5 investing strategies to make money in a down market
Nobody wants to lose money in the stock market. When there is so much volatility, there is also high risk of losing big time when the market crashes. But no matter how uncertain the market is these days, the risk of losing is always part of investing.
About one month ago, I mentioned in this column, titled “Should Duterte be blamed for stock market losses?,” that rising capital risks brought about by uncertainties in the US presidential elections and fears of interest rate hikes might cause the index to yield toward the 7,000 level once the 7,500 was broken.
Last month, the PSE index did break the 7500 level and gave in to the downward pressure that brought the index to as low as 7,129 last week. The market has to recover soon as stocks are already oversold. Will the market sustain its rally? Or Will the market resume its downtrend and fall to the 7,000 level?
When there are uncertainties, there are opportunities. Here are the 5 ways on how you can take advantage of the current market weakness:
•Buy the dips and sell the rally
When a stock has fallen significantly, there is a good a chance it will bounce back immediately. This is because when a stock is sold too low out of fear, there is strong tendency that it will always revert to its mean.
For example, MWIDE declined with an intra-day loss of 5 percent last week to close at P14.22 but it rallied the next day by as much as 2.7 percent to P14.60. Last Monday, the stock recovered further by 5.6 percent to P15.42. Buying the dips strategy is ideal if you have all the time to monitor stock movements. Normally, professional market traders do this but if you can afford, you can invest.
•Buy high dividend yield stocks
Falling share prices mean rising dividend yields. Buy stocks with solid track record of paying dividends. Dividends are paid out of annual net income of companies. Choose stocks with stable income growth so you can get stable dividends too.
Among the big cap stocks that are currently trading at high dividend yields are MER (8.93 percent), TEL (7.18 percent), GMA7 (6.4 percent) and GLO (4.0 percent). You can also check other non-index stocks, where some are rarely traded but pay good dividends: CDC (5.9 percent), REG (5.8 percent), BLFI (5.2 percent) and HLCM (5.18 percent).
•Buy blue-chip stocks
Stocks that belong to the PSE Index are mostly big cap stocks and considered blue chips. They are the first ones to go up when the market recovers.
Start screening index stocks with at least 5 percent weight in the total free float market cap of the PSE index. Consider those that have declined significantly from their 52-week highs. These are some of the big caps that must be in your watch list: JGS (-24 percent), URC (-21 percent), ALI (-16 percent), SMPH (-15 percent), AEV (-11 percent), BPI (-10 percent), AC (-9 percent), BDO (-7 percent) and SM (-7 percent).
•Buy value stocks
One way to identify potential value stocks is to look for those that have been battered by the market because of negative publicity. For example, share price of TEL has fallen by over 37 percent from its 52-year high this year due to disappointing earnings results. The stock could fall further as profit outlook remains bleak caused by the company’s plan to shift its revenue platform from legacy to digital.
Value stock like TEL can be risky in the sense that prospect of earnings recovery may never happen in the future. But it can prove to be highly profitable over long-term if the company can manage to fulfill its plan.
•Buy in tranches, never time the market
There is no way you can catch stocks at the exact bottom even if you know where the support is. Trend line supports serve only as a psychological reference on where the stock will probably reverse. Some stocks recover without touching support levels. Some simply break down from supports.
There is no need to hurry when the market is falling. Plan your buying strategy. Accumulate slowly and develop your portfolio by diversifying your investments into various stocks. Manage your risk by allocating your capital per stock investment you make.
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