Who’s afraid of PSEi 8,000?
A great investor is one who is always forward-looking.
Question: I have heard some say that the target for the Philippine Stock Exchange composite index (PSEi) is 8,000 to 8,200 for 2015. We are now a few hundred points away. Should I hold off on investing and wait for a possible correction so that I can buy at lower prices?—Asked at “Ask a friend, ask Efren” free service at www.personalfinance.ph
Answer: It is all right to be afraid of the index nearing its projected peak for 2015. But don’t be petrified because you will survive even if you buy at that level. There is a requirement though, that is you have to buy wisely for the long term.
Our stock market has seen many bull and bear periods. There was even a period when it made sense to just sell at a certain high level of the PSEi and then buy back at another low level because prices were moving sideways. But the run-up in 2008 seemed to usher in a new chapter in the PSEi.
A great investor is one who is always forward-looking. He rises above the stock market noise to see if there are still bargains to be had relative to their prospective earnings. These earnings have never looked better, thanks to the many changes that our economy went through in the past decade. But this is not to say that the major upswings of stock prices will continue. At some point, price movements will normalize and shrewd investing will be the name of the game.
The run up since late 2008 is by any measure a bull run. Many made tons of money at that time. But don’t be surprised if I tell you that nobody is brilliant in a bull run; after all, the prices of most stocks were destined to move up. So if you invested during this time, do not think you are dgfev online casino already invincible.
There are two theories in behavioral economics called overconfidence and confirmation bias. Overconfidence is not always arrogance. It is just that we tend to place an unrealistically high value on our own abilities versus the others’. It can get us to where we need to be when others are cowering in fear. However, overconfidence becomes dangerous when combined with confirmation bias, where we choose events that justify our prowess and simply ignore those that don’t.
So if shrewd investing is the name of the game, what justifies buying companies listed in the Philippine Stock Exchange for the long-term?
Let’s take the cue from the reasons cited by Moody’s for giving the country a recent upgrade in its credit rating to Baa2 from Baa3. These are the 1) ongoing debt reduction; 2) continued prospects for economic growth, and 3) less vulnerability to common risks currently affecting emerging markets.
By citing ongoing debt reduction, Moody’s highlighted the implementation of the government’s budget management scheme both through conscious effort by the executive branch and the rulings of the judicial branch of government. There is reduction in the country’s debt as a percentage of gross domestic product or GDP. Foreign currency denominated debt is also lower as a percentage to total debt. Finally, the debts’ maturity had been lengthened through refinancing/restructuring, allowing for a lower level of cash needed for debt servicing.
On continued growth prospects, while the government found its hands tied by certain court rulings, the private sector has stepped up. In fact, the growth in pooled funds in the country, which is probably around the P1 trillion, has allowed the PSEi to continue to move up in 2014 despite a net outflow of hot money. Previously, when hot money flowed out of the country, the PSEi dropped, but not anymore. The US economy’s recovery, where most dollar remittances come from, is providing solid support for household consumption. Soft commodity prices are providing for better margins for companies importing them.
Lastly, lower inflation due to lower oil prices, less dependence on commodity exports, less reliance on slowing China, and ample onshore liquidity are making the Philippines less vulnerable to the common risks that other emerging markets are now facing.
Do remember though that it is so easy to buy PSE-listed companies. It is in making money out of what you bought that is tough. In a time when gains in stock prices will normalize, the one who can spot the company with the best earnings prospects yet still trading at a steep discount to its intrinsic value will win.
To know more about shrewd investing, visit www.personalfinance.ph. There are free tools and links that will allow you to hit the ground running with financial planning. You may also want to attend our EnRich™ Wealth Management training program on April 11, 2015, the details for which can be found in our website.
Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines. He is best selling book author of Pwede Na! (A Complete Guide to Personal Finance) in 2004, and is the chairman and president of the Personal Finance Advisers Philippines Corporation.
Source: http://business.inquirer.net/188249/whos-afraid-of-psei-8000
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