MAYBE the Chinese government is right. Maybe once you buy a stock, you should not be allowed to sell it.
Yes, I’m serious. Think about it. Granted, not being able to sell your shares sort of takes away the instant liquidity thing. But then again, the experts tell you that you should always have patience and hold for the long—or even longer—term to guarantee to make money.
There are some definite advantages for the stock market to be a one-way investment proposition. We are told that the Philippine Stock Exchange (PSE) is manipulated by the “Big Boys” or the “Old Boys,” or maybe the “Bulacan Rice Farmers Association.” But the point is that there could not be any instances of “pump-and-dump” if pumping could not be followed by selling and dumping.
But the biggest advantage of not allowing selling on the stock exchange is the mental health of stock-market investors.
There are several newspaper columns and television shows giving free stock-market advice. Most of the time they are the market equivalent of what you find in the Lifestyle sections of some newspapers. They answer questions like, “I am in love with my boss who is married with five kids. How do I tell him or her?”
If you notice, the number of investing questions when the market is going down is about 10 times as many as when stock prices are going up. Every one is a stock-market genius going up and a “helpless victim” on the downside, desperately seeking advice.
The problem with free stock-market advice is that it is about the same as free lifestyle advice; no one really wants to tell the truth and, therefore, hurt someone’s feelings. The answer to the person in love with the boss should probably be, “Quit your job today. Move to a faraway province. Grow camote or kangkong.”
I do not think I have ever seen any stock advice in a falling market, like “Sell all your shares today. Prices are going lower. Put the money in a bank account”.
Instead, we are always told that the country’s economic fundamentals are good and logically, share prices should go higher eventually. Of course, the advice never mentions that San Miguel Corp. (SMC) shares were P180 in 2011 and are now trading at P45. Or that Resorts World Manila (Travellers International Hotel Group) traded at P10 in January 2014, and is now at P4.
If you own SMC at P180, ignore it; watch the economy, instead. You will feel better. Also ignore the fact that SMC shares need to go up 400 percent for you to break even. Besides, you were investing for your retirement 20 years from now, right?
I was watching one of our stock- market experts the other night respond to question from an investor, whose investment in a stock fund is down 12 percent since February and wants to know whether to sell and wait for the PSE index to go to 6,800, or hold for a move back up to 8,000.
The host commented that the investor had hit his or her “maximum stock-market tolerance” with a 12-percent loss. I guess that means you have reached the point where you need free market advice from a television show. Maybe at a 20-percent loss, you should go talk to a priest.
Then comes the “investing for the long term” mantra. Further, “Why did you invest?,” “What are your investment goals?” and “What is the purpose for investing?” I thought the reason for investing was simple: make money, preferably as fast as possible. Who ever took a job and said, “I’m here for the long term. Hold my salary until next year”?
The conclusion was to hold on to losing positions as long as there is “No fundamental shift in the market.” That makes sense, I suppose. But I am trying to figure out when the “fundamental shift” came in Resorts World, since it has been down almost continuously since it first started trading. And is a 14-percent fall in the PSE index a fundamental shift or not?
The advice used to be that a losing investor should “Sell until you can sleep at night.” Now it is “Take a sleeping pill and keep taking them until prices go back up.” But the most important thing to remember from all the stock-market wisdom is that if you never sell your shares, you will never take a loss. Just ask the Chinese investors.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter
@mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
2 comments
Good advice manong. When the fundamentals of a company are good, hold on to your shares even if the market is down . When the fundamentals of a company are bad, sell early when the market is down. My portfolio has been down 35%+ but is now about 30% down because I did not take losses early. So, all I do now is wait and read your column to be happy.
SMC is groaning under a huge 13 Billion USD debt obligations. To put this into perspective, only the Republic of the Philippines has a higher debt. At an average interest rate of 5%, SMC is paying approx 650 Million USD annually to service these debts. The market has voted, this is the reason from a high of 220 per share it is hovering below 50 today.