A BUY SIGNAL
September 3rd 2008 00:00
The past few days some, technical analysts, traders, brokers and investors at the PSE (Philippine Stock Exchange) were discussing about a possible medium term buy signal. The PSE have seen its lowest in two years in the first week of June 2008 when it fell to 2289, the two year high was somewhere in the 3800 range.
The PSE has since gone past the 2600 level but in the last few days of August, the signs were so bad analysts were saying that if the market breaks the 2500-2600 level it will go all the way down to 2000. But nothing like that happened and on August 27 the PSEi managed to go as high as 2650. At this point, they were saying that if the market shows a long white Japanese candle towards the end of the month, they will consider it a buy signal, that is, if it was supported by a respectable volume.
I don’t have motion sickness, but all these up and down movements of the market are making me rather dizzy. I decided to give my eyes a rest. I stopped following the lines and jagged edges and concentrated on comparing the prices from a year ago to the present level.
Needless to say, there was quite a drop!
I suppose, the same can be said about almost all markets nowadays. But does it automatically follow that because the prices have gone down, the stock prices have actually become cheap? Some doesn’t seem to think so, considering the way the world economic conditions have impacted on existing businesses. But then again, if that is the case, when do a newbie buy?
They say that you buy when there’s blood on the streets. But if the price is not cheap even if there’s blood on the streets, why should you buy? Believe me, if you depend on written materials on investing in making your investment decisions, you’ll go nuts!
I’m not saying that this newbie is disregarding everything he reads (and he keeps on reading), but given the conflicting claims on how to invest, this newbie decided that the moment he is able to accumulate some loose change that he can spare, he’ll just go out there and buy.
Of course he is not just going to go out there and buy – he is going to do his darnedest to buy the right stocks – but he is not going to wait any longer for that rather elusive buy signal.
Reasons? 1. It will be a bit harder to buy the stocks he has his eyes on (at present prices) the moment those prices started to go up. 2. A number of companies are buying back their stocks because they believe the prices do not reflect the real value of their stocks. 3. The PSE has been defying the world market trends. 4. He doesn’t have that much money and, while he may lose a good portion of the loose change that he might be able to accumulate if he buys at the wrong time, he might just lose all of them in some unnecessary expense (like some whimsical, luxury or spur of the moment purchases) if he doesn’t use them to buy those stocks.
I do believe that the chance of recovering money spent in whimsical purchases is practically nil. I suppose the newbie will have a better chance of getting back that money (hopefully with some profits) if he uses them in acquiring stocks of a company that has a good track record and pay dividends.
I mean, sure, if the price of stocks continued to drop then the newbie will have a longer waiting time for his investments to recover and show some gains. But then, if he ended up using that money in some spur of the moment purchases (other than investments), he can wait all his life and still see no gains or recovery of the money spent.
And lastly, talk is cheap. There are a lot of people out there (on TV, radio, newspapers, magazines, websites, etc.) who make their own individual predictions. Some speak their heads off based on what they actually see and honestly believe in. Others make pronouncements on what they want others to see and believe in.
Many of them are right and many of them are wrong. Hurricane Gustav was a nice example. It was a real threat. It could have driven up the price of oil. In my previous post I mentioned that I was placing my bet on the belief that the price of oil will go down. At that time, Gustav was not yet even in Jamaica.
It became a level 3 hurricane when it hit Cuba on its way to the Gulf of Mexico, where many of the offshore oil rigs are, if it reached level 5 as a hurricane before it battered Louisiana and New Orleans, the story would be different. But it didn’t.
If the newbie becomes too careless, he is going to lose his money. But if he becomes too careful he is going to lose money too. So, which way should the newbie go?
I suppose taking some amounts of calculated risk cannot be avoided.
But the newbie would probably be more careful if he has tons of money.
The PSE has since gone past the 2600 level but in the last few days of August, the signs were so bad analysts were saying that if the market breaks the 2500-2600 level it will go all the way down to 2000. But nothing like that happened and on August 27 the PSEi managed to go as high as 2650. At this point, they were saying that if the market shows a long white Japanese candle towards the end of the month, they will consider it a buy signal, that is, if it was supported by a respectable volume.
I don’t have motion sickness, but all these up and down movements of the market are making me rather dizzy. I decided to give my eyes a rest. I stopped following the lines and jagged edges and concentrated on comparing the prices from a year ago to the present level.
Needless to say, there was quite a drop!
I suppose, the same can be said about almost all markets nowadays. But does it automatically follow that because the prices have gone down, the stock prices have actually become cheap? Some doesn’t seem to think so, considering the way the world economic conditions have impacted on existing businesses. But then again, if that is the case, when do a newbie buy?
