THERE is nothing quite like stock markets hitting record highs to capture the attention of investors. In case you haven’t noticed, many markets around the world have been in the ascendancy.
What’s more, the Singapore market has not been left out. The Straits Times Index (STI) hit an all-time high in November. There is every chance that the benchmark index could climb further. It would take a brave person to bet against that happening.
But it wasn’t that long ago when many investors were bemoaning the fact that Singapore equities were boring. They complained that Singapore shares didn’t have the same allure, cache and growth potential of some exciting high-technology shares that could be found on other exchanges.
How quickly things can change. Suddenly, Singapore’s banks, property developers, consumer staples and high-income-generating equities such as real estate investment trusts have become the flavour of the month. It is as if they weren’t attractive before – they were.
There is little doubt, however, that the Singapore market has been frustrating, trying and testing for investors for many years. It is the kind of disappointment that can shatter our most fundamental market beliefs. This is the age-old view that investors who hold shares for the long term will be rewarded for their perseverance and patience. Unfortunately, many investors prefer instant gratification.
The long and winding road
Between 2001 and 2006, the STI increased 17 per cent, or 3 per cent a year for five years. After 10 years, the index had risen 64 per cent or 5 per cent a year.
After 15 years, the STI had risen 48 per cent or 3 per cent a year. It was no better after 20 years – the index had only risen 47 per cent or 2 per cent a year.
But after 24 years, the index had climbed 134 per cent or 3 per cent a year. That is a long time to wait for the index to double.
However, the rise in the STI belies the total returns that patient investors have enjoyed. Between 2001 and 2006, the total return was 34 per cent or 6 per cent a year. Between 2001 and 2011, the total return was 124 per cent or 8 per cent a year.
After 15 years, the total return was 136 per cent or 6 per cent a year. After 20 years, the total return was 183 per cent or 5 per cent a year. But after 24 years, the total return had shot up 463 per cent or 8 per cent a year.
The total return is rarely talked about because many investors consider dividends as nice to have rather than an essential part of investing. But dividends should never be ignored. The total return that we derive from putting our money into equities is made up of the share price return and returns from the income that those shares have generated.
Unfortunately, the returns from equities are rarely even. But over the long term, they could and should beat leaving our money in bonds and interest-bearing cash accounts. However, given the unevenness of equity returns, it can be tempting for impatient investors to jump in and out of equities in the belief that they can outperform the market. They might even be successful every now and again.
But a buy-and-hold strategy is predicated on humility. We like to think that we have the skills to predict the future, but we don’t.
Rocky road
Just look at what has happened over the last 25 years. We had the dotcom crash in 2002. We watched in horror as the global financial crisis of 2008 unfolded, following the collapse of the US housing market. We had the European debt crisis when some European Union countries had trouble refinancing their debt. And how can we ever forget Covid-19 that thrust the entire world into utter turmoil.
But equities have prevailed – not because of what has happened, but in spite of what has happened.
The next 25 years could be almost as difficult. There are many troubling issues looming on the horizon. According to the World Economic Forum, investors are most concerned about armed conflict. They are also worried about extreme weather, climate change and geo-economic confrontation.
Also on their list of concerns are misinformation and disinformation, and the polarisation of society as the divide between the rich and poor continues to widen. Another worry is the adverse outcome of artificial intelligence technologies.
Clearly, our investing journey over the next quarter of a century will be as uncertain as the last 25 years. It could be peppered by events that are entirely out of our control. There could even be times when we start to doubt (again) if buy-and-hold really works.
But let’s not forget that when we invest, we trust that our capital will be deployed sensibly by companies to generate a return, regardless of what is happening in the wider economy. That is the basis of capitalism. And that is why shares should rise over time.
Compounding our wealth
One way to take advantage of the power of capitalism could be to carefully select a portfolio of around 20 income-generating shares. The income part is vital because it could provide us with an important point of focus. If we have allocated our money judiciously, then we may find that our portfolio will reward us with regular dividends throughout the year. Additionally, the dividends should increase steadily over time.
Warren Buffett once said that he knew that he was going to be rich. He added that he never doubted it for a minute. He said his confidence did not come from a dream but from an understanding of mathematics and the principles of compounding. That is what investing is all about.
But compounding takes time. We just need to be patient.
The world’s gotten unpredictable, but some Singapore companies have quietly kept thriving. You’ve probably seen them in your daily life. And yes, they’ve kept paying dividends through it all. Meet 5 resilient stocks built to navigate global storms. Get the free report here and see how they’ve done it.
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An earlier version of this article appeared in The Business Times.
