Saturday, 12 May 2012

The trend is clear

John Mangun

THIS is from the greatest stock-market trader in the history of the New York Stock Exchange, Jesse Livermore.

“It was the change in my own attitude toward the game that was of supreme importance to me. I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, ‘Well, you know this is a bull market!’ he really meant to tell them that the big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend.”

The Philippine Stock Exchange started the current bull market rising rally in February 2003. Following a very deep correction in 2007, the rally continued again in October of 2008. It is likely in the next 12 months, the PSE index will reach at or near 6,000. That is the long-term trend.

What occurs in the meantime with all the ups and downs are merely “fluctuations.” What is important is “The Trend.”

A trend is defined as the “general course or direction” similar to how a river flows or the wind blows. Early Polynesian sailors were able to navigate over literally thousands of miles of sea by observing the way the open ocean moved in its natural trend.

In the stock market the saying is, “The trend is your friend,” meaning, that when you try to invest against the prevailing trend, you will probably lose money.

We face a problem, though, in that we look for what we want to see. If we want a share price to go up, we look at the daily, weekly, monthly fluctuations to justify why the price will go up and tend to ignore the trend, which says it is going to start or continue to go down.

People and institutions have trends also. That child who had a poor work ethic in high school is probably not going to improve much later in life, no matter how much he or she is encouraged or reprimanded. That is why every new employer wants to look at the past employment record as well as school transcripts.

Trends occur in relationships, too. We may all have been in one far beyond its expiration date hoping that the person’s words would be met with proper action.

The promises to do better are almost like the noise of stock-market fluctuations. They do not change the longer trend.

The government has talked almost consistently about several critical issues that must be addressed with action. Some have been prompted by conditions such as the power shortage and airport congestion. Others have been through their own initiative, such as the Public-Private-Partnership Program. Yet another, a stable mining policy, came from both pro- and anti-mining advocates seeking clarity.

However, through it all, the trend is clear. The government will move very slowly before any action is taken, if any, at all.

No concrete action has been taken in the last two years to anticipate and respond to a growing need for power. While promoting and pushing for a major rise in tourist arrivals, the Philippine airport infrastructure is virtually the same as it was before. We are hardly closer today to that mining policy than over a year ago when all new permits were put on hold, costing the country billions in foreign investment.

It is unlikely, if not impossible, to change a trend. The only thing that can be done is to live with it, go with it as best as is possible.

Regardless of how well private enterprise does during the next 12 months, no matter how high the stock-market advances, no matter how much better the Philippines seems than that part of the world burdened by the debt crisis, those parts of the economy the government is responsible for will not be better.

That’s the trend and it is not a friend.

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