Stock market goes up and down unpredictably. I believe some investors have experienced buying at the wrong time – at the peak or near peak of the stock market, and to their horror witnessing the stock price plunge. Many of these investors will find it hard to swallow losses and will want to switch to ‘safer’ instruments like bonds. A few investors will hold on but not sure how long will there see their account turn green again. The good news is if you hold long enough, stockholders will eventually be better off than bondholders. The question is how long?
I found a rather accurate answer from a financial analyst and investment manager, Edgar Lawrence Smith, who published a book in 1925, titled “Common Stocks as Long-Term Investments“. In the book, he mentioned that one will take 6 to 15 years of holding a stock in order to see a profit.
Jeremy Siegel verified the figures in his book, “Stocks for the Long Run“:
“Smith’s conclusion was right not only historically but also prospectively. It took just 15 years to recover the money invested at the 1929 peak, following a crash far worse than Smith had ever examined. And since World War II, the recovery period for stocks has been better than Smith’s wildest dreams. The longest it has ever taken since 1945 to recover an original investment in the stock market (including reinvested dividends) was the five-year, eight-month period from August 2000 through April 2006.”
Given such accuracy, you should assure yourself as a successful and profitable investor if you hold on to your stocks for 20 years (Of course, the caveat is to hold the correct stocks). You can increase the certainty of winning by investing in an index fund and hold it for 20 years. It is exactly what I am trying to achieve with STI ETF.
Hopefully, the 2 authors and me are able to convince you to have the tenacity to hold on to your (right) stocks or an index fund for the long haul. Sometimes, you just need that kind of assurance when the going gets tough.
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{ 28 comments… read them below or add one }
I’ve done some research on sti etf, so would like to share with you since you’re into sti etf as well.
http://bullythebear.blogspot.com/2008/05/thoughts-about-sti.html
I think the only stock qualified to hold for long is an index fund.
I’ve done some research on sti etf, so would like to share with you since you’re into sti etf as well.
http://bullythebear.blogspot.com/2008/05/thoughts-about-sti.html
I think the only stock qualified to hold for long is an index fund.
Thanks LP! That’s nice sharing!
Thanks LP! That’s nice sharing!
STI ETF??
Are STI components stable??
From past experience, did anyone realize that for every six months, 1 to 2 weak components in STI were removed and replaced. STI ETF will have to sell the removed members at losses and replaced them with the new members at higher cost as market will likely to push the price of the new members after the announcement and depress the price of the removed members. Such frequent fund actions to aligh the STI components will have impact on the nett asset value over long haul. If you are really keen, better to look at US Index funds, plenty of choices there.
STI ETF??
Are STI components stable??
From past experience, did anyone realize that for every six months, 1 to 2 weak components in STI were removed and replaced. STI ETF will have to sell the removed members at losses and replaced them with the new members at higher cost as market will likely to push the price of the new members after the announcement and depress the price of the removed members. Such frequent fund actions to aligh the STI components will have impact on the nett asset value over long haul. If you are really keen, better to look at US Index funds, plenty of choices there.
What US Index Funds are you suggesting? I do believe an S&P 500 fund will have more changes to it’s list as compared to the a smaller sample size of STI 30 companies. In addition, I am having more faith in Singapore’s growth than US at this moment.
What US Index Funds are you suggesting? I do believe an S&P 500 fund will have more changes to it’s list as compared to the a smaller sample size of STI 30 companies. In addition, I am having more faith in Singapore’s growth than US at this moment.
Firstly, I’ve to say I’m a noob. am 20y/o, still learning the ropes…no money anywhere else other that bank saving accounts…
An ETF tracking the best companies (in this case the STI ETF) sounds like a good idea. Not much convincing seems to be needed as there are so many materials out there (most passionately, John Bogle, Burton Malkiel; oblique suggestions by Ben Graham for Defensive Investors) suggesting that for the lay person, a highly diversified holding of the best companies, given a sufficient long period (20yrs in J. Siegel’s opinion?), will not yield a loss.
Still I’m troubled by one chart http://sg.finance.yahoo.com/q/bc?s=^N225&t=my&l=off&z=l&q=l&c=
That’s Japan’s Nikkei index…from the peak of 38000+ in 1990…about 20 yrs still nowhere close to recouping one’s losses. Even if one is careful not to buy at the peak, for arguments sake let’s say we bought at 22500 around ’93. not near the peak, at a “consolidation phase” the returns still look bleak…
any suggestions from the author?
