Dear Smart Investor,
Instead of feeling smart in 2022, we were left smartin’ from the US stock market.
The S&P 500 (INDEXSP: .INX) sank 19.4% last year with the tech-heavy NASDAQ composite index (.IXIC:INDEXNASDAQ) faring worse, closing the year with a 33.1% plunge.
These huge falls are only exceeded by 2008’s Great Financial Crisis market crash.
Yet, back home, Singapore’s Straits Times Index (SGX: ^STI) turned in a decent 3.7% gain despite the market carnage overseas.
In addition, it has been a relatively benign year for the index.
Throughout the year, the STI recorded a daily gain in 57% of the trading days.
Translation: if you are betting on the daily movements of the stock market, your odds of guessing the direction of the index correctly are not much better than a coin flip.
That’s in the past, of course.
What about the future?
With markets crashing in the US, will Singapore’s STI follow suit in 2023?
Fear of heights
Guessing the direction of the stock market is a fool’s errand.
Yet, some of us may fear a market decline in 2023.
This worry is not entirely unjustified.
History has shown that stock market crashes can happen from time to time.
Between 1993 and 2022, a period of 30 years, there have been 24 instances where the Straits Times Index has declined by 10% or more from its year’s peak to trough.
In short, such a decline has happened eight out of every 10 years.
Larger declines of 20% or greater are less common, occurring about four times every decade.
Source: S&P Global Market Intelligence; Wall Street Journal; Yahoo Finance; author’s calculation
The rarest decline is that of when the STI is when the index is cut in half during the year.
Such an event has reared its ugly head in just two out of the past 30 years.
Though it may seem that the Singapore stock market is overdue for a major decline, more context is needed.
For instance, before the Great Financial Crisis of 2007 and 2008, the Singapore index was sporting a price-to-earnings ratio of 30 times on 1 October 2007.
Today, the STI’s valuation is closer to 12 times earnings.
Certainly, we can say the index is nowhere near 2007 valuation levels.
However, it is the twin worry of inflation and higher interest rates that has left its mark on some sectors within the Singapore market.
Real pain in real estate
While the shares of Sembcorp Industries Limited (SGX: U96) and Keppel Corporation (SGX: BN4) rose by more than 40% each in 2022 …
… the same cannot be said about real estate investment trusts (REITs).
The rising interest-rate environment has led sellers to send unit prices of Keppel DC REIT (SGX: AJBU), Frasers Logistics and Commercial Trust (SGX: BUOU) and the Mapletree peers down by more than 15% last year.
It’s never fun to see your wealth shrink during the year, of course.
But that’s what investing is about, learning to accept both the rough with the smooth.
As my co-founder, David Kuo, says:
“We should never feel exhilarated when things are going well. We should never feel dejected when things are going badly. We can do that by focussing on the things that we can control and ignore the things we can’t.”
Amid the drumbeat of recession and inflation — now, more than ever, it is imperative for us to focus on what truly matters in investing.
Your 2023 game plan
At The Smart Investor, we do not try to guess the stock market direction from one year to the next, let alone weekly or monthly movements.
If we did, we would not have started The Smart Dividend Portfolio in January 2020, at a time when the market was high.
That’s right, we started investing just before the pandemic swept through the world …
… decimating many businesses around the world.
Yet, despite the turbulence, we leaned on what we knew best.
Buying great businesses that can keep paying you dividends.
Instead of daily stock movements, we turned our attention to the sustainability of the business behind the stock ticker.
Our reasoning was simple.
We knew that if the businesses could continue to generate cash, the dividends would follow.
Today, nearly three years later, the Smart Dividend Portfolio is filled with 25 stocks that do exactly that: pay us dividends, hopefully for life.
Instead of worrying over where the stock market is going in 2023, we invite you to flip the script — and think about the businesses you want to own.
Get Smart: Keep watering your dividend plant
Everyone needs to start somewhere.
Indeed, after taking it on the chin in 2022, it’s time to keep our chins up.
While we cannot tell where markets are headed in the short term, the idea behind putting your money to work every month is not rocket science.
By buying companies that are consistent dividend payers, you will receive regular income straight into your bank account.
This cash can be put back to work by deploying it to the same dividend payers to generate even more income in the future.
Do that next year, the year after that, year after year …
… and you will start to see the magic of compounding, measured in years, not months.
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: Chin Hui Leong owns shares of Keppel DC REIT and Frasers Logistics and Commercial Trust.
