“Where’s The Market Going Next?”
A few weeks ago, I received a text from a friend asking me the question you see in the title of this article.
Due to my job with the Motley Fool Singapore, in which I write about my observations on the stock market and help pick stocks for our newsletter services Stock Advisor Singapore and Stock Advisor Gold, I do get asked such questions quite a fair bit.
But whenever I get the questions, my response has always been the same: “I don’t know. And, I don’t really care.”
Some of you may think I’m being flippant. But, I respond in that way for two good reasons (it’s something I tell to whoever I’m answering to as well).
Firstly, I don’t think anyone can be consistently correct with general market movements over the short-term. Secondly, I’m an investor in individual companies – and the stock price movement of an individual company can differ wildly from that of the market.
When experts get short-term market predictions very wrong
At the end of each year, Wall Street market strategists will often throw out their predictions on where the S&P 500 (a widely-followed U.S. market barometer) will be at the end of the next year.
But according to former Fool, Morgan Housel, the “strategists’ forecasts were off by an average of 14.7 percentage points per year” from 2000 to 2014. Someone guessing that the S&P 500 would climb by 9% per year (a figure close to the U.S. market’s long-run rate of return) over the same period would have been “off by an average of [only] 14.1 percentage points per year.”
Such data show just how tough it is to get short-term market movements correct.
The vast difference between the performance of individual companies and the market
The Straits Times Index (SGX: ^STI) is often referred to as the ‘market’ when it comes to Singapore. Over the 12 months ended 11 April 2017, the index has delivered a respectable gain of 13.1%.
But due to prolonged low oil prices, many companies in the oil and gas industry have seen their businesses suffer in recent years, leading to hard falls in their stock prices over the past year. Two good examples would be Nam Cheong Ltd (SGX: N4E) and Triyards Holdings Ltd (SGX: RC5). From 11 April 2016 to 11 April 2017, they have seen their stock prices sink by 76.3% and 43.5%, respectively.
In the middle of March, Nam Cheong’s auditors highlighted that a “material uncertainty exists that may cast doubt on [the company’s] ability to continue as a going concern.” As for Triyards, its results for the quarter ended 28 February 2017 saw its profit of US$5.28 million in the same quarter a year ago become a loss of US$6.25 million. As you can see, there are legitimate reasons for the fall in the duo’s stock prices.
A rising tide cannot lift boats with holes. If you’re an investor in individual companies, it’s a much better use of your time to focus on the performance of the companies’ businesses, rather than where the market’s going.
A Foolish conclusion
It’s a fool’s (lower-case “f”) errand to try and guess what the market would do over the short-term. Even the best and brightest on Wall Street have tried and failed. It’s also worth noting that the market’s movement can be very different from the stock price changes of an individual company.
Keep these in mind the next time you’re thinking about where the market’s going next.