Making Sense of The Market

I have been trying to view my blog but for the past 3 days, I couldn't. My browser informed me "your connection timed out". Naturally, I pin the blame on my notorious DSL provider.

Well, enough of that.

For the past 3 weeks, investors, traders and institutional buyers have been on the edge of their seats vis-a-vis the market. This is not because of excitement but due to panic. There's a saying that someone's panicked response (i.e. consequential selling) could be someone else's buying opportunity. But in this bear market, there's a "sell on rally" mindset, meaning, people who have held their stocks since last year, and can't take the paper loss anymore will likely sell their shares at each upturn of the market.

What is your best bet during these times?

In the Philippines, where there's only an estimated 1% of the population trading the stock market mainly due to lack of investor education. Hence, 50% of the trading transactions done locally are from foreign brokerages. This makes our market highly sensitive to changes, there's just not enough people investing in the stock market.

I've said in an earlier blog entry (I can't link to it since I can't view my own blog!) that people who buy and sell stocks in the stock market are what I call stock market participants. In general, there are two, the trader and the investor. Last night on CNBC, John Bogle, said that there are two types of people - the investor and the speculator. Even before I heard of John Bogle, I already thought of those two distinctions, albeit in different nouns/descriptions ^_^ This is not to gloat, rather this boosts my confidence in the way I perceive the stock market.

So far, I have heard a lot of friends who say that "be careful" of the stock market. I can't blame them since a lot still have the memories of the half decade spanning 1997 - 2003, where no stock was sacred nor spared. But that is just wrong, if one is to view it that way. Why?

Bato bato sa langit, matamaan huwag magalit, a majority of those who participate in the local stock market are traders, sometimes I prefer to call them gamblers. It is a cynical view of mine of people who try to make the stock market a form of legit gambling house, where people will always ask you the question, what's the next stock to buy? What do you think is the target price of that stock?

This is an immature and premature question, especially for people who have nil knowledge of what really happens and what the objective of the stock market is. Imagine, I was once told that a person, who was new to the stock market, opened with a brokerage firm located in Ortigas, and this person was advised by the broker to buy AJO, PA, "because they have bigger swings", i.e. mas malaki ang kikitain.

If this is how some brokers "advise" their clients, then no wonder we have wild swings in the markets, especially during down days.

Instead of doing that, these "advisers" should first ask the client if they are investing for the short term or for the long term. Time and time again, it has been proven that the stock market will always have short term volatilities, but in the long run, it usually points upwards. The stock market was never meant to be a short term investment.

Think of it this way instead:

Stocks are shares of companies. Companies are business ventures. There is no such thing as a business venture that is built up to lose money. Businesses are put up to make money. However, business cycles will always be there, so there won't always be profits every fiscal year, but in the long run, these businesses will remain. You just have to realize what companies you want to invest in.