I would like to talk about 3 topics on this update. They are the following:
1.) Stock Update
2.) New PSE products
3.) What happened today?
1.) Stock Update
The day started with the PSE index at 7,200 and slowly started to slide down to the 7,100 level. Then the news of the Philippine GDP was released. PH GDP was at 7.8% at the 1st quarter, beating estimates of 6.1%
Congratulations to AGI holders who sold on May 15 when TP was hit. FPH is currently on hold status because its subsidiary, FGEN, 500 MW plant had to shutdown due to fire and this affected the stock along with the slump we have seen.
2.) I attended a seminar given by PSE last May 23 at the Marriott hotel and learned that the PSE is developing some very interesting new products. They are the following:
Exchange Traded Funds (ETF) - These act like mutual funds, except you can buy and sell them using your online brokers. Basically, when you buy an ETF, you are buying the enitre PSE index. Instead of buying stocks for every one of the 30 companies in the index, you just need to buy ETF. Warren Buffet always said to buy index-based funds, and this is the one he is talking about. ETF will be available on June 2013.
Short selling - soon, the PSE will allow short selling. One of the ways to make money in the stock market right now is when stock prices go up. The other is through dividends. With short selling, investors can now gain money when a stock goes down. How does this work? Lets take for example stock ABC which has a current price of P10. You did your due diligence and think that stock ABC will go down to P2. Short selling is "borrowing" the stock from PSE. So, you borrow stock ABC from PSE, sell it at P10. After some time (I dont have the figures yet), you will need to pay PSE for the stock. If ABC goes down to P2 by the time you need to pay for it, you only need to pay P2 and pocket the P8.
Exciting stuff.
3.) What happened today was this: The US stock market went down by 10%. Big foreign institution buyers quickly sold their stocks here and transferred their funds to take the opportunity in buying cheap stocks in the US. It is as simple as that. Also, our stock market has been growing so fast, that it needed to consolidate.
Now, what should we do? I also don't like seeing red in my portfolio, but is better to establish a cut-loss and save your money than to continue risking it. Is the stock market overheated? Yes, I honestly think it is. Will it still move up some more? Yes, but it will be slower than how it did in 2012.
Rule of thumb: make your stop loss at 8% no matter what stock it is. Be aggressive in cutting losses.
For newer investors, let me introduce you to the saying: "Sell in May, then go away." I don't really know who was the first person to say this but I keep reading it a lot about investors who, when May comes, sell everything and lie low.
Now, why does this happen in May? From what I know, it is the time of year that alot of investment people in Wall Street take their vacations which leads to inactivity in the market. Whether this is true or not, I cannot prove.
As I said above, I think our stock market is now overheated and is reaching its resistance level at 7000++. What to do? Our options are
1.) Go into the bonds market. Bonds are fixed income based and is risk free, but at a lower interest rate(1.5% per annum vs savings account of 0.275% per annum). The downside to this is that current inflation rate is at 3.7%, so your bond earnings is not enough to beat inflation.
2.) Put your money back into your savings account.
The choice is yours. Yes, our market now is quite risky. As for me, I'll wait for a few more months. Then I will shift 50% of my capital to bonds.
Be more cautious and May God bless your investments.
~Crimson
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