The stock market is scary, what should I do?
Question: The stock market has gone down a lot and I am worried about my investments. What am I to do?—Erwin via Facebook
Answer: From a high of over 9000 at the beginning of the year, the Philippine Stock Exchange Index retreated to a low of 7500.
As of this writing, the PSEi has experienced a loss of near 10 percent, which makes our bourse one of the worst performing markets in the world.
There are many reasons attributed to the decline, from US-China trade wars, interest rate hikes, and high inflation among the few.
While I do not discount that there are many external issues that contributed to the decline of the market, we need to remember that markets will always experience volatility because that is, after all, its nature.
Philippine stock prices, and those in many other countries have been going up for sometime, which makes stock prices expensive.
The market is always driven by the law of supply and demand so when prices continues to go up, there will come to a point where investors will find it too expensive and will stay out of the market which will cause the market to go down.
When the market goes down, people will find value in the low prices and will take advantage so prices will begin to go up again.
To simplify, what is happening is price action.
This is the time for you to check your reasons why you are investing in the stock market to begin with.
I always remind people to make sure they know their investment objectives and their time frames.
Why did you invest in the stock market to begin with? Assuming you are investing for something long term like retirement, volatility is something that should not scare you because while markets go up and down, they do so in an upward trajectory over time.
Further, review your risk preferences—you need to check whether you are ok with the volatility. Personally I would take this time to consider adding on my equity investments by looking a select good value stocks or just adding to index funds and take advantage of the down market.
I asked my good friends about their thoughts on how to handle the decline in the market and I found their thoughts very helpful.
Leading stock market investing advocate Marvin Germo has this to say:
“Depends on one’s disposition. For those who actively manage their portfolios, staying on the sidelines deliberately can make sense because of the market weakness that prevails. Technically, the index has lost much ground but the supports that follow are quite weak. It will pay to wait for buy signals and this may take time. For passive investors, however, real bargains have emerged. If people have invested at over a 9,000 index, 7,800 offer compelling value. Continuous investing will make sense since finding the bottom will be futile. I suggest investing in tranches and doing it progressively. This latter approach can be less stressful and will definitely pay off over time.”
Investment expert Rex Mendoza gave his thoughts on the matter:
“If you are investing in mutual funds and UITFs, the drop in the market gives you a chance to buy and be exposed in equities at a relatively cheaper price. Considering that our economy is still amazing and growing. If you are trading individual stocks and are tracking the market in general, you can use the PSEi as a reference point. If the PSEi stays above 7,700, long-term investors can now come in and buy as close as they can to 7700.
However, if the market does not hold 7,700 it would be prudent to wait for the next support, which I believe, is close to 7,400, meaning, there could be a chance that you could buy it cheaper. Your goal as a position trader is to come in when there is evidence that the market has started to go up and reverse upward. The first signs of that would be when the market would breakout from the resistance at 8,100- 8,250.”
I hope our advice will help you be less scared of what’s happening in the market. These things happened before and will happen again, but know that if you have invested according to your objectives, risk tolerance and are willing to think long-term; you are on the right track.
Join me and my friends Rex Mendoza, Marvin Germo, Dodong Cacanando, Jun Neri and many others at the biggest and most empowering investment conference of the year— #iCON2017 this May 26 at Samsung Hall in SM Aura. Details and registration at www.bit.ly/ICON_2018 or
e-mail [email protected].
