RATIONAL INVESTING?
October 13th 2008 00:00
Números racionales, fracciones de 4. Pic source: Wikipedia
“The economy will figure itself out, let’s concentrate on how we can produce more food.”
Those words were said in reference to the present global financial problems. Not mine. But I cannot attribute them to the man who uttered them because I wasn’t able to ask him if I can quote him on that statement. You know how it is, sometimes one needs permission when quoting prominent personalities.
Anyway, that man is with the Philippine Chamber of Commerce and Industries and he said that in a meeting (not a PCCI meeting) which he attended in his capacity as one of the leaders of said organization.
Now, before anyone who belongs to the “superior race” (font size intended) denigrate the person I am anonymously quoting, allow me to point out that the Philippine economy is not the one presently in disarray. The Philippine economy, undoubtedly, will be affected if the world economic condition persists but…
Well, our topic is about rational investing. Let’s go back there…
I quoted the statement above because I find it rather sobering. I mean, look at it this way: the geniuses of global finance has created a humungous, hungry monster and it is gobbling up everyone - including the giants that created it. There are people who have the power to take the monster head on and, hopefully, they are doing their job and doing it right.
There is nothing a small individual investor can do to fight that monster and he cannot even enlist to help. Only the most successful and the richest of all the investors can ever hope to help and yet, so far, he is barely making a dent.
Now, given that kind of perspective, what can a newbie do? Not much I reckon except to take care of himself. And what better way is there for a market newbie to do to take care of himself (under the prevailing market conditions) than to keep his cool and maintain his sanity?
And how is he doing that?
By following a couple of pointers I should say. Like:
1. Doing his darnedest to live within his means.
2. Investing only the money that he will not immediately need.
3. Carefully selecting his stocks.
4. Taking a longer view of the market.
5. Allowing the global economy to “figure itself out.”
6. Buying more stocks using his spare cash (assuming he has spare cash) when he gets convinced that he is looking at a real bargain.
7. But most of the time, just watching at the sidelines.
I mean, what is the point of worrying over something that there’s nothing you can do about? If the money that you have invested in the stock market is the kind of money that you burn in pubs or malls (or wherever) on a regular basis, what reason is there for you to lose your head when they suddenly showed you some paper losses? If the stocks that you have carefully chosen are still taking a beating, can you get some other that aren’t?
And wasn’t there that market analyst that said that every time the market plunges as badly as they did the past week, the market immediately recover a good percentage of the losses as well? And if they don’t, will the market stay the way they are now say, in five (5) years time?
Nah, the world economy is not falling deep into an abyss because of me. There is nothing I can do to change its direction so I will just let it take its course. I don’t know how much deeper the markets still has to fall, and I’m not sure if anybody knows that.
But if this carnage continued to show me some opportunities to buy say, for 20 bucks what used to be priced at 150, I will not wait for the prices to go back up to 150 before I buy the darn stocks.
I am a newbie and the experts may not consider what I am doing “rational investing” but then again, don’t they also have something to say every time Warren Buffet put his billions to work amidst this world economic crisis, the latest of which being that of his investments to GE and Goldman Sachs?
Now, don’t tell me you didn’t hear him spend billions of dollars to buy anything at all before the Dow reached its present level.
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Comment by katyzzz
Photography Tips
MS Paint Art
Comment by Market Newbie
Gizmo Peek
Stock Market Punk
Thanks for gracing this page. I do have a little problem with cash, they keep ending up everywhere else if they are not intended for anything immediate. I do have a little piggy bank though that i am feeding for the rainy days.
Banks in the Philippines are sound, but then again, weren't those big US banks saying the same thing before they fall flat into their faces? And yep, these days, the mattresses seem even sturdier.
Comment by Fobzy
Fobz
.........down
............................d own
............................. ..................... down
something of a graph there, don't you think for the almost innumerate fobzy, under the mattress sounds good to me, but frankly, with marriage imminent and my prolonged bout of celibacy, I can't wait to be on top of the mattress, there's money in land, my friend, and as you said, God is not making any more.
Comment by Market Newbie
Gizmo Peek
Stock Market Punk
In my case, I do believe that money spent is money spent (without chance of recovery) but money spent in investments could prove to be money spent wisely
Comment by Anonymous
I guess i need to wait a few days before replying to Mr Newbie to look at all the responses above. I did say to you all a few weeks ago that it was time to sell your stocks at PSE 2700 as markets were now going to go south again.
My strategy is now to be fully leveraged short (making money when markets go down ) in the US by using ETF's and if you don't know what they are then check out Yahoo finance - investing - ETF's and look at Proshare shorts and ultra shorts.
I've lost money in this market like most others, but over the last 2 days the US market has declined for instance, I've made a 15% profit and over the last 3 weeks a 34% profit. I think there's another 30% to go before we hit bottom there or here which would mean another additional 50% profit, so you can make money when every one else is losing theirs and then invest this higher amount at the market bottom.
For a more techical view of a market bottom Asian equities trading at book value are a buy and they are currently at 1.2 of book value, so buy at any point below PSE 1750. As for global markets, they discount the future by around 6 months and so i believe that after two quarters of bad earnings on profit declines and bad macro economic numbers, the market in June 09 wil then be able to see 2010 and an end to the misery indeed the beginnig of a recovery sometime in that year and so markets will gradually rise from that point .
What's happened in the market is a 'double whammy'. The credit crunch dropped it 35% and now that's almost 'sorted' the global recession kicked in to the US stats 3 weeks ago ( this would have happened anyway after a few years of growth) with a 4% drop in industrial production, a leap of 160,000 in US unemployment and company forward profit outlooks weakening and these will drop it another 35%.
The best guess then for the PSE is 1,500 in Mid 09, if you are prepared to wait, because there won't be much of an immediate bounce back, but by 2012 you'll have doubled your money, all being well.
By the way with regards to Warren Buffet's investments in GE and Goldman they are paying him 10% guaranteed annual dividends, so he can relax about whether the stocks are going up or not, whilst we don't have that luxury.
So to repeat - buy stocks below PSE 1750 a few at a time every time the market goes down below there, and expect the absolute bottom to be near 1,500 but don't wait, as by the time it hits it, it may rebound 20% in two days and you'll have missed your opportunity.
That's what I'll do and my broker on Ayala knows it already!
Regards
British Bulldog.