Firstly, I’ve to say I’m a noob. am 20y/o, still learning the ropes…no money anywhere else other that bank saving accounts…
An ETF tracking the best companies (in this case the STI ETF) sounds like a good idea. Not much convincing seems to be needed as there are so many materials out there (most passionately, John Bogle, Burton Malkiel; oblique suggestions by Ben Graham for Defensive Investors) suggesting that for the lay person, a highly diversified holding of the best companies, given a sufficient long period (20yrs in J. Siegel’s opinion?), will not yield a loss.
Still I’m troubled by one chart http://sg.finance.yahoo.com/q/bc?s=^N225&t=my&l=off&z=l&q=l&c=
That’s Japan’s Nikkei index…from the peak of 38000+ in 1990…about 20 yrs still nowhere close to recouping one’s losses. Even if one is careful not to buy at the peak, for arguments sake let’s say we bought at 22500 around ’93. not near the peak, at a “consolidation phase” the returns still look bleak…
any suggestions from the author?
Personally, I would not buy Japan because it is already a very developed country = not much growth left. I would prefer to buy into economies that are growing. To me, Singapore still has a lot to offer as most of our local companies began to take presence in Asia. China is another economy that is almost a sure bet for her ETF. Thus, when we buy ETFs, we want the country’s economy to have growth potential. That’s my take.
Personally, I would not buy Japan because it is already a very developed country = not much growth left. I would prefer to buy into economies that are growing. To me, Singapore still has a lot to offer as most of our local companies began to take presence in Asia. China is another economy that is almost a sure bet for her ETF. Thus, when we buy ETFs, we want the country’s economy to have growth potential. That’s my take.
Ken,
Haha, good question!
To me, holding long term doesn’t mean hold forever. If you think that the market is being overly generous with the returns, I will take a portion out for re-balancing. There’s also a need to do diversification and not put all into one instrument/stock. I also think that as in trading, it is important to have a cut loss level. Hopes might not materialize into facts and the stop loss is there to provide extra safety in your capital, beside an adequate margin of safety when purchasing it.
Ken,
Haha, good question!
To me, holding long term doesn’t mean hold forever. If you think that the market is being overly generous with the returns, I will take a portion out for re-balancing. There’s also a need to do diversification and not put all into one instrument/stock. I also think that as in trading, it is important to have a cut loss level. Hopes might not materialize into facts and the stop loss is there to provide extra safety in your capital, beside an adequate margin of safety when purchasing it.
hi alvin,
my point is not that i would like to buy into japan’s economic performance now for long term holding. my point is that there seem to be an exception to ‘sure returns’ for holding ETFs for the long term.
for better illustration, let’s also imagine you are a japanese 20yrs ago, and a passive investor with a long term outlook. it would be ideal then for you to buy into this ‘Nikkei ETF’ to avoid foreign exchange risk right? wouldn’t it be a disaster for this 20 year period?
“I would not buy Japan because it is already a very developed country = not much growth left”
i thought 20yrs ago japan seems to be THE place to be ?just like china right now? (although it will be maybe 5-7yrs more for them to reach japan’s level?)
of course it is obvious japanese stocks were overvalued 20yrs ago with sky high p/e ratios. which brings to my 2nd point… “for arguments sake let’s say we bought at 22500 around ‘93″ — like what we are doing in singapore right now buying at 2,500 points which compared to the peak of 3,800 looks like a bargain.
LP, “If you think that the market is being overly generous with the returns, I will take a portion out for re-balancing. ” with this argument (buying at 22500), I’ve done something similar to the effect of rebalancing? Also isn’t ETF diversified already (unless you are talking about across countries, which carries the significant risk and cost associated with forex).
Stop-loss for ETF (for individual stocks i think it’s another thing) hmmm. markets seem so volatile now by having it, we’ll have to think of a new entry point and also consider the trading costs…not ideal for a passive investor…
hi alvin,
my point is not that i would like to buy into japan’s economic performance now for long term holding. my point is that there seem to be an exception to ‘sure returns’ for holding ETFs for the long term.
for better illustration, let’s also imagine you are a japanese 20yrs ago, and a passive investor with a long term outlook. it would be ideal then for you to buy into this ‘Nikkei ETF’ to avoid foreign exchange risk right? wouldn’t it be a disaster for this 20 year period?
