Last Thursday (6 March), the NASDAQ Composite Index (INDEXNASDAQ: .IXIC) slipped into correction territory, falling 10% below its all-time high.
The question is: could Singapore stocks be next?
Here’s the thing: market corrections are a fairly common occurrence for the Straits Times Index (SGX: ^STI).
How often does it happen?
The graph below shows the maximum drawdown from peak to trough occurring per year between 1993 and 2024, a 32-year period.
During this time, there were 28 years when Singapore’s STI fell more than 10% from the year’s peak. In simple terms, market corrections have turned up in eight out of every 10 years.
In other words, it’s something you should expect from time to time.
Think of market downturns like a durian on a tree.
As it ripens, you know it’s going to fall eventually.
But you can’t pinpoint the exact moment it will drop.
Anyone claiming they can is just guessing, and potentially risking a painful lesson!
But knowing a market downturn will happen some time in the future allows you to take precautions and prepare your portfolio.
The myth of the perfect exit
There’s a popular misconception that a great investor knows when to exit right before share prices come tumbling down.
It’s a myth.
Great investors do not have some secret knowledge.
Instead, what’s driving all the stock selling during a downturn is just plain old fear.
Here’s the kicker: investors who panic-sell rarely find the courage to jump back in when prices are low.
Emotional decisions, as we all know, seldom end well.
Now, for the good news: even if you don’t time the market perfectly, you can obtain satisfactory results.
The myth of the perfect entry
Hang on a moment, isn’t the ‘savvy’ investor supposed to time the bottom perfectly?
Nope, hoping for a perfect entry is like a gardener planting seeds at the ideal moment.
Successful investing is more like tending a garden over time, nurturing growth and weathering storms.
Take DBS Group (SGX: D05), Singapore’s largest bank.
The Smart Dividend Portfolio bought shares in April 2020, long after the share price had recovered from its low in the prior month.
In other words, our entry was far from perfect.
But did it really do better in the end?
With a buy price of S$17.58, our shares are worth nearly 162% more, all while being imperfect in buying the stock.
That’s not all, of course.
Our shares, which have been held for more than nearly five years, have steadily paid us an increasing dividend. Between 2020 and 2024, DBS has raised its dividends from S$0.71 per share (split-adjusted) to S$2.22 today.
Needless to say, we’re perfectly fine with being imperfect.
Get Smart: Patience wins the day
Here’s another twist: while the Smart Dividend Portfolio is happy with DBS’s returns, it ranks as the second-best-performing stock in our 26-stock portfolio.
The best-performing stock has returned over 660% since May 2020.
We have many other examples that show that doing less trading, not more, leads to far better returns.
And here’s the bonus: you’ll actually sleep soundly at night!
No more agonising over every market fluctuation or market correction.
The world has enough problems as it stands.
So, why add pointless trading anxieties to your worries?
Just focus on building a strong portfolio of carefully chosen stocks, and then, simply be patient.
Looking to start investing? Our beginner’s guide will show you how to make the best buying decision and make fewer mistakes. Click here to download for free now.
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Disclaimer: Chin Hui Leong owns shares of DBS Group.