They say that you buy when there’s blood on the streets. But if the price is not cheap even if there’s blood on the streets, why should you buy? Believe me, if you depend on written materials on investing in making your investment decisions, you’ll go nuts!
I’m not saying that this newbie is disregarding everything he reads (and he keeps on reading), but given the conflicting claims on how to invest, this newbie decided that the moment he is able to accumulate some loose change that he can spare, he’ll just go out there and buy.
Of course he is not just going to go out there and buy – he is going to do his darnedest to buy the right stocks – but he is not going to wait any longer for that rather elusive buy signal.
Reasons? 1. It will be a bit harder to buy the stocks he has his eyes on (at present prices) the moment those prices started to go up. 2. A number of companies are buying back their stocks because they believe the prices do not reflect the real value of their stocks. 3. The PSE has been defying the world market trends. 4. He doesn’t have that much money and, while he may lose a good portion of the loose change that he might be able to accumulate if he buys at the wrong time, he might just lose all of them in some unnecessary expense (like some whimsical, luxury or spur of the moment purchases) if he doesn’t use them to buy those stocks.
I do believe that the chance of recovering money spent in whimsical purchases is practically nil. I suppose the newbie will have a better chance of getting back that money (hopefully with some profits) if he uses them in acquiring stocks of a company that has a good track record and pay dividends.
I mean, sure, if the price of stocks continued to drop then the newbie will have a longer waiting time for his investments to recover and show some gains. But then, if he ended up using that money in some spur of the moment purchases (other than investments), he can wait all his life and still see no gains or recovery of the money spent.
And lastly, talk is cheap. There are a lot of people out there (on TV, radio, newspapers, magazines, websites, etc.) who make their own individual predictions. Some speak their heads off based on what they actually see and honestly believe in. Others make pronouncements on what they want others to see and believe in.
Many of them are right and many of them are wrong. Hurricane Gustav was a nice example. It was a real threat. It could have driven up the price of oil. In my previous post I mentioned that I was placing my bet on the belief that the price of oil will go down. At that time, Gustav was not yet even in Jamaica.
It became a level 3 hurricane when it hit Cuba on its way to the Gulf of Mexico, where many of the offshore oil rigs are, if it reached level 5 as a hurricane before it battered Louisiana and New Orleans, the story would be different. But it didn’t.
If the newbie becomes too careless, he is going to lose his money. But if he becomes too careful he is going to lose money too. So, which way should the newbie go?
I suppose taking some amounts of calculated risk cannot be avoided.
But the newbie would probably be more careful if he has tons of money.
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Comment by British bulldog
Just relax will you?
You are investing for the first time in a market with great volatilty globally as no-one knows for sure whether this will be the mother of all recessions or simply a year long slow down now largely behind us.
As for reading, I every day here contrary voices usually Americans who say it'll be OK and Europeans saying 'watch out' things are slowly getting worse. You can listen or read to too many opinions and must get to know the voices you feel you can trust. For Hong Kong for instance I always listen to Francis Lim of Fulbright securities. He feels it has a floor of 20,000 we're perhaps about to find out!
Looking at the Philipines, it has been less volatile, so for instance one of the few Asian markets to rise yesterday along with Japan and Korea so dependant are you and they on cheap oil. In contrast China is now down 60% this year!!
You have to acept this volatilty for the moment. In 2010 to 2014 it will be easy to make money ( all things as usual).
Warren Buffet the most famous investor in the world says buy when others are scared to. That advice says buy now, but on a 5 year time horizon, as no-one knows quite what will happen over the next 6 months. The key is to buy quality companies cheap, companies with low borrowings/debt a strong brand, management, growth prospects and hopefully too and yes a strong dividend policy.
I would therefore buy the banks as they meet the above criterion, and are marked down on US and other 1st world bank sub prime problems, but there are none here!! On the other hand some of the miners are very cheap but that doesn't neccesarily make them good value!
It may also buy Jollibee. They have a diversified exposure abroad, a strong brand and are well managed here. What about Cebu Pacific's owners who also own a bank? Apparently cheap, but they screw you if you buy the day before or have to change your schedule. Strong brand and international!
The other thing to do is therefore to keep your eyes open. I live in a small town in Occidental Mindoro. What sells here I reckon can sell anywhere and there is a Coke Cola warehouse so i bought Coke, Nestle do well, so I bought them. There is a shortage of infrastructure here as well as all over Asia, so i bought the main infrastructure builders like Siemens who are building China mobile's 'go west' network or Alstom who build 20% of the worlds power plants, all this 'living in the sticks'.
