Finding the right time

Remember the cliché of stock investors about buying when there’s blood on the street?

Is this something you’re prepared to do especially since the stock market had already fallen about 50 percent last year, ending at a level that would allow you to buy more shares at cheaper prices and build a portfolio that would earn you money over the long haul?

Or would the pessimist in you prevail?

At a time when markets are volatile and positive news is scarce, the consensus for the moment is that investment preference depends on the appetite for risk.

For those with strong hands and a long-term investment horizon, doing some bargain-hunting won’t do you harm. Buy a few good names and just forget all about it in the meantime.

However, if you’re the type who can’t take chances and do not have the luxury of waiting for the cyclical recovery to happen – such as when you’re closer to retirement – then perhaps the stock market isn’t for you. Let the pessimist in you prevail in the meantime.

Other clichés

When there’s fear, be greedy. This (and its endless variations, i.e., when there’s greed, be fearful) is another of those more famous clichés among market players – for the simple reason that fear and greed almost always go hand in hand together. 

In today’s market, panic selling is rampant. Cash is also king when there is fear of the great economic unknown. Yet, for those who believe that the market moves in cycles, greed could also mean picking up badly beaten stocks and counting on an eventual recovery.

Last week, GSIS said that after selling a substantial stake in Manila Electric Co., it is now interested on acquiring shares of companies that have been badly beaten yet offering better values. But that is coming from a market heavyweight who has lots of funds to spare, occasionally called on to boost an anemic market and which has a president who’s been widely known as a risk taker.

Sign of things to come

The stock market is a sign of things to come at least six months down the road.

The US economy substantially weakened by the subprime crisis, big banks on the verge of collapse, companies closing and millions losing their jobs worldwide in the wake of falling consumer demand – these characteristics spell out what could be a deep and protracted global recession, and rightly so are keeping investors fidgety.

And when you have a market that has dropped seven straight days and lost about eight percent in such a short period of time, this could only mean that things are gonna get worse in the first half of the year.

Already, economic managers have said 2008 GDP likely grew at its slowest pace in seven years as exports slumped, investments withered, unemployment rose and consumer demand slowed down. This should warn you that economic growth will decelerate substantially further this year.

Blessings

If it’s any consolation, the Philippines may be less affected by the global downturn compared to its Asian peers since the country is one of the less open economies in the region. Exports only account for about 40 percent of Philippine GDP as against the average 70 percent in the region.

Another ray of hope for the country is the steady inflow of remittances from Filipino expatriates which would continue to support domestic consumption. These inflows, even if they will see a contraction in the next months, will still be substantial. Heck, the country has survived on much lower inflow levels.

Touching bottom

I’m sure this question is what’s on everyone’s mind right now. When do you know if the market has touched bottom?

On a technical perspective, a trader could say the market has reached its low when a “W” or a double-bottom has been formed. This jargon essentially describes a chart where the price of a security has made two equal bottoms over a period of time, and is regarded as a time to start buying that security.

Every market trader should also know the Dow Theory that price discounts everything and that prices move in trends. A stock’s price is already the result of all the possible factors which may affect a company or a market for this matter. Next to that basic concept in equities investing is that stocks prices move in a definite direction and will likely remain intact until a reversal come along.

Global player Macquarie believes the market’s sharp fall last year indicates that most investors have sufficiently priced in the negative news and tempered their expectations on the equities market.

There are stocks of companies that are difficult to ignore given the plunges in their share prices, strong balance sheets and resilient revenue stream, says Macquarie. Philippine stocks that fall in this league are conglomerate Ayala Corp., property unit Ayala Land, Globe Telecom, conglomerate SM Investments and mall operator SM Prime, added Macquarie.

So when is the right time?

When investors have gotten tired of the bad news, when prices can no longer seem to fall further, when you can no longer look at your portfolio because it pains whenever you do; these could be signs of a bottom and for a contrarian to jump into the market again.

For the masochist, the best time to buy is when it hurts the most – that is the time when you’ve probably caught all the falling knives.

But for some, it will still be a waiting game. And it looks like it will be for a long, long while.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at [email protected]. For a compilation of previous articles, visit www.BizlinksPhilippines.net.