I was checking the local stock market earlier and wow, it seems to keep on going up and up! The measurement we use for the stock market is the Philippine Stock Exchange Index or the PSEi (check out PSE Website). In essence, it is like a basket of the biggest and most active companies listed in the stock market. You will see the likes of Ayala Corp, BPI, BDO, PLDT, SM, Globe, Megaworld, San Miguel, Metro Pacific, Jollibee, Metrobank, Universal Robina, GMA, ABS-CBN and a couple more companies. In essence, the performance of the stocks in an index is measured and they are given their reflective weights—some companies weigh heavier than the others so their performance will have a greater impact in the index as compared to the others.  To see a complete listing of the companies in the local index, visit the PSE Index Composition site.

For those who are not paying particular attention to the local market, you should. Why? Because it has been jumpin’ jumpin’ for some time now. Just for the month of September, the index started at 3,593.41 and in just a little over three weeks, the index skyrocketed to above 4,100! That’s an appreciation of over 13 percent in less than a month. Here’s more: The one-year growth of the index is unbelievable. As of Sept. 28, 2009, about a year ago, the index stood at about 2,800 and that equates to a surge of about 45 percent in a year! The local market is one of the best performing markets in the world for the said period. The markets crashed towards the last quarter of 2008 with the subprime crisis depreciating the index to a low of about 1,700, down from about 2,500 towards the end of September 2008. The current standing of the market today allowed investors to recoup their losses and still remain positive in their investments—that’s assuming they stayed in the market. I know the market scares a lot of people, me included. As to where we are heading to, one can’t really tell. Is it the start of a bull run or are we in a bubble? Analysts can claim both, but I’d like to believe we are fundamentally sound. However, I will not discount the possibility of a major correction—the laws of economics will always enforce itself on any market.

Before jumpin’ in the bandwagon of investing in the stock market, determine first if this is the right instrument for you. Can you withstand the volatility of the market that can be likened to going bungee jumping? While the market is doing a great performance today, it was not doing so well not too long ago. At the risk of sounding like a broken record—or a CD, or MP3 or iPod or whatever it is they call it nowadays—one must always determine the following: Investment Objective, Risk Tolerance and Time Frame. If you are still unsure about the factors I mentioned earlier, pause and give it further thought. Study more, research more and ask others. Do not just look at the numbers today as past performance is never an indication of future performance. Stop and assess your needs first and be prudent, be wise. “The prudent see danger and take refuge, but the simple keep going and suffer for it.”—Proverbs 27:12, NIV.