Finally you have to accept that what happens in the US is more influential than what happens here as there are the world largest equity markets by far (followed by the UK and Japan who also mirror the US). It is slowing but not dramatically, inflation will fall, they have low interest rates, so all may yet be well there.
As for 50 and 200 day moving averages, I think it's schoolboy stuff! We're dealing with realt time events in an ever changing world here not alchemy.
What you do know if you bought the market at 2,200, is that you bought at a 40% discount to October 07. That alone would be good news. Expect the local market to hit 5,000 by 2014, but only if the economy continues to be managed properly and an ex actor/ boxer etc doesn't become President again. For that reason alone you should support Constitutional change and persuade others to too, as that too should also reduce the amount of money in politics as well as the cult of personality and place more emphasis on policy, which is what the politics (you hate so much) is supposed to be about after all. On the other hand if Willie Revilla ( wow wow wee) Kris Aquino and Manny Pacquio stand together, they'd win by a landslide and we'd all be 'going to hell in a handcart.'
Regards,
British Bulldog.
Comment by Market Newbie
Gizmo Peek
Stock Market Punk
As always you have a very good take on the local market. But don't worry too much about me. I value your opinions, but I also like the fact that I entered the market at a time when I still had a chance to make money - followed by this great volatility that you mentioned - because then, I wouldn't have to wait long to have a feel of both the Bull and the Bear markets.
I do form my own opinions (of the market) and take my own risks. I like hearing what others have to say as well on how they think the market will do both short term and long term.
I'm rather careful too. I am a bit choosy with my picks. I did buy JFC and a few more that I thought have good value and would do well on the long term but I refuse to mention them all here as that might be construed as an endorsement of those stocks.
I leave the choices to our potential readers who might be in the same market as we are, as I would rather that this blog be neutral as far as stock picking is concerned.
You wondered in one of your comments about the number of people who read this blog. Well, we DON'T have as much as any sane blogger would want to have (as a minimum number of visitors) but we do have a few who regularly visit us (around 300 hits on a good day).
That's nothing compared to other blogs, but then again, I believe we have a responsibility to those who come and visit us here.
A good day to you!
Comment by British bulldog
One thing I forgot to mention is that last time that pres Gloria was in the US she signed an agreement that would let the PSE take advantage of a deal between NYSE and Euronext and so Phil investors should get the opportunity to buy a far wider array of stocks including global leaders like google, coke or siemens and as many Asian companies list on Frankfurt,Honda, Samsung or Chnia Mobile too.
I don't know when this will happen, but if it does the European stocks will be cheaper as there are more of them outstanding ( to pay dividends to)whereas the reverse is true of the USA and the Asian stocks are closer to European prices, so save your pesos and take advantage.
One I personally would recommend once the China markets stop falling is China Life Insurance H share listed on Hong Kong. Last year it doubled from 24 to 48 HK$ in 6 months ( 120 pesos to 240 pesos) and is now back almost to where it started. Given China's growth I expect it to be worth 100 HK$ within the next 5 years and 200 within 10 there will be currency gains and arbitrage gains once the yuan begins to strengthen again (one day it'll be convertable) and domestic China A and B shares will have to equalize in value ( though today they're a lot closer than 6 months ago).
Three ways to make money plus dividends! It will be the kind of long term investment to lock up and forget about and then in a few years, you'll look at it and a big smile will spread across your face.
Regards,
British Bulldog.
Comment by British bulldog
I don't want to say I told you so ( having recently announced that I'd gone 40% short (making money when stocks fall) last week) for who could have predicted a weak continuing unemployment claims figure and i've lost money in this years market like just about everyone else. It wasn't very weak, but this is September (clean up your portfolio time) ! Pimco's Bill Gross an influential bond investor also said that the deleveraging of financials is forcing the sale of stocks further depressing and spreading market losses and referrred to it as a 'financial tsunami', hardly helpful! Tonight we get new unemployment claims and futures are already down so, watch this space!
The 3% falls in the US last night including 5% on financials will bring the PSE down maybe 100 points today but as oil also fell too that may be mitigated somewhat.If you bought the PSE at 2,200 and see it fall to 2,000 this month or next, relax as next year it will be much higher.
Look at it this way. If stocks fall, you have an opportunity to buy them cheaper ,which is good. If they rise your existing portfolio rises in value, which is also good. This is why most investors should (and ) have either cash on the sideline or money invested short ( you can't do that here in the Phil) that they can invest down the line, should stocks get even cheaper.
Talking about technical resistance, why not watch Bloomberg televison today and see if Hong Kong goes below 20,000. I suspect a wall of money will be triggered on programmed buying if it does. Then watch the whole of Asia which unlike the PSE has been dropping this last few weeks. Big falls today!
See you,
British Bulldog.