Since the middle of the year, every time I have been interviewed on the television channel ANC stock-market program, I have been asked about inflation, economic growth, and other fundamental factors. My response has been consistent. The stock market is and would continue to totally ignore this data and information.
The day before—November 5—the most recent GDP numbers came in at a most favorable 6.2 percent, the Philippine Composite Index went up two percent or 157 points. The next day the PSEi fell 191 points or 2.3 percent. This drop was attributed to the old reliable “profit taking” at best and “sell on news” at the worst.
The problem is that too many people put their faith in the “Best 100 Quotes about the Stock Market.” Only about seven of those are worthwhile. The rest are taken out of context, worked really well before the invention of television, or had an expiration date of about one week to one year.
I particularly like “Buy when there is blood in the streets.” Anyone buying the Hong Kong stock market? I prefer my wise old saying: “Buy when the blood in the streets has been washed away.” Who can forget the Nobel Prize winning economist Paul Krugman who wrote the day after Trump was elected president, “If the question is when markets will recover, a first-pass answer is never.” The Dow Jones Industrial Average is up 42 percent since then. The markets rarely do what the ‘experts’ think that they should.
Even actual hard number data is useless. It is a fact—well outside the statistical margin of error—that for nearly 100 years the New York stock exchange has been down more days when it rained in New York and up more days when the weather was sunny.
Trying to figure out why and how people spend and invest their money is a difficult proposition. That is why we have three-day sales at the mall.
In 2015, the PSEi was down by 5 percent. Yet, inflation for the year was a favorable 0.67 percent the economic growth came in at 6.1- percent. In 2014, the index rose 24 percent with 3.6-percent inflation and 6.1-percent growth. For 2013 the PSEi was flat (up 1.32 percent) with 2.58-percent inflation and 7.1- percent economic growth. Go check if any of the Best 100 Quotes about the Stock Market has it figured out. And do not say one thought like “Onli in da Pilipines.” This is the way the markets—all markets—work. The same is true about the idea of prices moving on “greed” and “fear” and that “Climb a wall of Worry” nonsense.
While it might appear that we humans are not much more sensible than a troop of drunken monkeys, we are all shrewd and incredibly smart when it comes to money. We can be manipulated and that is why the price is “only P19.95” and not “P20.00.”
However, there is a thin line for the stock markets when good external data is bad for stock prices. Studies for the past 50 years in 30 markets worldwide show that a “too good” economy does not translate to rising stock prices. “Too high” economic growth means it is better to invest in a personal business and not the market. “Too low” and wealth stays in cash.
“Once upon a time, there was a little girl named Goldilocks” and eventually she found “this porridge is just right.” Maybe 2020 cannot come soon enough.
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.