Here’s Why Investing In The USA Market is More Profitable Long Term.

Hey readers,

Almost like any new investor, we often find comfort in investing in companies in our local stock market. There is a sense of familiarity and security. It probably stems from the fact that we are able to see those businesses. Don’t all of you agree? 

For example, if I want to know whether Sheng Siong (a Singapore-listed supermarket) is doing well, I can just visit its different outlets in Singapore. 

This is why a big part of investing isn’t just about learning how to choose the right stocks.

It’s also about choosing the right markets.

If I could turn back time, I would love to start investing in the USA stock market earlier. 

I spent too long investing only in Singapore-listed companies and it slowed down my compounding process.

Now, I am not being unpatriotic here. It’s about being realistic as an investor. Our money must go where returns are being created. 

To make a comparison of stock market performance easier, I will use the S&P 500 (USA), the Straits Times Index (Singapore), and the MSCI ACWI (Global).

(Source: Capital IQ)

From January 1992 to August 2022, STI returned 122%, S&P 500 returned 943% and MSCI ACWI returned 433.8%. If we calculate the compounded annual returns of STI, it would be somewhere between 2.5 – 3%. 

We can already see how much more returns an investor can generate by having exposure to listed companies in the USA. 

As a caveat, past performance does not guarantee future performance. This is why it’s important to understand the drivers of returns.

The USA has a bigger population than Singapore which means the country provides more revenue potential for companies. The USA exports its culture very well through TV shows and movies, and this provides a platform for its companies to ride the globalisation trend. Nike, Lululemon, Apple, Microsoft, Tesla and Amazon are some global companies from the USA. 

Companies that are looking for growth have better access to capital and a talent pool. 

With these benefits, it is not difficult to see why the USA stock market has been performing well over the past few decades. 

Unless the USA starts to lose these advantages, I foresee the trend of its outperformance will continue. 

That’s the bigger picture.

How about looking at individual companies? 

The Straits Times Index is made out of the top 30 companies in Singapore.

(Source: Yahoo Finance!)

Out of 30, I have picked 5 companies to represent different sectors in Singapore.

(Source: Google Finance)

The results are decent, at best. 

For the S&P 500 representing the United States, I am picking Apple, Microsoft, Amazon.com, Tesla, and Alphabet. It’s in order of their weightage in the S&P 500 index. 

(Source: Google Finance)

Their share price performance has outperformed some of Singapore’s top companies by a wide margin. 

I’m writing this article because I do not want all of you to make the same mistake as me. The mistake of being too comfortable with companies listed on the Singapore Stock Exchange. Thankfully, many years ago, I took the courage to venture out and it helped me build my 2nd investment portfolio called The Hedgehog Portfolio.

If you already know how to select good companies in Singapore, you can apply the same techniques in the USA as well. 

With the current market correction, this is the best time to scoop up US companies with growth, a strong balance sheet, and attractive valuations – at highly discounted prices.

To generate good returns, it is not about your fishing rod, it is about fishing where the fishes are.