EVERYONE is a stock-market genius when prices are decidedly going higher or obviously going lower.
There is absolutely no hesitation on their part when you ask them about their strategy. “Of course, I bought when XYZ was 10 percent lower three weeks ago,” one would reply. Alternatively, another would say, “I have been in all cash since, just before the market started down.”
You know that it is all nonsense, but people talk about their stock-market investments the way they do about their love life, and that is just fine. Day-to-day reality is hard enough without having to be completely honest about your stock-market investing. Besides, the truth about your market-portfolio performance is best left for the confessional, just as it is for your other “sins”.
But it is a stock market like we have been experiencing over the last six weeks that creates the most difficulty and keeps the experts very quiet. This has been, and is still, a “too late to sell, too early to buy” market.
The last time I looked, the Philippine composite index is down about 5 percent from its September high. That is not much of a drop, although there are individual issues that have gone down quite a bit.
The fall is actually too small to be classified as a correction, which is usually considered a 10-percent drop in price. While several important issues are down 10 percent, there are always going to be those stocks that move with the blue-chip index, but by a greater or lesser amount. The fact still remains that, over time, most stocks will follow the index, even if it gets ahead or lags the broad market movement.
At any given time, especially on the Philippine Stock Exchange (PSE), there are always high-flying trading issues that can go dramatically higher, even as the broad market is going sideways or down. But these issues are not for the ordinary investor who has a real life outside of stock-market trading. It is the longer-term investors in issues like Globe Telecom, Metropolitan Bank and Trust Co. or Puregold Price Club Inc. who are the most concerned, as those stocks are “corrected”.
This type of market turns most of us experts, including me, into near-babbling fools.
I wrote at the end of September that the local market was crossing its Rubicon River, in that it would soon make a decision to go substantially higher or lower. It is still trying to figure that out. Buyers do not want to come in yet, fearing that the market may have more downside action until it finds a bottom. Sellers are concerned that the market could decide to turn higher at any time. We are all caught in the middle.
One stock-market analyst whom I have great respect for says he believes the PSE index will be at 7,000 at year-end. But that is where we are pretty much at right now. The market is not going to trade at 7,000 for the next two months, so that means that the market will go either higher and then return to 7,000 or go lower and return to the current level. That only adds more confusion for the investor.
To simply go and sit on a beach at Boracay and not watch the market for the next 60 days does not make any sense, either. You will either come back to the market to find that you have missed a significant upside move or that your portfolio could be severely damaged. Then again, maybe my stock-market analyst-friend is right and prices will be exactly where they are now. But that is too high a risk to take if you are invested in the market.
Therefore, current stock-market holders have three options: 1) Sell now and wait for the bottom, and wait to buy back in if prices start going higher; 2) do nothing for the moment, and wait and watch for signs of a break, one way or the other; or 3) buy more now to average the cost and hope that you have not bought too early.
I like to let the market tell me what to do. Right now, this market is telling me to wait and watch and be ready for the coming breakout.
On a personal note, a very happy birthday to my son Christopher, who is proving that there’s no real-estate bubble in the Philippines. Chris is a corporate-account officer of Brittany Corp., Vista Land’s high-end luxury development subsidiary.
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E-mail me at mangun@gmail.com. Visit my website at www.mangunonmarkets.com. Follow me on Twitter at @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.