Gus Cosio says so

Ideas on the Philippine Stock Market

Time – a friend :)

9:15 am  Monday  22 November 2010

The past 2 weeks was nerve wrenching for many.  It was the first consolidation of its magnitude since June this year.  The index retreat was only about 7.8% which by any standard is a shallow correction.  However, it is understandable because the market is very constructive both due to positive earnings outlook on many stocks and the deluge of cash or liquidity produced by very low interest rates in most financial markets of the world, including the Philippines..  A number of our readers together with many retail and high rolling investors had become overcome with fear, anticipating a deeper correction.  Fortunately for us who are more strongly committed to this market, most prices apparently have found their support levels and are starting to recover.

For all of us who are in the market for the long haul, I would like to share some advice given by Jack Bogle, the founder of Vanguard Investments, one of the most successful fund managers of modern times.  He says that “If you have trouble imagining a 20% loss in the stock market, you should not be in stocks.”  He also stresses that in markets, “time is your friend, impulse is your enemy.”

Investors must remember that what makes up a market place is the diversity of opinions of buyers and sellers.  It represents the different levels of risk threshold that traders have and the boldness by which some can quickly take their losses and bravely buy in a falling market.  I am not saying that there will no longer be corrections and strong price declines.  In fact, the lesson of the past two weeks should make us more prepared for such fearful market actions.  Those who are new to the markets must bear in mind that a day or so after they buy a stock, this stock could go down in price.  That is why it is important that before getting into a stock, an investor must understand why he or she is buying.  If you are buying simply because you are chasing a price, you will surely misinterpret price movements on the stock and will easily be whipsawed by corrections.  But if you are convinced of its value, your risk threshold for the stock becomes deeper.

For example, a number of readers got nervous about MPI.  From a high of 4.44, MPI dropped to a 3.68 low.  The big question in people’s minds is whether or not the run on the stock was over and will this be the start of a long decline.  If you understood what the value is in MPI, you can be certain that the decline was a buy opportunity rather than cause for panic.  I can go down the line for stocks like EDC and even SCC.  These stocks came under heavy selling pressure but have recovered creditably.  I can go on with stocks like FLI, MER and also the blue chips like AC and TEL.

Anyway, I am of the view that the market will again assault the 4400 level before the year ends.  I think the blue chips will lead the charge initially, but I think because NIKL will perform very strongly, investors will be looking to mining stocks particularly those with heap valuations.  While we are back on the positive side of things, I think personal strategy should not be ignored.  In whatever stock you go into in the next few days, make sure you know what your thresholds are because time will only be on our side if we have a trading plan in place.

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November 21, 2010 - Posted by | Financial markets in Asia

37 Comments »

  1. “If you have trouble imagining a 20% loss in the stock market, you should not be in stocks.” … AMEN.. “Scared money don’t make no money”

    Comment by gabe rapatan | November 21, 2010 | Reply

    • What kind of trader losses 20% of portfolio?
      No stop loss plan? Think for yourselves people!

      Comment by Average Joe | November 22, 2010 | Reply

    • well, I didn’t lose 20%, but when I bought VLL at 2.5 it immediately tanked to about 2.1xx the very next day.

      If I had put a stop loss order, I would not have reaped the rewards now.

      Or how about MPI. Just recently it was trading at 4.4x. But last fri it went down to 3.7x.. about -18%? But I did not sell, I bought more instead. 🙂

      So I’m gonna have to disagree on this one. I think if you choose a stock carefully, and choose it well you need not fear a temporary loss. I think you should be happy instead the price went down and you were given another opportunity to enter.

      Comment by jasper | November 22, 2010 | Reply

  2. i fully agree not to panic! this cost me in the past. Sir, i’m fully invested in just 3 stocks AGI, MER and MPI. Is this good or do I need to diversify more or cahnge positions?

