The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. – Benjamin Graham, author of the bestselling finance book Intelligent Investor
A stock market expert predicted that the Philippine Stock Exchange composite index (PSEi) could be above 8,500 points by yearend, which will make it seven years of successive gains.
I am not an expert, so I don’t have a clue which way it will go. I’m not here to predict but to inform and educate.
There’s one thing I know, however, it will continue to fluctuate. The stock market will constantly be moving up and down ‘til December 29, 2015. I just don’t know at what points it will end (safe prediction huh).
Just last Friday, January 9, the PSEi hit its first high of the year at 7,402 points. It just entered the door of another possible bull market run. Will it linger in that room it entered into, or will it exit fast? That remains to be seen.
Now that the PSEi just rose at that level, is it good news for you as an investor (or would-be investor), or bad news?
Good news
Once you hear that stock market prices go up, I tell you many are so happy. Many just can’t control to put on smiles on their faces. Why?
For investors, their portfolio is making gains. For newbies, they can now participate in an increasing market and make money too.
For brokers, more transactions mean more commissions. For advisers, they look geniuses and receive more pat on the back.
A research I read reveals that many investors pour more money into the market when it is bull market; but only few put money when it is in a bear territory.
In short, many are happy because they are able to ride in a rising stock market. What?
This is one irony in the stock market. People like it when stock prices go up simply because it’s a buy signal for them. But why would you buy prices that are going up? Goods are literally getting expensive that way, right?
If you travel frequently with your car, would you like that oil price go up or down? Of course down! Many people make this one wrong in the stock market. They like to buy when it’s up!
For the billionaire Warren Buffett, this reaction makes no sense.
I may sound like a spoiler to some but rising stocks should only be good news if you are a seller. Meaning, if you bought stocks at much lower prices many years ago, maybe it’s time for you to sell (just a maybe).
If you are a buyer now, sorry but it’s not good news for you but a bad news. You are simply buying stocks at much expensive prices which in the long run may jeopardize your portfolio.
I repeat, rising stocks is only good news for sellers, not if you are a buyer.
Bad news
When everyone seems to be bullish (optimistic), the market just seems not to go wrong. For many investors and brokers, rising stocks could never be bad news.
How could it be bad news when it reflects good Philippine economy? How could it be bad news when everyone is making money?
Bad news is when stocks fall, they would argue. Yeah, people who reason like that could be right, but only in the short run.
I’ll be a spoiler again. Here is why. Back to my oil-price example, in the late 2008 to early 2009 gasoline per liter was soaring high. Unleaded gasoline was more or less P60 (AUD$1.62) per liter.
Many people were not delighted of course for only few could use their cars. In short, high oil price is bad news for almost all people.
But how come, high stock market price is good news for many? How could buying goods at a high price be good? Many just make this one wrong.
Again for Warren Buffett, this doesn’t make any sense. Rising stocks is rather bad news for buyers; and it should be bad news for anyone who buys now lest he buys high and sells low.
Value investors, like Warren Buffett, just operate in a different manner. When stock prices are soaring, they selling or just on the sideline waiting. They wait ‘til the market dives, which inevitably happens every now and then.
That’s the strategy that makes them successful in the market. This keeps them be in the 15 percent who consistently make profits in the market.
I repeat, rising stocks is bad news for buyers, but not for sellers.
Well, if you really think it’s good news for you, I can do nothing. Just operate with extra caution.
