[SINGAPORE] It is May. This can mean only one thing – it’s time for those articles that drone on about selling in May. It goes without saying that some advocates of the old saw will be proven right. It is after all a 50-50 call. The month of May could turn out to be a wash-out for shares. Consequently, sometimes naysayers of the market will be proven right and look like absolute geniuses. Even a broken clock is right twice a day.
But selling in May is nothing more than just another market-timing strategy – a very crude one at that. It has been shown time and again that time in the market is more important than trying to time the market. As far as I am concerned, bring it on. Sell in May by all means. But I will be buying, regardless.
Mark Twain once said: “October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
One, shares beat inflation over the long term. So, ensuring that the buying power of our savings can be maintained in the face of rising prices is a very good reason to invest in the stock market.
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Admittedly, the performance of shares can vary in the short term, which is why we need to adopt a long-term perspective. We should also reinvest any dividends that we receive into more shares. That is known as compounding, which is when money grows on top of money that has already grown.
Two, I like shares because they are easy to buy and sell. Compared to other investments such as art, fine wines, vintage cars and antiques, shares are relatively simple to manage. Unlike a property, we can dispose of just part of our share portfolios if we need to with comparative ease. It is quite difficult to sell a house brick by brick.
Obtaining information
Three, I also like the idea that it is quite easy to glean information about companies. There is more data than ever available about shares. Today, many brokers provide their clients with swathes of information about companies. Furthermore, it is easy to get hold of historical performances as well as useful forecasts about how businesses might perform in the future, too.
Here’s a question: Have you ever liked a product so much that you want to own shares in the business that produced it? This is the fourth reason: Instead of just forking out for a company’s goods or services, why not buy a share in the business and be a part owner of the outfit? It is a great feeling to know that we are contributing to our own coffers every time we buy something from a company that we are part-owner of.
The fifth good reason to buy shares is dividends, which are the portion of a company’s profits that are distributed to shareholders. It is real cash in the pockets of shareholders and a tangible reward for owing shares. Currently, Singapore’s 30 largest companies are yielding over 4 per cent, which is more than the interest paid on savings accounts. What’s more, reinvesting our dividends is a good way to effortlessly grow our investments over time.
My final reason for investing in shares is capital growth. In the short term share prices may fluctuate, which can give the impression that investing in the stock market is risky. However, profits of good companies tend to grow steadily over time, and it is profit growth that will drive share prices higher.
So, there we have it – my six reasons to buy shares. If we are new to buying and selling shares, we can always start with a low-cost index tracker, which is an easy way to get exposure to the stock market. That was how I started.
I still have the index tracker that I bought many years ago. I can’t remember exactly what time of the day, or which day of the month, or which month of the year I bought the tracker. But that’s the point. A long-term investor doesn’t really care about the here and now. What matters is whether the investment will be worth more in the future.
The writer is co-founder of The Smart Investor
