Stocks down, should I invest now?By Randell Tiongson on February 24th, 2011
As of this writing, the Philippine Stock Exchange Index or the Phisix is now a little over 3,700. Not too long ago, the Phisix went to nearly 4,500. From its peak, the market has lost about 20% of its value already. A lot of people are anxious as to the movement in the market and many are painting doom and gloom scenarios. The big question in the minds of many is if the market will continue to go down which scares many investors or would-be investors.
On the other hand, another group of people are now contemplating if it is time to get into the Philippine Stock Market now seeing there is a possibility of growth soon. These people are what we may call ‘contrarian investors’. Wikipedia defines contrarian as “one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong”. The adage ‘buy low, sell high’ is still the predominant sentiment of many people who are thinking about the stock market.
So, is it time to get into the market? The possibility of recovery entices one to get into the market now. If the market was as high as 4,500 not too long ago, there is a big chance that it will go back to such a number, it’s only a question of when. When you do enter the market today, be prepared to buy more stocks when the market goes down further, an investment technique that will make you average your investment cost and help you recover better once the market goes up again.
A bigger question to ask is if you should invest in the stock market at all. That answer is really dependent on 3 factors: your investment objective, your time frame and your risk tolerance. You need to discern for the answers to the 3 factors I mentioned. Why are you investing in the first place? Is it for retirement, education needs? Is it to save up for emergency funds? You must determine what the need for the investment is for before undertaking any investment. When will you need to use your investment? Do you need it in 5 years? 10 Years? Or do you need it within the year? Lastly, what is your tolerance for risks? Can you tolerate10 to 20% decline in your capital or you can’t accept any loss of your capital at all? Investing in the stock market is for those who are expecting for higher potential growth over a long period of time. Further, anyone who invests in the stock market should be able to tolerate momentary losses in his investment or what they call paper losses. The stock market is not for everyone but it is a good place to make your money grow over time. Growth in the equities is a good hedge against inflation. Safer investment will typically perform at par or even below inflation rates. In the long run, you will actually loose purchasing power of your money if it does not grow ahead of inflation. In ivestments, we call inflation the “invisible risk” – something we must always be aware of.
My view? The stock market for me is more about time and less about timing. Once you invest in the stock market, you should be prepared to stay for the long haul. While there are people who earn from actively trading their stocks, the investor who has a longer time frame will eventually come out with real growth in his investment and sleep soundly at night. I will write more about the stock market in my future blogs; about individual stocks, equity funds, etc.
Here’s my tip: know your investment objective, determine your time frame, learn your risk tolerance, commit to investing regularly and diversify.
In anything, always remember ‘prudence’ is key.
Prudence is a fountain of life to the prudent, but folly brings punishment to fools. – Proverbs 16:22, NIV