AS of this writing the stock market has been up for almost 22 percent for the year. We’ve seen the likes of DoubleDragon move from P2 per share to more than P10 per share and the relatively quiet ones like Concepcion Industrial Corp. quietly move from P20 per share to P45 per share.
Where is the market now?
ON a fundamental perspective, the Philippine Stock Exchange index (PSEi) is relatively more expensive than where it was at the start of the year. Price-to-earnings ratio is a parameter that investors use to see how cheap or expensive a stock is in reference to its current market price and its earnings-per-share. Normally a P/E ratio of 20 is considered expensive. As of this writing the P/E ratio of the PSEi is at 20.92 (data via Bloomberg). This not only places our market as expensive but we are also more expensive compared to other markets in Asia: Singapore = 14; Thailand = 18.36; and Malaysia = 16.64.
An investor may think, why would I want to buy the same market that I could buy sometime later at a cheaper price? It’s just like you wanting to buy a car but having an option to either buy now at a higher price or a few months later but at 20 percent off.
Normally when a market is more expensive, investors hesitate to put money out as they are waiting for the market to correct and go lower so they can buy it at a lower price later on. When less people buy and sellers dominate the market, the market normally corrects in price until it comes to a point where the price becomes too cheap to ignore and buyers come back in again.
From a technical perspective, the PSEi is still in an uptrend and the market still remains to be bullish. A stock that is in an uptrend will continue to go up until proven otherwise or until the trend line gets broken and it reverses into a downtrend. If you have positioned earlier, keep on holding and maximize the uptrend until you see the market shift direction and then lock in the gains. Your goal as an investor is to maximize your gains and minimize your losses.
The question now is if you have cash do you now jump the gun and start buying stocks again or wait until the market goes lower again? The answer to that will depend on you and what strategy you would want to employ. If you are a person who loves looking at the fundamentals of a company or price action via charts or you may be a person who combines both schools of thought into your trade.
One thing remains true, though
DON’T just buy because of emotion. Sometimes it is tempting to buy when you missed out on some stocks that have moved up significantly already and you just want to compensate and make up for the lost time and the lost opportunity. My suggestion is, take a step back, pause and do not trade first. Take the time to let your emotions subside and buy based on logic and strategy rather than emotion. If you think you are missing out, guess what? There will be more opportunities in the future to make money. Markets move up and down and you can take advantage of opportunities that will still come in the future. Whether you buy cheap via fundamentals or buy when the market is moving up via technicals. What’s important is you spend the time to do your due diligence and create your own winning strategy for investing.