Thursday, 11 June 2009

Investing mistakes you are making right now

Outside the Box
John Mangun
Business Mirror
http://www.businessmirror.com.ph/home/opinion/11585-investing-mistakes-you-are-making-right-now.html

The Philippine Stock Exchange is unquestionably the investment opportunity. From the 2008 lows in November, the market has increased by some 30 percent, and that is only the beginning. The next target for the Philippine Stock Exchange Index (PSEi) is 2,800, which means that prices will have increased over 50 percent in about seven months. And we are still only at the beginning. By the time this rally matures, the index will have risen 80 percent. And that increase is nothing in comparison to individual stock prices.

Megaworld is already up over 100 percent. Filinvest Land Inc. has tripled in price. Ayala Corp. more the 50 percent. The list is very long. But, again, this is only the beginning. I would not be a bit surprised to see the PSEi at 3,900 or 4,000 by Christmas 2009. And I would be willing to bet that you have not participated in the best rally in the history of the PSE.

A stock-market rally always starts when no one believes the market will rise. Last November, the economic world as we know it was coming to an end (and it still is). Through the first quarter of 2009, all the “experts” were saying that the Philippines was doomed. And here at the end of the second quarter, the “experts” are still screaming that the Philippine economy is ready for collapse. And yet, we are looking at 12 to 18 months of a virtually unbroken period of rising stock prices.

Certain attitudes will stop you from getting richer investing in the stock market this year. By thinking exactly the opposite way, you will significantly increase your wealth.

One mistake the average investor makes is looking at the past. That is, you should rarely be concerned where the stock price came from, but look only at where it is going.

I know that it is incredibly difficult to look at an issue where the price has doubled in a relatively short time and still buy the stock. Filinvest (FLI) started its climb in March 2009 at P0.32 and is now trading at P0.83. By anyone’s standards, that is a monumental increase. But I virtually guarantee this: In a few months, you will look back and regret that you did not buy at the current price, just the same way you are now regretting that you did not buy at P0.32.

The psychology behind this is that we hate admitting and accepting that we made a bad decision.

On March 31, I advised you in this column to buy in the stock market. FLI traded that day at P0.37. If you did not buy FLI, for example, it is because you thought that I was wrong. By the way, there is nothing personal about this. It is just the way we think.

Now I am telling you to buy FLI again. If a person agrees with me this time, it is an admission that not agreeing to buy FLI in March was a bad decision. It is much more comfortable for us to say, “Yes, he was right the first time, but he won’t be right twice.”

Many years ago, someone advised me to buy some property next to where the Alabang Town Center stands. I thought he was nuts. Although that was a bad decision, as I quickly found out, do you think I listened when he told me to buy another piece of land across from where Shoemart’s Megamall is now located? Of course not.

Another wealth killer is trying to learn from history. That is, trying to figure out why the price went up in the first place. This is sort of a part of the first mistake.

When I passed on buying the Alabang property and saw it skyrocket in value, I kept asking myself why would anyone pay such a high price for land in what was then the middle of nowhere? I could not successfully answer that question. So when the Ortigas property was offered to me, I told myself, why would the Ortigas area ever grow when Makati was so close? And I wasn’t the only one who thought Henry Sy was making a big mistake building Megamall. That is why he is rich and I am not.

You see, both properties increased in price, but not for the same reasons. Alabang was part of Metro Manila’s southward expansion; Ortigas was an undeveloped area in the middle of the metropolis. These areas exploded in value for similar but different reasons.

FLI’s move from P0.32 to P0.83 may have been motivated by investor interest entirely different from the investor reasons that will move it to P1.00-P1.50. Absolutely knowing why the first move happened will not help me make a decision about buying in now because the situation probably has changed. The reason for another price spike may have changed, but that does not change the fact that the price spike will happen. In other words, thinking too much about the “whys” often keeps you from taking action.



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