If you are new to investing, picking stocks is just the first step.
Once you’ve selected them, the real work begins: monitoring their performance.
To be sure, it’s not the stock price I am talking about.
In the short term, share prices can be influenced by a multitude of factors, such as economic trends, company earnings, dividend announcements, industry news, and overall market sentiment.
Hence, stock prices will fluctuate in the short term.
But in the long run, the strength of the businesses you own will determine how well your shares perform.
Not all your investments will work out.
Some of your stocks might soar while others may struggle.
The key is your reaction to each situation.
Share price decline: A transient or permanent issue?
Let’s explore three potential scenarios to help you decide if and how to take action.
First, consider what happens when the shares you bought start to decline, resulting in an unrealised loss.
As you hold onto your shares, the price continues to drop, increasing your losses.
In this situation, it’s crucial to evaluate the company.
Here’s a key observation to make: is the business facing a temporary setback, or are its long-term prospects at risk?
Take Delfi Ltd (SGX: P34), for example. The chocolate manufacturer saw its share price plummet from S$1.44 in May 2023 to S$0.84 today—a nearly 42% decline in just over a year.
This drop is largely linked to cocoa prices, which soared to an all-time high of over US$12,000 per tonne in April 2024.
For context, cocoa prices had been around US$2,000 per tonne in 2019 but began to spike in March 2023 due to a global supply shortage and underinvestment in cocoa farms.
As a result, many chocolate brands are struggling with rising costs, making investors pessimistic about Delfi’s future.
The situation was compounded by disappointing earnings for the first half of 2024, where revenue fell by 3.3% year-on-year to US$260.8 million and net profit dropped 17% to US$19.6 million.
Delfi attributed these results to weaker regional currencies against the US dollar and reduced spending on trade promotions.
Despite these challenges, it’s important to note that Delfi still holds an estimated 38% share of the Indonesian confectionery market in 2024, according to Euromonitor.
Additionally, cocoa prices have decreased from their highs and should stabilise as the supply situation improves.
Given this context, Delfi’s issues may seen as temporary rather than permanent.
Under these circumstances, investors may choose to add to their positions or to hold their shares in anticipation of a recovery.
Speaking of falling share prices, Cordlife Group (SGX: P8A) is facing a significant crisis of its own.
As you may know, the cord blood banking provider is under scrutiny for damaging thousands of cord blood units since June 2022.
After a member of the public lodged a complaint with The Ministry of Health (MOH) in July 2023, the ministry then launched an investigation into Cordlife back in November 2023.
By January 2024, more issues came to light, leading to the arrest of eight individuals connected to the company, all of whom were later released on bail.
Amid the uncertainty, Cordlife’s shares plummeted nearly 62%, dropping from S$0.455 at the end of November 2023 to just S$0.173.
There is a bit of good news, but it may not be enough.
Cordlife was cleared to resume its cord blood banking services on 15 September, but the MOH has restricted the company to accepting a maximum of 30 new cord blood units each month for the next six months.
This number is a drastic reduction from the approximately 400 units the company previously processed.
Given the serious damage to its reputation and these operational limitations, it may not be wise for investors to consider buying shares in hopes of a quick resolution.
Share price rise: A happy problem
The second scenario is a nice problem to have: what do you do when the share price of one of your stocks skyrockets?
iFAST Corporation Ltd (SGX: AIY) offers a perfect illustration. Over the past five years, this fintech company has seen its share price surge by an astonishing 586%, climbing from S$1.04 to S$7.13.
iFAST’s business remains robust. In the second quarter of 2024, net profit jumped 346% year-on-year to S$16 million, while the group’s assets under administration reached a record high of S$22.4 billion.
To top it off, iFAST increased its interim dividend by 36.4% year-on-year to S$0.015.
Management is optimistic about the future, particularly regarding its ePension division in Hong Kong, which is expected to drive growth this year and next.
Additionally, the digital bank is projected to make a positive impact starting in 2025.
With these promising developments, iFAST looks well-positioned for continued success.
For investors in this scenario, it’s wise to ride the wave of their winning stocks, especially as the business shows solid growth potential.
Share price stagnant: A keen eye on the business
The third scenario may be the most puzzling of all: what do you do when the shares you’ve purchased barely move after several years?
Should you hold onto these shares or sell them to seek better opportunities?
Sheng Siong (SGX: OV8) serves as a great example.
The supermarket operator’s share price has remained relatively stable since May 2020, hovering around S$1.51 for over four years.
While it might seem like the business has stagnated, the reality is quite different.
In 2020, revenue and net profit surged as people stayed home during the pandemic.
That year, Sheng Siong reported a 40.6% year-on-year increase in revenue, reaching S$1.39 billion, while net profit skyrocketed by 83.1% to S$138.7 million.
Fast forward to 2023, and the company reported another set impressive numbers: revenue of S$1.37 billion and net profit of S$133.7 million.
Many investors may not realise that 2020 was an extraordinary year, yet Sheng Siong has managed to maintain its performance close to those levels even as the pandemic receded.
Since the end of 2020, Sheng Siong opened a net total of eight new stores by 30 June, 2024, and its total floor area has grown by nearly 11% to 633,100 square feet.
Additionally, in 2024’s first half, the retailer has secured three HDB tenders, with another three awaiting results.
What’s more, the management expects seven more tenders to be issued in the second half of 2024, giving Sheng Siong even more opportunities to secure prime HDB shop units as the government catches up on its pandemic backlog.
As Warren Buffett famously said, “If a business does well, the stock eventually follows.”
So, don’t fret about a stagnant share price as long as the business continues to thrive.
There will come a time when other investors recognise the quality of the business and drive up its share price – all you need is patience.
Get Smart: Focus on the business behind the stock
These examples highlight three distinct scenarios you might face with the stocks in your portfolio.
The common thread among them is the importance of closely evaluating the business behind the stock.
If the business is thriving and shows strong growth potential, it’s worth holding onto.
However, if the fundamentals have significantly deteriorated and your investment thesis no longer stands, it may be time to consider selling the stock.
Note: An earlier version of this article appeared in The Business Times.
By the time your child grows up, inflation will have gobbled up their savings. If you not only want to protect their money but also grow it, there are 3 SGX stocks you can consider buying. One has already proven to give a 55.8% dividend pay rise. Get all the details in our latest special FREE report. Just click here.
Disclosure: Royston Yang owns shares of Delfi and iFAST Corporation.
