s share price plunged to its 52-week low of S$36.30 on 7 April 2025, a drop of over S$10 from a week before.
Such a sharp decline could cause you to sell in panic if you have a heavy position in the stock.
Leaning too heavily on a “winner” can leave you vulnerable when there are shifts in the economy or regulations, and for bank stocks, interest rates.
What should you do: Keep your portfolio diversified to minimise overexposure risks.
Having multiple sectors like technology and healthcare in several stocks across different countries can provide balance since weakness in one area can be countered by strength in another.
Mistake #3: Ignoring Valuations
When enthusiasm runs high, many investors assume that quality companies are worth any price.
However, even the best companies can deliver disappointing returns if you overpay.
A company with a sky-high price-to-earnings (P/E) ratio could indicate that the stock may be overvalued, and investors are paying a premium relative to the company’s current earnings.
Such companies need exceptional growth to justify their prices.
Oftentimes, these companies cannot sustain their growth, resulting in lacklustre returns.
What should you do: Avoid this by balancing quality with price.
Look at a company’s metrics like its P/E ratio and price-to-book (P/B) ratio, and analyse its fundamentals to see if it is trading at a reasonable valuation.
Mistake #4: Forgetting Income & Cash Flow
Imagine earning money every month by doing nothing more than owning the right dividend stocks.
While growth stocks are desirable for their potential, dividend-paying stocks offer a steady cash flow, which also helps to smooth out returns during a volatile market.
Sheng Siong Group Ltd (SGX: OV8) is an example of a resilient dividend-paying stock.
The Group’s latest interim dividend payout is S$0.032 per share for the first half of 2025 (1H2025), unchanged from a year ago.
For comparison, Sheng Siong Group’s total dividend per share in 2024 was S$0.064, and in 2023, S$0.0625.
What should you do: Anchor your portfolio with reliable dividend payers.
Research into companies with strong balance sheets, stable cash flow, and look at their dividend payouts from the previous years.
Mistake #5: Trying to Time the Market
One of the biggest mistakes in investing is waiting for the “perfect” time to enter or exit.
Perfect timing is nearly impossible.
Investors want to buy when the price is at its lowest, or sell at its peak, but this hardly ever happens.
Markets move unpredictably, and by waiting for the “right” time, it is more likely you would miss gains than avoid losses.
What should you do: Invest consistently with Dollar-Cost Averaging (DCA).
Investors will be able to tame volatility by investing a certain amount at specific periods regularly.
By using DCA, you can focus on your investment objectives instead of attempting to catch the perfect entry or exit.
Those who can accumulate more wealth are often those who can remain patient and grounded rather than trying to time the market.
Get Smart: Staying Disciplined at Market Highs
Market highs are exciting, but they are also dangerous for investors who let emotions override discipline.
Such fundamental investment missteps are common and avoidable.
The key is to focus on business fundamentals, maintain a diversified portfolio, and commit to a disciplined investment strategy to build lasting wealth with your investments.
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Disclosure: Wenting does not own shares in any of the companies mentioned.
