Gus Cosio says so

Ideas on the Philippine Stock Market

What makes a friend?

6:00 pm  Thursday   30 July 2009  Philippine Stock Exchange Index   2764.98 (-1.37%)

Yesterday, Meralco (MER) had traded as high as 302.50.  Today, MER opened at 200 and was sold down to 190 before recovering and eventually closing at 241.  What’s going on?

Remember that this stock began the month at 139.  When a stock goes beyond double its price, you can’t help but become jittery.  It was just one seller that took this stock to the tank at the first 10 minutes of trading.  The market bought it up the next 15 minutes, hesitated, and took it up again.  I don’t blame the sellers for either cutting loss or taking profit because this game has just gotten very dangerous.  I don’t know where this stock is going and I don’t want to know either because my instinct tells me that a price action like this can happen again.  The price has gone beyond fundamental analysis.  When that happens, it becomes like betting on the roulette table.  It is no longer an investment activity but a game of chance.  I am not a gambler; I am an investor.

If one wants to play the game at this point, he’d be better off trading FPH or BPC because there you can measure the value of the stock and still enjoy the ride.  The value of the stocks will strongly be affected by MER, but they wont be as speculative.

There are actually other games to play.  Have a look at PAX, CYBR, or even SINO.  PAX and CYBR have just had a volume spike while SINO had a price spike.  Another stock, EEI, had both a price and volume spike, so that is another candidate.  If you are looking to play the speculative game, it looks like play has just begun for these stocks.  The good thing is these stocks have either assets and earnings, so it won’t be a just a spin of the wheel.

Personally, I’m glad that the market is down today.  It gives people a chance to stand back and have a look at what they are really doing.  Large cap issues like AC, MBT, BPI and ALI have pulled back and are looking cheap compared to themeselves.  I would be more careful, however, because there is a lot of profit taking that can happen over the next few days.  I always suggest that one should get to know a stock before making a decision becuase nothing beats an intelligent move.  A good stock will still be good even if it goes down in price.  Warren Buffet says that if you buy a stock and its price goes down, you should be happy because you can buy more at a cheaper price.  There is absolutely no sense in getting involved in a stock that you do not understand, and it is not merely knowing the company.  You must also strive to understand the company in terms of its stock price.

In the Philippine market, we have only 247 issues to choose from, so it is really easy to get to know a stock.  It is like choosing a friend.  A person becomes your friend because he is someone you can trust.  You can even trust a true friend with your money, and the way to get to trust a friend is to get to know his substance in and out.  It is the same with a stock.  You must be able to trust it.  As a rule, I don’t touch a stock that I don’t trust.  It just does not make sense.


July 30, 2009 - Posted by | Financial markets in Asia

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