OUTSIDE THE BOX
It is always important to look at the big picture. But the little picture can often give a better insight.
There are many parts to the big picture of the Philippine Stock Exchange (PSE).
One idea is that the PSE is an “Old-Boys’ Club.” What is behind the closed doors of the board meetings is actually of little significance to the average trader. It is all ego and power and with the Securities and Exchange Commission exercising some control, who really cares.
The one true aspect of the “club” is that trading in any particular issue can be dominated by a few brokers. It is not uncommon to see a single stockbroker be on the selling side of an issue and account for 10 or 20 percent of the total daily volume. Yesterday, five brokers (out of 88 who traded the stock) accounted for 25 percent of the volume, all selling in one issue. On the other hand, one stockbroker accounted for 10 percent of the total volume of that same issue, all buying. And this is a stock that traded over P200 million worth of shares.
The significance of this is that often there are very opposite views of the direction a certain company’s stock may go in the future. Understand also that there is nothing particularly sinister or wrong about this kind of activity. It is important though that you understand that this is one of the reasons we experience large and sometimes seemingly irrational price swings. One broker with a couple of large clients who wants to sell out, dumps shares on the market, driving the price down. Another broker sees an opportunity to buy at a lower price, and suddenly the share price goes up dramatically. You just need to be aware and adjust to this type of trading action.
Another perception about the market is that it is controlled by foreign trading. When the market is up, the foreigners are buying and vice versa; at least that is what you read in the newspapers. To a certain extent, this is correct.
Foreign trading is dominated by the investment funds. The funds are traded by managers who get paid on their trading performance. For the most part, trading bonuses are based against what the broad index does. This means if a fund manager shows better results than the Philippine Stock Exchange Composite Index, the bigger the bonus.
No fund manager wants to get caught underperforming the index. So what is the smart strategy? Trade the index shares and overweight your buying on the few issues that are doing better than the rest. So these guys trade the index stocks. When you are told that the market is down and it is because of foreigner selling, that is not true. What is down are those issues that the foreigners trade, which are the index issues.
Yesterday the composite index was up 0.39 percent; the all-share index was up 0.87 percent. The industrial index rose 1.37 percent. What did the PSE do yesterday; up, down, sideways? It all depends on whether you were holding the stock on the most active list that went up 20 percent or the one that went down 3 percent. That is the little picture that counts.
The composite-index traders are down 1.26 percent for the month of January. However, those that trade the little stocks on the mining index are up 2.61 percent. The industrial index is doing better at up 2.76 percent. Exclusively trade the big banks and you are down 3.44 percent.
It is all a matter of whether you are looking at the big picture or the little picture.
Have you heard on television or read in the newspapers that there are several issues up 50 percent and more, with two particular stocks up over 100 percent since January 1st. These are stocks that have traded large-enough volumes that you could have easily bought and just as easily sold P1 million worth of shares for a double-your-money trade. That, too, is the little picture.
The people who complain about the trading and profit potential of the PSE are ignorant. They have never watched the market and are completely unqualified to comment. Forget the stock market. Well, not the stock market but the PSE Index. The PSE Index issues, heavily influenced by foreign trading, are neutral with a downward bias. The other market, the so-called second liners that are mostly traded by locals, is fantastic.
You do not have to be a stock-market genius to make good money trading the PSE. All you have to do is understand how and why our market works. For golfers, it is called the local rules.
There is an abundance of cash in the Philippine economic system right now, available for investing and much of it is going into the stock market. This is an expanding stock market where prices go higher and you can profit from that rise. You do not need inside hot tips. You do need to find someone who can give you advice based on their experience as to which issues are a part of the expansion.
There are going to be many new millionaires created over the next several months from investing in the PSE. I hope you are one of them.
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Tuesday, 18 January 2011