    Comment by weenah | November 22, 2010 | Reply

  3. Hi Sr,

    May I get your email ad to exchange some info? thanks

    Comment by alex | November 22, 2010 | Reply

    • alex,
      Check you email. I sent you a message.

      Comment by Gus Cosio | November 22, 2010 | Reply

  4. Hello Sir Gus!

    I’m always reading your blog and i like it here so much!

    A year ago when i was beginning, i lost 25% of my invest but i steady gained little by little while learning. Glad i remained interested in stocks even i stumbled many times!

    Sir, do you think SMB will continue to go up from current level of 17.5? I already gained 20% excluding dividend of 0.14. It’s a quick play for me with the momentum it had. Aside from being a fundamentally good company, I did not sell yet because I am speculating that the price is intentionally brought up. I observed one broker buying at the open and close at gap up price. Macquarie also bought some last friday.

    Other readers, please share if you have comments.

    Comment by Aldrien | November 22, 2010 | Reply

    • Aldrien,
      My problem with the San Miguel stock is that the disclosures are very spotty. My suggestion is that if you are happy with your returns, try to protect it by taking profits on around half of the position.

      Comment by Gus Cosio | November 22, 2010 | Reply

      • Thanks sir Gus! I already sold all that I bought three days ago and I am very happy with my 30% profit plus a little dividend.

        I used to be purely a momentum trader even with third liner issues but now big part of me is becoming a value investor. I still allocate some funds for momentum trading or depending on price actions and buying brokers. But only with fundamentally good issues as much as possible, like SMB in this case!

        I’m also learning other trading styles here and I thank you all a lot!

        Comment by Aldrien | November 22, 2010

      • Aldrien,
        There are different trading styles as there are many ways that stocks behave. You are correct in having a dynamic view of your portfolio.

        Comment by Gus Cosio | November 22, 2010

  5. I believe one should only trade with stocks they are comfortable with. Anyway, no one bets on stocks he knows will lose its value. Bottom line: patience should be a friend too.

    Comment by Shan | November 22, 2010 | Reply

  6. Sir Gus,

    I am new in stocks and have learned a lot from you since Sept 2010. I am writing to thank you for all your insights and practical advices to us. I am a constant reader of your blog. God Bless!

    Ramon

    Comment by Ramon Alfaro | November 22, 2010 | Reply

  7. “If you have trouble imagining a 20% loss in the stock market, you should not be in stocks.”

    ben graham said a similar thing, but instead of -20%, he said -50%..

    Comment by cliffhanger | November 22, 2010 | Reply

  8. Agreed, In the stock market Time is a friend … and Timing is a brother =)

    Comment by Nivla | November 22, 2010 | Reply

  9. Sir, I read in your previous post that you already sold your VLL shares and took some profits. Is it still a good buy?

    Comment by harry p | November 22, 2010 | Reply

    • Harry,
      I’m looking to buy it back. Just waiting for good timing.

      Comment by Gus Cosio | November 22, 2010 | Reply

  10. Sir,
    Any thoughts on DMC. Good q3 earnings but seems share price remains muted. Though I’ve been loading up since price slid to php 33’s.
    Regards.

    Comment by Mark Anthony | November 22, 2010 | Reply

    • Mark,
      DMC is still on of my best bets, and I am still holding a position from a few months ago. I am looking to buy it back but I would like to be selective in my entry price.

      Comment by Gus Cosio | November 22, 2010 | Reply

  11. Sir Gus,
    SLI 2nd most active… What your insight sir..

    Comment by jaayem | November 22, 2010 | Reply

    • I am not Sir Gus, but I am seeing a head and shoulders pattern for this stock. There might be a trend reversal brewing. Just be careful.

      Comment by Seth | November 22, 2010 | Reply

      • Hi Seth,
        It might be too early to call a head and shoulders for DMC, although my sentiment is to wait for a meaningful correction to buy this stock.

        Comment by Gus Cosio | November 22, 2010

    • Jaayem,
      I still own a position in SLI. I am patiently waiting for their follow on offering. The volume spike today is a very good sign. Market adage is “volume precedes price.” We may be seeing the big move soon.

