Just sharing this insightful article by John Mangun taken from Business Mirror.
***
‘THE sheep
pretend the wolf will never come. The sheepdog lives for that day.”
The Philippines
stock market has been one of the best global performing markets during the past
two years. There are many factors that will push prices higher in 2013. The
Philippine Stock Exchange index above 7,000 by year-end is probable.
Photo credit |
However, there is
a disturbing trend that has been going on for two years that seems to be
accelerating. It is rooted in the premise that the stock market will continue
to go higher and higher and give higher and higher returns. The trend I am
worried about is the belief that the stock market is a sensible investment
vehicle for everyone.
Granted, a
person can invest through a managed investment program, such as mutual funds,
and these funds do help reduce the risk. But there is always a downside risk.
There is an old
stock-market saying that when the shoeshine boys start investing in the stock
market, that is the time to sell. While there may not be many shoeshine stands
left, there are a variety of lower-income individuals who are being encouraged
to put their excess money in the market. Is it time to sell when the domestic
helpers are investing?
The sheep
pretend that the wolf will never come because they are told not to worry about
the possibility of a wolf.
The Hong Kong
stock and commodity markets were hot in the early 1990s. Prices more than
doubled in two years. Prices tripled in less than four years. The only topic of
conversation upon getting into the taxicab was “The Market.” Yet from January
1994 to the end of that year, the market lost nearly 40 percent. During the
1997 Asian financial crisis, the Hong Kong stock market dropped more than 50
percent. More recently, that stock market fell almost 60 percent from 2007 to
2009.
The taxi
drivers probably did not get caught in the last downturn; they decided not to
be the sheep of the stock exchange.
Investors must
understand that the stock market operates in a very real sense like a pyramid
scheme. That is, investors that buy into an issue early are able to profit
because of buyers later in the game. There is nothing wrong with that. All buy
low and sell high in every business works that way. The first investors who
started selling pearl shakes made a fortune; the ones who opened stores a few
years later probably lost money. However, you do not want to be the last one in
on a fad or the last one buying at the stock-market price top.
The argument to
the less sophisticated investor is always going to be that professional
management will protect your investment. That is not a guarantee against
losses, even large and potentially fatal losses. The Black Swans can always
fly, and when they do the results can be disastrous.
Black Swan
events are high-profile, hard-to-predict and rare events that are seemingly
beyond the realm of normal expectations. But that does not mean that Black
Swans are totally off the chart as to the possibility of them happening. The
key is that they are hard to predict and the results are equally difficult to
forecast.
The Mount
Pinatubo eruption was unpredictable but had virtually no impact on the stock
market. But what would happen if there were a major earthquake in Metro Manila?
No amount of professional investment management could protect stock positions
from that situation.
Highly
unlikely, but a serious attempt to overthrow the government as happened in 1989
might drop prices by 50 percent within days.
Things could
get militarily out of hand quickly between the Chinese and the Japanese or even
involving the Philippines, and potentially the US. How fast and how far would
stock prices fall?
Every sensible
economist knows that at some point, the US debt situation could cause a
collapse in the value of the US dollar. The operative word is “could,” but
it has happened before in living memory and no one knows exactly what
conditions would have to come together to make that happen again. But we have
seen it before in 1997. The Philippine peso closed at 26 to one US dollar on
Friday and by Monday, the rate was 36 to 1 or 35 percent lower in value. Stock
prices lost 40 percent in one month.
The sheepdog is
prepared for those events by understanding the potential for loss. The sheep
believes it will never happen.
****
E-mail to mangun@gmail.com.
My web site is www.mangunonmarkets.com and Twitterme@mangunonmarkets. PSE
stock-market information and technical analysis tools provided by COL Financial
Group Inc.
***
Gee, that sounds scary.
All of a sudden, I got nervous thinking about that black swan possibility.
All of a sudden, I got nervous thinking about that black swan possibility.
I'm guessing now where that swan is swimming right now HAHA.
That why I really see Stocks Alert of Truly Rich Club very helpful. This is the way of the club to give relevant important market updates to the members each time they need it. And that is my way so as not to worry so much about thinking how to protect every peso of my investment. I let the people who monitor the market all their lives do their thing and leverage on it.
And me?
Resting under the shade of a coconut tree watching the setting of the sun in a yellow-orange sky while sipping fresh buko juice in a tall glass with a tiny
umbrella.
Cool dream, isn't it? =)
Have fun investing (with your peace of mind)!
PS:In case you have not yet received the news, there's a new stocks alert from the club about AP.
PS:In case you have not yet received the news, there's a new stocks alert from the club about AP.
Stocks Alert: Sell APWe believe it’s time to sell AP (Aboitiz Power).
Not because it reached our Target Price (it hasn’t), but because we feel the growth moving forward will be slow. Don’t get me wrong: AP is a fantastic company, and long-term, it’s very good. It just has someshort-term challenges that it has to face.
You can sell AP and buy the other new companies we recommended, such as AGI.Mike Vinas will talk more about this in the next Stocks Update.
May your dreams come true,
Bo Sanchez
If you want to get timely market updates such as this, stocks updates, wealth strategies and other materials to help you multiply your blessings so you can really aim and go for your ulimate life purpose and dreams, join the club here.
Try it out with its 30-days money-back guarantee!
Click here to see for yourself!
This comment has been removed by the author.
ReplyDelete