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80% Of Singapore’s Blue Chips Have Fallen Over The Past Month: Should Investors Be Worried?

A share market disaster seems to upon us in Singapore. Did you know that 80% of the Straits Times Index’s (SGX: ^STI) constituents - in other words, Singapore’s proud blue chips - have fallen in price between 21 September 2014 and 21 October 2014?

According to a report by The Edge Singapore, 24 of the Straits Times Index’s 30 constituents had a negative return during that one month period. With such a statistic at hand, what does it mean for investors? More importantly, should investors be concerned?

Well, as it turns out, looking at the performance of a share from month-to-month is a waste of time. In fact, doing it from year-to-year might not be productive too. I’m going to show you why that’s so using two companies as examples: Alcoholic beverages maker Thai Beverage Public Company Limited (SGX: Y92), and shipping outfit Neptune Orient Lines Ltd. (SGX: N03).

A walk down memory lane

For the sake of symmetry, let’s go back five years in time to 21 September 2009. One month later on 21 October 2009, Thai Beverage had lost 5.5% while Neptune Orient Lines dipped by 4.9%. In the 12 months ended 21 September 2010, Thai Beverage was up a measly 5.5% whereas Neptune Orient Lines had put on a slightly better gain of 9.9%.

But for the five years ended 21 September 2014, we see Thai Beverage knocking it out of the park with a 163.6% return while Neptune Orient Lines is down by 46.7%.

From all that price action I just described, doesn’t it show that a share’s short-term performance (in this case referring to month-to-month and year-to-year comparisons) has no correlation with a share’s longer-term performance? And, if a share’s price history tells us nothing about its future gains, why should we even bother looking at price trends in the first place?

Instead, investors should be looking at a share’sbusiness trends - for a simple reason. On 21 September 2009, Thai Beverage had made 1.86 Singapore cents in profit; by 21 September 2014, the beverage maker’s profit had grown by 83% to 3.40 Singapore cents. For the same time periods, we see Neptune Orient Lines’ loss of 49.9 Singapore cents become a loss of 13.0 Singapore cents. Granted, the shipping firm had seen some improvement in its fortunes. But, it was still loss making (where’s the consolation in that?).

Knowing where to look

Your time would be much better spent if you just focused on the business fundamentals of a share you are interested in. Understanding the growth strategies and market opportunities of a company is far more insightful than looking at its share price history. Once we know where to look, we can spend time focusing on only the things that really matter - a share’s underlying business.

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