Why did the Singapore Stock Market Fall?

Received email from Motley Fool, Singapore ...

Dear Foolish reader,

No one saw it coming. Without any warning, the Dow Jones Industrial Average slumped 1,300 points in two successive days.

Nobody quite knows why.

It rebounded. Then it fell again. Again no one can adequately explain why.

Some say it was because 10-year Treasury yields unexpectedly jumped above 3.2%, which unnerved the market. The yields have come back down. But still the markets have fallen.

Some say it was because of unhelpful White House comments about the Fed’s interest-rate policy. What’s new?

Excuses, excuses

Some say it was because of fears over an escalation of the Sino-US trade spat. Some say it was because of worries over possible contagion from the ongoing emerging-market currency slump.

Some say it was because of concerns that China’s economy could slow down more than expected. Growth was slowing anyway!

Some say it was because of Brexit. Some say it was because Italy could be kicked out of the Eurozone. Really?

Some say it was because US shares are overvalued. That doesn’t explain why Singapore shares have fallen, though.

Some say it was because oil prices climbed above $80 a barrel. Some say investors are doing a bit of tactical rotation. Some say it is because they are doing a bit of strategic allocation.

Do you get the feeling that “some people” are just making it up as they go along?

It’s very simple

The simple fact is that markets dropped because there were more sellers than buyers of shares. There is nothing more to it than that.

When there are more buyers than sellers in any market, then prices can rise. When the opposite happens - as we have just witnessed - prices can fall. The stock market is no different to any other market.

Take durians as an example. Earlier this year when durians were literally falling off the trees, some vendors in Geylang were even giving away the fruit for nothing. But towards the end of the season, when supplies grew scarce, prices skyrocketed.

No prizes for rightly guessing that I ate lots of durians when prices were at rock-bottom and avoided them when prices were high.

Enough about durians. Back to the stock market.

Unfortunately, many investors don’t know themselves why they have unloaded their shares. They dumped them probably because other people were selling theirs. So tragic.

FOMO

Sadly, there is no shortage of badly-informed people in the market. They buy when others are buying. They sell when others are selling. They know the price of everything but the value of nothing.

They can be the main cause of volatility in the market because they are driven by the fear of missing out, or FOMO. They are driven by emotions.

They don’t want to miss out by not owning shares when stock markets are rising. So, they buy regardless. They also don’t want to get caught out when stock markets are falling because they happen to be holding shares at the time.

If only they knew what a wonderful place the stock market can be to create wealth for the long term.

Money allocation

But we do. For us the stock market is a great allocation centre where money is moved from the uninformed to the informed.

Warren Buffett said: “Don’t gamble but watch for unusual circumstances. Excellent investment opportunities come about when superior businesses experience a one-time event that depresses their stock price in relation to their intrinsic values.”

We are in the midst of one of those unusual events. But our job is not to forecast whether the market will be higher or lower tomorrow. That is called speculation....

.... Our job is to forecast the yield on the assets we want to buy over the lifetime of those assets. That is called investing.

If you'd like to put our research and advice to work for you, I'd encourage you to take advantage of the discounted price while it's available and join us at Stock Advisor Singapore. (And if you decide that it's not for you at any time during your first 30 days, we'll refund your full membership fee. I don't think you'll need it, but that guarantee is there to give you peace of mind.)

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'Til next time ...