A matter of ‘when’ and not ‘if’

Equity markets rallied or retreated last week based on hopes over the success or failure of efforts to stem the European debt and banking crises.

For instance, Wall Street performed most of the week on the basis of optimism or pessimism in connection with the above subject, while cushioned in its trading swings by “better-than-estimated” corporate earnings news.

Wall Street started the week on good disposition only to lose it in the next three days as the possibility of failure gripped them in the eurozone deal owing to stalled negotiations.

The relationship in the direction of Wall Street on the basis of the success or failure to defuse the eurozone problem became more manifested on Thursday as European leaders were able to unveil a more appreciated action plan. The Dow Jones industrial average (DJIA) jumped 339.51 points to the bull market territory of 12,219.79.

Our market likewise performed similarly last week as it was propelled by foreign buying activity that actually was noticeably getting stronger since a week earlier as a result of positive sentiments on the resolution of the eurozone crises.

And, because of our relatively stronger economic fundamentals, our market on Tuesday managed to advance further (by another 0.99 percent, or 41.44 points, as the PSEi closed at 4,242.52), amid the gloom again felt on Wall Street over the eurozone problem.

Our market finally gave way to Wall Street investors’ sentiments on Wednesday as fears grew high due to dimming forecasts for a real rather than rhetorical solution on Europe’s dilemma. The PSEi closed lower at 4,224.76 for a loss of 17.76 points, or 0.42 percent, from the previous level.

Owing to the big local transactions consummated in the week like the approximately P15.13-billion cross-transaction of Manila Electric Co. on Tuesday, followed by the approved takeover and special block sale transaction by PLDT on Digitel last Wednesday, along with the about P6 billion in special block sales transaction on Philex shares last Friday, our market managed to close 67.12 points higher at 4,333.72 from the other week’s close of 4,166.60.

In this connection, PX shares also closed higher by about 2 percent at P24.50 from the previous day’s price of P23.15 apiece.

Last Friday, too, foreign buying amounted to about P1.7 billion, as against the selling transaction amount of P1.05 billion for a net foreign buying transaction of about 62 percent, or P650 million.

Success or failure

Obviously, investors continue to be largely motivated by their feel as to “if”—and not “when”—an event will happen or not. They continue to forecast rather than “manage the impact” of an event or development like the event of failure in the resolution of the eurozone problem.

As narrated in the foregoing performance of Wall Street and that of our market, the trend of markets last week was exemplified by investors’ impressions as to “if”—and not “when”—the anticipated eurozone contagion may be contained or not. This included Wall Street.

As described by a financial news article, Wall Street’s “live by the headline, die by the headline,” obviously referring to the actions taken by US investors in connection with the progress made at the time by the major players in Europe to hammer a concrete agreement to defuse the crises.

Our local market was also observably driven by this kind of thinking while at the same time continued to be essentially influenced by what’s happening on Wall Street.

Why should it be important for one to know the difference of the two in order to make money in the stock market? How could it be that important and necessary?

Drawing from my pleasant and “not-so-pleasant” past experiences, trading on the basis of “if” and not “when” a certain event will happen or not is very critical to one’s chances of making or losing money in the stock market.

The word “if” is a conjunction in English grammar and defined to mean as follows: “in the event that, allowing that, on the assumption that, and on condition that.”

By its given meaning, the word “if” obviously pertains to one’s forecast of the future. As such, it requires action in the present time.

In contrast, the word “when” conveys taking action at an exact time or period “as when it happens.”

In other words, the word “when” does not involve forecasting (which requires taking a decision to act now) but simply of “being ready” with a plan of action that will only be employed “when” the anticipated event or development happens.

Bottom-line spin

To further clarify the point, let me bring you along to the explanation of Dr. Alexander Elder on the subject in his book “Trading for a Living.”

Using his practice of medicine as an example, he wrote, “The doctor is not forecasting—he is taking care of problems as they emerge.” Using a stabbing victim as an example he said, “His (the doctor’s) first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing—not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low.”

To conclude, the word “if” implies taking action on a forecast while the word “when” only requires action upon the occurrence of the envisioned event or development.

As observed, beginners and old investors alike sometimes continue to mistake making money in the stock market to that of forecasting future prices. They ask for forecasts. Professional traders and seasoned investors, at the other end, simply manage information and make decisions on the basis of their educated approximations as they play the market.

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Here is a letter from lawyer Pitero M. Reig of the Tolentino Corvera Macasaet & Reig law office, representing Ms. Concepcion Poblador:

“We write in behalf of our client, Concepcion Poblador, the chair of the board of directors of Philcomsat Holdings Corp. (PHC), in reaction to the column published on Oct. 4, 2011, entitled “A lot of explaining to do.” We deemed it prudent to write this letter in order to correct and clarify misrepresentations made by Mr. Somera in his column.

“Mr. Somera’s views on the issue are obviously biased. His bias comes from being a member of the group of Ms. Erlinda I. Bildner who purports to represent PHC. Apparently, he was among those who authorized Ms. Bildner to file the administrative cases against the bank officials of Bank of Philippine Islands (BPI) that he mentions in his article.

“Considering his personal interest, it is highly unethical for Mr. Somera to use his column to lambast and sully the names and reputations of individuals and institutions who do not share his view or position on the legal issues affecting the management and control of PHC and its funds.

“By Mr. Somera’s own account and admission, the proceedings against the bank officials are still ongoing. There has been no resolution yet on the charges. Mr. Somera is therefore clearly using his column to flaunt the sub judice rule and to subject the hapless bank officials to trial by publicity. We perceive no valid reason on the part of Mr. Somera for such publication other than to intimidate, harass and coerce parties who do not comply with their demands.

“Mr. Somera likewise omits to state that the decision he cited in his article is still being challenged before the Supreme Court. Mr. Somera and his group are already presuming that the court will uphold their position. It should be noted that there are several court rulings already declaring that the Bildner group has no right or authority to represent PHC. Such ruling was made in case, which also involves the BPI. The Bildner group has apparently chosen to conveniently ignore the same.

“Moreover, the majority shareholder in PHC is Philippine Communications Satellite Corp. (Philcomsat). It is only Philcomsat’s legitimate board that can appoint any proxy for PHC. In 2004, the Securities and Exchange Commission (SEC) upheld and recognized the election of our Philcomsat board of directors, then led by Enrique L. Locsin and Manuel H. Nieto Jr. The SEC held that: ‘In light of the foregoing, the Commission hereby upholds the validity of the stockholders’ meetings conducted by the Nieto group in view of the clear compliance by the said group with the conditions set forth by the Commission in its Orders of July 8 and 26, 2004.’

“Recently, the Court of Appeals dismissed the petition filed by the Bildner group to question our client’s election in 2004. It should also be mentioned that Bildner even filed a hybridized petition before the Supreme Court, to have her group declared as representatives of Philcomsat. Her petition was also dismissed. Clearly, it is only client’s Philcomsat board that can appoint the proxy for PHC. In fact, in 2004, Mr. Somera was part of the board which Concepcion A. Poblador currently chairs and he did not complain when he enjoyed the benefits of the office. He only turned his back on the Poblador Board sometime in 2007.

“Finally, it appears that the Bildner group misled the Bangko Sentral ng Pilipinas (BSP) as to their authority to represent PHC. They possess no such right, and whatever claim they presently have were obtained by physical force.

“Clearly, it is your columnist, Mr. Somera, who has a lot of explaining to do for his one-sided and self-serving commentaries on a subject where he is personally involved. Such articles by biased columnists should not be published in your newspaper.”

(The writer is a licensed stockbroker of Eagle Equities, Inc. You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.)