Despite closing the year 2017 with an 18% upside in the Straits Times Index (STI), we saw another 90 points increase in the STI to end at 3489.45 in the first week of 2018. For myself, I am happy to have seen many days of advances last year. In the week that just passed us, like many investors out there, I have enjoyed a 5-digit figures climb a day in the three out of the four trading days. In a market like this, it is probably difficult to lose money. Maybe everybody has become an expert in their own rights. But going forward, it is unlikely that things would be repeating at this rate. Complacency may have already started to build in the minds of investors. The advances in the Dow Jones Industrial Index (DJII) has become such a norm that any retreat is seen as an abnormality. Given that DJII has some bearing on the STI, the advance in STI is also becoming more and more of an expectation.
While I am personally enjoying the ride on this wave, I beg to be now more on guard than I had been last year. From the past experience, market crashes came when we were least expected of them. The global financial crisis struck when many Americans were chasing the American Dream. The Nikkei-225 fell when property prices in Tokyo had to be paid by three generations. The Asian financial crisis hit when property prices were around their highest level in the 90s. The DOT-COM bubble burst when there was extensive euphoric belief that any company registered as a DOT-COM was a pot of gold in the making. The list goes on.
In line with the rapid advancement of the STI, many would have agreed that it is getting more and more difficult to find gems that would potentially bring 30%-40% upside to their stock portfolio. On the whole, Mr Market has been quite generous in rewarding the true blue investors due to the extremely low interest rates after the global financial crisis. Going forward, the low-lying apples are no longer there for cherry-picking. In fact, the climb in the recent months has been quite confined to the banks, perhaps manufacturing and possibly some REIT counters that generally offer higher yield. Many of the STI constituents in transports, properties and conglomerates did not really move the STI very much, further weighed down by their lower weightage compare to the banks.
As a matter of opinion, the STI should still remain buoyant due to the spill-over effect of last year and playing catch-up with other financial markets, and very importantly, the economic performance of the local economy. But, whether this year is going to be as good as that of last year remains to be seen, particularly in the second half.
Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.