SINGAPORE shares fell 50 per cent in 2008, made a U-turn and roared back with a 61 per cent gain in 2009. We have never seen anything like it before and probably never will again.

TEXT AND GRAPHICS: LARRY HAVERKAMP & MAROO

This year's spectacular gains made Singapore the fourth best performer among the world's major stock markets.

In first place was Indonesia with the best turnaround story. It fell 60 per cent in 2008 and then bounced back with a 95 per cent gain in 2009.

Second and third places belong to Taiwan and India respectively. They lost 48 and 65per cent in 2008, followed by a 78 per cent rise for each in 2009.

In a sign of the times, Japan's stock market earned a respectable 20 per cent this year but still finished dead last. It is remarkable that no major market earned less than 20 per cent in 2009.

To put things in perspective, the Straits Times Index has risen around 10 per cent per year over the past 25 years.

This year's 61 per cent gain is unprecedented. It is off the charts. We will probably never see another rebound like it in our lifetimes.

As for the future, the STI's two-year swing from minus 50 to plus 61 per cent shows the difficulty of predicting the future.

Not one stock market analyst got it right. Nevertheless, it didn't diminish their bravado. Analysts still offer advice, make predictions and call themselves 'experts'.

Much of that expertise, however, is clever marketing. For example, fund managers typically have about 20 unit trusts and investment-linked products under their management.

When you rank those 20 funds from best to worst, there is always a best performer. Managers typically advertise that fund and keep quiet about the rest.

It is effective. Top-performing funds sell like hot cakes. The problem is performance does not persist and the 'top fund' changes from year to year. It could be mining one year and an India country fund the next.

It results in investors buying last year's winners, which means they buy when the fund is popular and expensive. Buying high and selling low is the worst possible strategy.

The opposite works much better.

Numbers are tricky

SINGAPORE shares dropped 50percent in 2008 and then rose 61 per cent in 2009. Since 61 is more than 50, it appears gains exceeded losses, so everyone should be richer now than they were two years ago, in January 2008.

This may look obvious but it's wrong. On 2 Jan 2008, for example, the STI was 3,461. Last week, it closed at 2,838. Of course, that is not higher. It is 18 per cent lower.

The reason is a 50 per cent drop requires more than a 50 per cent increase to put you back where you started.

How much more? In this case, it takes a 100 per cent gain.

Say the STI was 2,000 at the start of 2008. A 50 per cent drop would bring it down to 1,000.

A 50 per cent rise brings you to 1,500 which is only half-way back. To return to your starting point of 2,000 requires that stock prices double, a 100 per cent gain.

It is why the dramatic price increases we have seen in 2009 exceed the drops of 2008 but still leave us short of where we started.

This basic and handy information will help on your road to riches.

It can even help you achieve instant popularity. Suppose you are at a function where you don't know anyone. Simply walk up to a stranger or a group of them and explain all this. Before you know it, you'll be the life of the party.

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