Asked on 09 Oct 2018
Too big to fail yes, but their stock prices can still be affected. Too big to fail should only be used to determine if you should buy a bond.
I think the only one too big to fail might be Temasek holdings or GIC. If they fail we are really in deep S**T. DBS maybe....because it is the largest bank in SG and most of us deposit money there.
I'll give an example. Hopefully it is enough.
If you want to invest in Singapore Stock market, there is no choice, but through SGX. In other words, among the big companies that can't fail, SGX is the biggest of them all, right?
If you just buy these "infallible" companies, well, you can be sure of a rude shock one day. Why? This is because you need to be aware of the value of the company famously summed as this investing quotes, Price is what you pay, value is what you get.
Back in 2007, SGX was trading at over $15. I have checked on their website and there is no stock split, scrip dividends, etc. If you had bought that stocks back then, you would curse and swear as the share price is about $7 today. Even today, the dividends is about 28 cents. In 11 years, SGX has not gone back to $15. You suffered a paper loss of around $8, while the dividends are around half that amount at best.
Next, if you had bought at $15, your dividend yield is at best, 1.86%, which is better left in the bank or SSB. This is not assuming there is no capital loss.
Would you still have faith in such big, infallible companies, even if it is a 0.01% chance that it will fail?
As such, whether it is worth to buy the individual stocks depends on your proficiency in stock picking. If you do not have the proficiency, then perhaps it is time to invest in a hobby/education in understanding how stock works.
1."investing at the right price" is a safer mentality than "too big to fail".
give maximun X percentage of your capital to them. if they really fail, you dont lose too much.
when the price drop 50%, you shouldnt sell out. (most difficult thing to do)
Too big to fail? Yes. But they may stay at the low price for a prolonged period or worst case forever. So it is better than going to zero but still a big loss if this happen.
We cannot take things for granted. Too big to fail might happen to us in Singapore. This explains why we always need to diversify our investments, so in the event if one of those stocks fail, you do not lose everything.
With, only for example, the current corona situation we see what can evolve (Sasseur) from single equity investing.
ETFs seem the better diversified, lower risk option (VNQ, S-REIT ETFs could be successful)