The Straits Times Index (^STI) fell 1.8% on Tuesday. At one point, the index was down by almost 3%. The market ended flat yesterday.
There is little doubt that the reason behind Tuesday’s decline was the threat of the Wuhan virus that is rapidly spreading in China.
In fact, some stocks have taken a harder hit than others.
A world of hurt
The threat of the Wuhan virus is real, claiming over 130 lives within the Middle Kingdom to date and rising.
As China implements measures to contain the virus, several businesses have been affected.
For instance, Sasseur Real Estate Investment Trust’s (SGX: CRPU) share price fell more than 10% on Monday as the REIT announced the temporary closure of four of its outlet malls.
Later on the same day, Straco Corporation (SGX: S68) announced that its aquariums in Shanghai and Xiamen and its cable car operations in Lixing will be shut down for the time being.
Elsewhere, real estate conglomerate CapitaLand Limited (SGX: C31) has closed six malls in Wuhan and Xi’an. The company’s remaining 45 shopping malls are operating on reduced hours.
In short, there are businesses have already been impacted, making their stock price declines justified based on what we know today.
Stock price falls are painful. But in times like these, it is imperative that keep our wits about us.
Take the Right Perspective
Keeping the right perspective is important.
Even after yesterday’s decline, the Straits Times Index is down less than 7% from its 52-week peak. As painful as it is, the current decline is actually fairly common.
Source: S&P Global Market Intelligence; author’s calculations
Since 1993, the STI has declined 10% in nine out of every 10 years. In this context, Tuesday’s near-2% fall can be seen as relatively mild by historical standards.
The bottom line is that we have no idea whether or not this week’s decline will persist in the future and for how long it will last.
That is beyond our control.
However, choosing what stocks we buy and how we deploy our money is still within our control.
Get Smart: Rules to survive
When the heat is on, what I have found is that simple rules to be the most effective.
In a prior article, I shared three simple rules that you can follow before you buy your next stock. These rules ring true today as it did a month ago.
- Buy because you want to own the company and not because the stock has fallen.
- Fallen stocks are not the only opportunities.
- Buy with conviction. After that, be humble.
A market decline is not an excuse to buy any stock that comes your way.
Likewise, stocks that have declined the most might not always be the best investment opportunity.
Committing too much funds today might turn out to be premature as we could well be in the early stages of the Wuhan virus outbreak.
The point is, no one knows what will happen from here.
The stock market could recover tomorrow or fall over the next few months. We’ll find out when the time comes.
As investors in it for the long haul, we have the benefit of time on our side to be patient, to deploy our funds when we see an opportunity but remain grounded to the reality of what is happening around the world today.
And that’s what we are planning to do with our own money.
We are investing $20,000 in 15 Singapore stocks in our Smart Dividend Portfolio over a period of 6 months.
We are not buying a particular stock solely because its share price dropped during this period.
We are buying a stock because we believe in its business fundamentals, and believe that it can be an income-generating opportunity for us in the years ahead.
In a little over a week’s time, we’ll begin our first purchase for The Smart Dividend Portfolio.
If you’d still like to join us, it’s not too late. We’ll be running a special promo this weekend for those who missed out on our opening launch special. Starting tomorrow, the promo will run for only 3 short days before we revert back to our regular price. So don’t forget to check your email inbox for more details!
Disclosure: Chin Hui Leong does not own any of the shares mentioned.