The Singapore stock market is making headlines. Recently, the Straits Times Index (SGX: ^STI) hit a 17-year high with many blue-chip companies seeing their share prices surge ahead.
It was a watershed moment for an index that used to be a laggard among larger peers in Hong Kong and the US.
Along the way, many reputable blue-chip stocks such as DBS Group (SGX: D05), OCBC Ltd (SGX: O39) and Singapore Technologies Engineering (SGX: S63) saw their share prices scale new all-time highs.
With the market being so ebullient, should you continue buying stocks or wait patiently for a pullback?
Are we headed for a heartbreak?
There is a common perception among investors that stocks which have hit all-time highs are due for a sharp fall.
There is some truth to this belief.
As investors chase up stock prices to never-before-seen levels, there is a growing fear that they may lose their profits.
Because of this mindset, a portion of these investors will sell to lock in their profits.
When this happens, there will be a flurry of sell orders accompanied by a knee-jerk decline in the share price.
A good example that illustrates this is DBS Group, which touched its all-time high of S$39.70 on 23 September.
Since then, shares of Singapore’s largest bank have fallen by about 5.3% to close at S$37.60 on 27 September.
Maintaining a long-term outlook
Investors need to understand that such declines are normal.
No stock goes up in a straight line and periodic declines are par for the course.
The important thing is to keep your eye on the business and maintain a long-term investment outlook.
In essence, ignore these short-term fluctuations and focus on the business behind the stock ticker.
Instead, ask yourself a simple question – why is the stock price hitting an all-time high?
Is it because the business is growing its profits, cash flows, and dividends?
Or could the solid share price performance be attributed to positive sentiment without any change in the underlying business fundamentals?
If it is the former, then you could be looking at a winner with significant room for its share price to continue rising.
But if the share price is surging without being supported by better financial numbers, then a decline should be expected in due course.
Going back to the example of DBS Group, the bank reported a sparkling set of earnings for the first half of 2024.
Total income increased 11% year on year to over S$11 billion while net profit hit a new record of S$5.8 billion, driven by higher net interest income and strong growth in fee income.
An interim dividend of S$0.54 per share was declared, nearly 23% higher than the S$0.44 paid out a year ago.
The bank’s strong share price performance can be explained by the robust results that it released in early August.
Keeping your eye on business prospects
If you are still undecided on whether to buy a stock that’s touching a new high, consider looking at its business prospects.
For instance, if there are catalysts or sustainable trends that enable the business to continue growing, there is a case to be made for the stock price rise to continue.
Take Meta Platforms (NASDAQ: META) for instance.
Shares of the social media behemoth recently hit their all-time high of US$577 and are hovering around US$567 at the time of writing.
The recent Connect Developer Conference saw Meta unveil its next-generation augmented reality glasses while showcasing the company’s artificial intelligence (AI) advancements.
These announcements are poised to drive further user engagement and open up new growth opportunities for the company.
In light of this, Meta’s stock could scale new heights if it continues growing its user base, profits, and cash flows.
Get Smart: An eye on the (eventual) prize
Stocks that hit all-time highs should be celebrated and not feared.
Investors with a short-term mindset are keen to lock in their profits because they fear losing them.
But if you have your eye on the long term, you should be glad to continue holding the shares or even buying more if business fundamentals are solid and the company demonstrates promising growth prospects.
By owning businesses that continue to break new highs, you can build a portfolio of stocks that help your portfolio to soar to even greater heights.
It’s always exciting for investors when the market is at an all-time high, but it’s important to remain disciplined and focused on your long-term investment goals.
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Disclosure: Royston Yang owns shares of DBS Group and Meta Platforms.
