A rational pessimist
11:45 pm Sunday 27 February 2011
Unless there is a dramatic shift in the global political tensions, I do not think that our market will be going anywhere in the coming days. It is really quite a pity considering the constructiveness that we saw in the last quarter of 2010. This only goes to show that we cannot underestimate the fickleness of markets. It seems that movement of crowds will always be the norm in stock markets which makes it an imperative that we have an insight on crowd psychology.
When the inflation fear gathered momentum, there was no stopping it. I believe the fear will be among us for sometime more. Even the tension in the Middle East is a manifestation of inflation fears given that what embeds the anxiety of investors is the fear of oil prices sky rocketing as OPEC supplies get threatened by lower production.
The developed markets while enjoying a bull run over the last two months is showing some signs of weakness. Of course the downward revision in US GDP estimates from 3.2% to 2.8% does not help the cause for equities world wide. Surely, strong domestic fundamentals in the Philippines will not affect global mindsets very quickly. Everybody is looking at the big picture, and, unfortunately with big pictures, small markets can hardly be seen. The key is for local investors to gain strong conviction on the fundamental values that domestic stocks present.
A case in point is TEL. I must admit that while TEL has been cheap from 2400 and below, I have yet to be compelled to pick it up in spite of the impending cash dividend which is usually paid out in March. I guess I value cash more greatly today than I value even high yield stocks. It gets to be that way when you sense that the crowd will be against you. Timing is absolutely key to situations like TEL and my instinct tells me that it is not yet time. I think that sometime soon, conditions can become very attractive to a handful of TEL followers.
In the meantime, investors must come to their levels of comfort before thy increase exposure to the market. Whether you are a technical trader or one who puts more weight on fundamental value, you cannot escape the prevailing mood of the market. If you are optimistic on the markets short-term performance, you are in a very small minority. Fortunately, it is times like these when I remember a quotation from the oracle of Omaha, Warren Buffet: “The most common cause of low prices is pessimism – some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”
Nevertheless, patience and careful analysis of the situation cannot be yet ignored.
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