As you can see from the chart above, the PSE started high then declined in the afternoon. Among our stock picks, we can now only choose 2: MBT and PSE (the stock). Another choice would be to just stay on cash and not invest on your picks. I strongly believe that a correction or a consolidation will occur soon.
What is a correction/consolidation? It's best if I use an example. Let's say random investor Mr. X bought FPH at P70.00, and he set his target price at P108. As you can see, FPH's current price is already P108, so Mr. X sells his FPH stocks. Let's say there are quite a few people just like Mr. X whose TP is also P108. Conservative investors like us are no longer buying because the price is now above our BBP. If: Supply > Demand = Stock Price declines. Basic economics. This event is called a correction/consolidation.
One strategy that we can employ is to buy stocks when this happens. Even if the stock is already above our BBP, but still has 10% upside, then I personally would still buy that stock. For example: MPI, PGOLD, BDO, and FPH.
The stock price will continue a decline until investors feel that it is already cheap enough to get into, so they will begin buying the stock again. But what happens if no one wants to buy? Then that will be the start of a market crash...when no one wants to buy.
So if that is how easily market crashes happen, then why should I continue to invest? I might lose all my money! Yes, it can happen, but look at the Philippine economy right now. It is booming. For 2013, analysts project the PSEi to reach 7,000, and that is still excluding the expected upgrade of our market to Investment Grade which is foreseen to happen this year.
A second strategy would be to adopt the buy-and-hold method of investing. I'm still a very risk averse person. And if you're like me, then what stocks should we be picking now? Every stock seems so expensive. I would advise you to choose defensive stocks or companies that sell products that everyone will buy.
Like what? Like Aboitiz Power(AP), Meralco (MER), Manila Water Company (MWC). People will always buy electricity and water. You can also pick MPI who have investments in water, electricity, tollways, and hospitals. Consumers will always need these products, and that's why they are considered defensive.
I've removed PNX and IPO from the list because PNX was a dividend play. If you have PNX, TP is P14.9. I'll be making an update about PNX once I know when the dividends will be released. As for IPO, it is growing too slow for my taste. If you are currently holding IPO, you can sell now at a loss of P20, but you can reinvest the cash into another stock. Or, you can just hold onto it. IPO gives consistent dividends every year and is also considered a defensive stock because its main investments are in schools like the Mapua Institute of Technology.
God bless your investments, and as always, Caveat!
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