OUTSIDE THE BOX
SAN Miguel Corp. (SMC) began as a brewery in 1890 selling one product. Within 20 years, the company was exporting San Miguel beer to Hong Kong, Shanghai and Guam.
Exactly 122 years later, San Miguel is still making one beer and exports to those same three locations.
Not exactly true is it?
In 2012, San Miguel is an extremely diversified conglomerate with major business interests in energy, food, beverages, property, mining, telecoms, banking, infrastructure and fuel.
Even its brewery subsidiary manufactures a variety of beer products and the company has factories in Indonesia, Thailand, Vietnam and Malaysia, and sells their products in 60 nations around the world.
In the period between 1890 and 1910, San Miguel must have been a profitable firm with a good product to be able to expand and prosper in Hong Kong, Shanghai and Guam. San Mig must have been doing pretty well after that, despite the wars and global depression because in 1948 it built the first local brewery in Hong Kong.
No, this is not a discussion about San Miguel. However, note a couple of things. If La Fabrica de Cerveza de San Miguel Inc. were now making one product with three export markets, it would still be a successful financial venture. However, it would not be SMC with a stock-market value of $6.5 billion.
In order to be consistently and continuously successful in any financial venture, you must change your strategy.
When speaking of people who buy shares of companies on a stock market, conventional wisdom divides the group into “investors” and “traders”.
Investors supposedly holding for the longer term and are more conservative. Traders play the short-term movements and are taking higher risk. You are supposed to be one or the other and cannot be both.
Certain believers in this investment philosophy will give you examples, such as the fact that over a 12-year period, the Bombay stock exchange has increased by an annual rate of 16 percent. That sounds like a pretty good investment.
Even better is the Jakarta stock market, which over 20 years grew at an annual rate of 20 percent. So everyone should simply, without any worries, just buy and hold.
There are two major flaws to the idea of being a “long-term investor.”
Had you decided to be one of these long-termers in January 2008 on the Bombay exchange, you would now be down 20 percent. And in Jakarta, since September 2011, that exchange is up 28 percent.
Therefore, timing is a key to making money. San Miguel built that Hong Kong brewery before the Asian miracle. I guess that’s being an investor.
Further, your strategy must be suitable for the local stock market. Over 15 years, the Philippine Stock Exchange index has risen at an annual rate of 5 percent. You might have done better buying lotto tickets.
Since the October 2008 low, the PSE is up 125 percent. Not a bad return in three years. However, the real key to investing is to be able to adjust to buying and selling not only at the proper time but the proper issues. I doubt if San Mig ever conceived of making an apple- or lemon-flavored beer as they are now. I guess that’s being a trader.
Yes, holding for a longer term can be profitable. Since 2000, holding San Mig shares would have made you 140 percent. Holding PLDT shares would have made you 250 percent. But Ayala Corp. only advanced 35 percent in 12 years.
So all that means is you should have bought PLDT, not Ayala. No. Ayala was the stock to buy. From 2003 to 2005 up 100 percent; from 2006 to 2008 up 170 percent; from 2009 to 2012 up 130 percent. But isn’t that long-term investing? No, it is trading because from 2005 to 2006, you were out of the stock. Same with 2008 to 2009.
And Ayala is up 15 percent this month.
You do not want to get locked into an unproductive mindset of “I’m only an investor/I’m only a trader.” Either way you will never maximize profits and you will increase your risk. You must recognize, follow, and trade both short and longer price trends.
Investors must be traders, moving money in and out with trends and opportunities. Traders must be investors by looking at the price history and longer trends to avoid traps.
On a personal note, my one-day stock trading seminar is scheduled for March 3 in Cebu. I will discuss trading techniques, stock selection and practical technical analysis. The selection of venue and other details are almost completed. E-mail me at email@example.com and I will keep you informed.
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