Question: The stock market is back down after recovering from its June 2022 lows. It is like you are in stormy seas. Will it really be like this all the time? As an investor, I am getting seasick. What should I do?
Answer: Epifanio de los Santos Avenue, more commonly known as Edsa, is a limited-access circumferential highway that passes through six of Metro Manila’s 17 local government units or cities, namely, from north to south, Caloocan, Quezon City, San Juan, Mandaluyong, Makati and Pasay. Edsa links the North Luzon Expressway at the Balintawak interchange in the north to the South Luzon Expressway at the Magallanes interchange in the south, as well as the major financial districts of Makati, Ortigas Center and Araneta City. Edsa is the longest and perhaps the most congested highway in Metro Manila, stretching some 23.8 kilometers.
At times, the level of traffic on Edsa is taken as a measure of economic activity, at least in Metro Manila. In an interview with former Metro Manila Development Authority chair Benhur Abalos in October 2021, he disclosed that the number of cars using Edsa daily was then back to 398,000, just shy of the prepandemic level of 405,000. Traffic was nearly zero at the height of the pandemic.
Interestingly, the Philippine gross domestic product (GDP) growth for the fourth quarter of 2021, in 2018 constant prices, registered at 7.8 percent versus the fourth quarter year-on-year (YoY) contraction of 8.2 percent and 6.6 percent growth for 2020 and 2019, respectively.
Economic activity appears to be picking up. In fact, YoY GDP growth for the first and second quarters of 2022 posted at 8.2 percent and 7.4 percent, respectively. In a way, traffic in Edsa gives an indication of how much the Philippine economy is moving, at least after the COVID-19 pandemic.
On the other hand, the Philippine Stock Exchange Index (PSEi) posted zero percent, -9 percent and 5 percent YoY changes for the fourth quarter of 2021, 2020 and 2019, respectively. Apparently, the PSEi and Edsa went on separate ways by the end of 2021.
By the first quarter of 2022, the paths of the PSEi and Edsa merged when the PSEi posted a YoY quarter-end growth of 12 percent. But the two would part ways again by the second quarter of 2022 with the PSEi posting a YoY quarter end contraction of 11 percent.
The 2022 actions of Western nation central banks to rein in decades of high inflation rates—through aggressive interest rate hikes after the huge but unsustainable recovery in their economies after the pandemic—would negatively impact stock markets around the world. But not all economies had their recovery party immediately after the pandemic. Some countries, perhaps as a result of the uneven distribution of vaccines, had more severe infections and prolonged COVID-19 restrictions, and were thus slower to recover. Now, institutions such as the Asian Development Bank and International Monetary Fund are forecasting that such countries, like India and those in Southeast Asia, will have their place in the sun in 2022 and 2023. The Philippines, in particular, is seen as emerging with one of the fastest GDP growths for those two years.
So, what do you do when stocks and Edsa go on separate ways? Sift through your choices of listed companies and stick with those who will be the immediate beneficiaries of an economic rebound. If the market prices these companies unreasonably low, then reasonably buy and hold. The world’s greatest stock trader, Jesse Livermore pointed out that investors are manic-depressive. It is this mental condition that is leading to the rough seas in investing, which only those with steady hands can navigate. Phillip Fisher, author of Common Stocks and Uncommon Profits, once said, “The stock market is filled with individuals who know the price of everything, but the value of nothing.”
More importantly, practice having patience. Jeffrey Gundlach, founder of investment firm DoubleLine Capital LP, was quoted as saying that, “People always want investments to go up like a line … That’s just not reality. You make 80 percent of your money in 20 percent of the time in investing and you have to be patient.”
In investing, be without emotions in following the road that reflects the real economy. Anything else is just noise. INQ
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Efren Ll. Cruz is a registered financial planner and director of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books and a YAMAN Coach. To consult with a YAMAN Coach, email yaman@personalfinance.ph. To learn more about personal financial planning, attend the 98th RFP Program this October 2022. To inquire, e-mail info@rfp.ph or text 09176248110.)