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.