You may have heard of the captivating tale of Rip Van Winkle, a man who fell asleep for 20 years, only to wake up and find that his world has changed significantly! Or perhaps watched the classic sci-fi movie starring Slyvester Stallone, Demolition Man.
What is equally fascinating is you can treat your stocks the same way. As if you’re not around to monitor them daily.
We aren’t saying you should ignore your stocks for 20 years. Hear us out. But if you pick the right stock, you can certainly hold for that duration of time, without checking on it daily.
Eliminating fear amid volatility
The easy availability of trading apps has led many investors to constantly monitor their stocks.
With mobile devices being ubiquitous, it just takes a click or a swipe of your finger to find out the latest stock prices.
But did you know, by doing so, you are increasing your stress levels?
The tendency to monitor share prices closely makes you subject to the sharp swings that inevitably occur.
With your money on the line, such volatility can induce fear, stress, and unnecessary worry.
In the worst case, it may even spur you to sell your stocks out of fear or to transact when there is no need to, thus interrupting the process of compounding.
Investing in quality, worry-free businesses
To be sure, it is important that you park your money in quality, well-managed businesses that can provide you with a good night’s sleep.
By being a Rip Van Winkle, the idea is to tune out of the stock market and let the businesses run on auto-pilot, only checking in on them every quarter.
Hence, you must pick stocks of solid, robust businesses that not only have a track record of going through good times and bad but also possess catalysts to carry the business forward for years to come.
Take blue-chip stocks DBS Group (SGX: D05) and Singapore Exchange Limited (SGX: S68), or SGX, for instance.
DBS, Singapore’s largest bank, has been through multiple crises such as the Great Financial Crisis and, more recently, the pandemic.
Through it all, the lender has emerged unscathed and has even reported a record set of earnings for 2022.
From the depths of the pandemic in 2020, the bank’s quarterly dividend has climbed by 167% to S$0.48 per share.
Similarly, SGX has also proven its mettle over the years.
The group enjoys a natural monopoly by being the only stock exchange in Singapore.
SGX’s latest results have also been fabulous, with net profit jumping 46% from S$391 million back in fiscal 2019 to S$570.9 million in fiscal 2023.
Over the same period, the exchange’s quarterly dividend has risen from S$0.075 to S$0.085.
A series of gradual steps
Another key aspect is profits and dividends need time to grow.
Rather, the business improves through a series of gradual steps that cumulatively result in a significant effect.
This is a process which takes years, not months.
Using the same example, DBS took three years to increase its dividends from the depths of the COVID-19 pandemic.
Likewise, SGX took four fiscal years to report a better financial result and up its quarterly dividend to the current S$0.085 per share.
Hence, if you focus on just a single fiscal year, these changes may not impress you.
But if you lengthen your time horizon to years or even decades, great businesses should display significant positive changes.
And that brings us back to being a Rip Van Winkle when it comes to investing.
By doing so, you are not affected by daily share price movements or the drone of business news.
You are also better able to focus on investing for the long term, thereby letting compounding work its magic.
After 20 years of consistent compounding, you may be amazed at the pot of gold you will end up with.
And that, I assure you, is no fairy tale.
This could be the fastest way to jump from a “newbie” investor to a seasoned pro. Our beginner’s guide shows everything you need to know to buy your first stock and beyond. Click here to download it for free today.
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Disclosure: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.