“I would not buy Japan because it is already a very developed country = not much growth left”
i thought 20yrs ago japan seems to be THE place to be ?just like china right now? (although it will be maybe 5-7yrs more for them to reach japan’s level?)
of course it is obvious japanese stocks were overvalued 20yrs ago with sky high p/e ratios. which brings to my 2nd point… “for arguments sake let’s say we bought at 22500 around ‘93″ — like what we are doing in singapore right now buying at 2,500 points which compared to the peak of 3,800 looks like a bargain.
LP, “If you think that the market is being overly generous with the returns, I will take a portion out for re-balancing. ” with this argument (buying at 22500), I’ve done something similar to the effect of rebalancing? Also isn’t ETF diversified already (unless you are talking about across countries, which carries the significant risk and cost associated with forex).
Stop-loss for ETF (for individual stocks i think it’s another thing) hmmm. markets seem so volatile now by having it, we’ll have to think of a new entry point and also consider the trading costs…not ideal for a passive investor…
its good if we can share how a layperson can grow his wealth safely using ETF… cause i’m thinking i may not have the time to ‘do my homework’ in the future to invest actively.
but i do not want to pay fund managers (i believe most do well because they ride some wave/ bull, and that they do have incentives to act in the long term interests of investors like buffett with his partnerships) or financial advisors to buy products like MINI BONDS or JUBILEE NOTES arrrgghh
its good if we can share how a layperson can grow his wealth safely using ETF… cause i’m thinking i may not have the time to ‘do my homework’ in the future to invest actively.
but i do not want to pay fund managers (i believe most do well because they ride some wave/ bull, and that they do have incentives to act in the long term interests of investors like buffett with his partnerships) or financial advisors to buy products like MINI BONDS or JUBILEE NOTES arrrgghh
Hi Ken,
I don’t think STI etf is well diversified. A big portion of the returns (around 40%?) comes from the three banks and singtel. There are only 20+ stocks in it, out of a total set of 500-700 companies listed in singapore. By diversification, I mean investing in different countries and in different asset class. By rebalancing, I mean putting money in one asset class to another, or from one country to another, or from one stock to another.
If you truly want to be a passive investor, then buy the entire world of possible stocks. Look for vanguard type of international and US funds where all/most of the stocks are in one fund. Do proper asset allocation.
Passive doesn’t mean you do nothing, and just buy and hold forever. You have to take profit somewhere and have to protect your profits or cut your losses short. Of course, I’m not a passive investor and never will be, so my views are already biased.
Hi Ken,
I don’t think STI etf is well diversified. A big portion of the returns (around 40%?) comes from the three banks and singtel. There are only 20+ stocks in it, out of a total set of 500-700 companies listed in singapore. By diversification, I mean investing in different countries and in different asset class. By rebalancing, I mean putting money in one asset class to another, or from one country to another, or from one stock to another.
If you truly want to be a passive investor, then buy the entire world of possible stocks. Look for vanguard type of international and US funds where all/most of the stocks are in one fund. Do proper asset allocation.
Passive doesn’t mean you do nothing, and just buy and hold forever. You have to take profit somewhere and have to protect your profits or cut your losses short. Of course, I’m not a passive investor and never will be, so my views are already biased.
I agree with LP that Vanguard’s global funds are well diversified which can translate to lower risk. It might be a good choice for Ken if you are concern about having to rest your financial future on one country (like Japan). However, if I am not wrong, Singaporeans can’t buy Vanguard because they do not accept foreign investments other than Americans or Canadians.
The thing about STI is that even though it is made up of only 30 companies, they represent a large percentage of the market in Singapore. To me, diversification is more of market representation than the number of companies.
I agree with LP that Vanguard’s global funds are well diversified which can translate to lower risk. It might be a good choice for Ken if you are concern about having to rest your financial future on one country (like Japan). However, if I am not wrong, Singaporeans can’t buy Vanguard because they do not accept foreign investments other than Americans or Canadians.
The thing about STI is that even though it is made up of only 30 companies, they represent a large percentage of the market in Singapore. To me, diversification is more of market representation than the number of companies.
Hi alvin,
You can buy into vanguard’s funds through local brokerage. Just get a good brokerage that do not charge custodian fees. It’s just like buying companies from overseas using local brokerage, so the same set of charges apply.
Hi alvin,
You can buy into vanguard’s funds through local brokerage. Just get a good brokerage that do not charge custodian fees. It’s just like buying companies from overseas using local brokerage, so the same set of charges apply.
IC. which brokerage does it?
IC. which brokerage does it?
It’s dbs vickers online.There might be others, but I only know this.
It’s dbs vickers online.There might be others, but I only know this.
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