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The moody stock market

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Mervin Medel
Mervin Medelhttp://Philtimes.com.au
I am a stock market investor. I have been in the Philippine stock market since 2009. I read a lot about value investing and fundamental analysis. I am a big fan of the billionaire Warren Buffett. I use his investment philosophies as my style of investing.

By Mervin Medel

I can calculate the movement of the stars, but not the madness of men. – Sir Isaac Newton

 

If you’re a married guy, what is the difference between the stock market and your wife? In the stock market, you have a possibility of winning. With your wife, you don’t stand a chance.

The stock market is moody, like some women out there (no offense to them). At one moment you seem to be on the right track, at another it’s like a stranger to you. It is unpredictable.

If you happen to monitor the Philippine Stock Exchange (pse.com.ph) all day, well I think this happens to all exchanges, you may observe at some point that in just a blink of an eye, the market could go from green to red, and vice versa.

And observe this: after it happens, ‘experts’ will point out a reason why the market went up, or why it went down. I have one theory. Whichever way it moves, I say it’s the emotion of players that drives the market.

Another guy told me, it’s because the market is driven by historical prices. It moves in a certain range. In my opinion, it’s not. It is all because of the irrationality of most people in the stock market.

Euphoria

It’s a funny scenario in the stock market. People are so happy when they see green. Newbies are encouraged and start to flock the market; others buy more causing the market to be greener.

Back in 2013, the Philippine Stock Exchange index (PSEi) had 31 new highs in a span of five months! It happened in January to May. It was like a straight line upward. I bet many got enticed and started to jump into the market.

But came June, the stock market started to slide. Those who bought shares in the previous months and panicked surely lost money.

They literally bought high and sold low, as against the business principle buy low and sell high.

The Dow Jones (this is the US version of the PSEi) continues to reach new highs this year. It had its 32nd  new high last November 28. Main reason? Many think it will continue to be green so people buy more shares. Everything seems to be rosy, not red rose but green one though.

The chart is taken from Bloomberg. It is the chart from 2012 to December 2, 2014.
The chart is taken from Bloomberg. It is the chart from 2012 to December 2, 2014.

Pessimism

Only a few investors like color red. Warren Buffett and other great value investors like it so much. It’s this color that they make a lot of money.

I remember an interview of a fund manager. He says he welcomes declines because great businesses are offered at a discount during these times. True.

But most investors do the opposite.

A study reveals that people tend to overreact to bad news than to good news. When people hear anything negative, they tend to sell immediately. When they lose money, they then tell others that the stock market is risky.

The fact is, they just don’t know what they’re doing.

If you are one of them, you are part of the mob psychology of which Sir Isaac Newton was part of. That is why he lost money. Yes a genius lost money in the stock market.

Remember this: it’s when you buy that you make money not when you sell.

Either/or

Does this mean I am sad when the market is up and happy when the market is down? No! Either/or I am happy. When the market is down, I am happy because I could increase my shares by buying more.

When the market is up, I am happy because I see my investments increase, I don’t buy more shares though. I just think this is the proper attitude in the market.

Remember that when there are bad news, like turmoil in other parts of the world, some of them don’t have an effect on the stocks you own. People will still flock SM, Robinsons, Ayala malls and spend their money right?

People will still call and text, eat at Jollibee or McDo, buy groceries in Puregold and Save More, chew Jack ‘n Jill products, utilize electricity, and so on. These businesses will continue to make money despite the bad news.

Either way, remain composed. Don’t be carried by the mood swings of the market. Warren Buffett claims that if you are composed when the market is in turmoil, you are ahead of the 99 percent who are operating in the stock market.

You don’t need to be a genius to be successful in the market. Choose the right company, buy it at a discount, and most importantly be calm when the market seems chaotic.

I remember an interview I watched. The guy told the host, “Inaamin ko ‘di ako matalino pero nag-iisip ako (I admit I’m not bright but I do think).” I couldn’t agree more. That’s the right disposition we should have, not only in the market but in life.

 

 

Disclaimer: Stocks that are mentioned are not recommendations for you to buy or sell them.

Mervin Medel
Mervin Medelhttp://Philtimes.com.au
I am a stock market investor. I have been in the Philippine stock market since 2009. I read a lot about value investing and fundamental analysis. I am a big fan of the billionaire Warren Buffett. I use his investment philosophies as my style of investing.

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