      Comment by Gus Cosio | November 22, 2010 | Reply

    • most of the transactions seemed “manipulated”. sold and bought by the same broker. 15M shares each transaction

      Comment by rodimus | November 22, 2010 | Reply

      • rodimus, that makes 98.61% of total weight.

        Sir Gus, what are your thoughts on this?

        Comment by eccentric | November 22, 2010

  12. Hi Gus… may we know if you will keep Nickel Asia or take profits today?

    Comment by newbie | November 22, 2010 | Reply

    • Newbie,
      I am keeping my NIKL for a few months since I like mining stocks at the moment.

      Comment by Gus Cosio | November 22, 2010 | Reply

  13. Hi Sir,
    What do you think about PRIM shares? i bought it at 2.07, should I still Hold on to it?

    Comment by Allen | November 22, 2010 | Reply

    • Allen,
      I think PRIM is a very long term play. I estimate that it will take them 3 years to be at the same footing as the two major networks.

      Comment by Gus Cosio | November 22, 2010 | Reply

  14. Hi sir Gus,

    I have significant amount of investments in fami’s equity and balanced fund. After studying some stock investing 101’s, I realized I can maximize the potential of my money by investing directly into stock market. My time horizon is long, and I am moderate to aggressive investor.

    My investments at fami is less 6 months, and now I am considering redeeming all of it, put it on my citisec account to take advantage of the recent consolidation/dips on stocks I’m watching. My idea is to put 60% on long terms stocks, 20% on short term, and 20% waiting cash for any occasion like last week.

    Can you give me advise, am i being smart on redeeming it all?

    Comment by rdthedeveloper | November 22, 2010 | Reply

    • rdthdeveloper,
      In my case, I invest in stocks directly and I add monthly to my equity mutual fund account with FAMI. The reason I do this is because I cannot take advantage of all the opportunities that come my way. Sometimes, I do not have enough cash or sometimes I do not have the time. Oftentimes, the timing is not there. In truth, my mutual fund account has out performed personal trading account. I can attribute this to a few factors – the fund manager is 100% in the market all the time; he is considered a big player by brokers so he gets the best service, research and information flow from them; he also gets offered block trades that are sometimes at a small discount to the market.
      In short, there are many advantages that a fund has that is not available to the small retail account. The fund manager writes Php 20 million tickets for each trade. My portfolio is not even one-tenth that.

      Comment by Gus Cosio | November 22, 2010 | Reply

      • Hi Gus… the Inquirer has stopped updating their daily mutual fund report. Do you know of any entity that publishes a mutual fund report? Thank you.

        Comment by newbie | November 24, 2010

      • Business World whose online site is bworldonline.com

        Comment by Gus Cosio | November 24, 2010

  15. good wisdom from a veteran.I myself learned from the past correction thus Im keeping some free cash when the nxt slide comes along, before end this wk? Hope SLI will come along this wk

    Comment by jack | November 22, 2010 | Reply

  16. I was not allocated NIKL IPO and was wondering if it is still a good time to enter @ 16.50 which is the close of the day? Thank you.

    Comment by thewingedpalate | November 22, 2010 | Reply

    • In my opinion, it would be.

      Comment by Gus Cosio | November 22, 2010 | Reply

  17. Hi Gus,

    Thanks so much for the insights and advise that you distill so unselfishly. They have been a very big help to me personally in guiding my trading decisions.

    A quick question on ORE, do you see its momentum continuing and is it driven by strong fundamentals? I bought today at 4.27.

    Thanks

    Comment by Mike | November 22, 2010 | Reply

    • Mike,
      I do not guarantee you anything on ORE except that I am holding on to it. I will, however, be watching the much expected shipment next month. If it does not happen, I may sell a portion of my position. It’s my way of managing risk.

      Comment by Gus Cosio | November 22, 2010 | Reply


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