12:15 pm Tuesday June 23, 2009 PSEi – 2370.06 (-1.73%)
Philippine stocks are down almost 42 points today, but somehow, it does not bother me much. Maybe it’s because I am still a buyer at this point. Like many skeptics, I did not fully commit myself to the rally thinking that there would be pull backs. Well, for you patient ones who chose to wait, this is the opportunity.
From Sydney to Shanghai, everybody is down today. The reason for every market’s decline – the economy. It looks like some economists have been less convincing than other opinion makers lately. If you recall, about 2 weeks ago, they were saying that by about September, the U.S. economy should be seeing some signs of recovery. It appears that no one is waiting for September to see if indicators will really point to a recovery.
Anyway, recovery or no recovery, markets will move. When people feel good, it will move up and when they get nervous, it will tank – just as it did in New York last night and just like it is doing in the Far East right now. Remember, in stocks many factors are subjective. It really depends on who is willing to take the risk. Of course, it is all about the risk reward ratio – the bottom line to everything when it comes to placing a bet. When we rallied from March, it was because stock prices were ridiculously low, i.e. risk is likewise low therefore the ratio is high in favor of reward.
As prices move up, risk also moves up; therefore, the ratio falls in favor of risk. A lot of people flock to the market when it is on a roll just as people flock to the craps table when someone is on a roll. But ask around the table, what people are really betting on is how long this roller’s luck will last. Chances are, the longer he’s been rolling the passes, the closer he is to his last toss of the dice.
Risk / reward. It’s a concept that we all must understand so that we can identify our threshold of risk. When we understand how much risk we are capable of taking, it will be easier for us to reap our reward. More importantly, we won’t allow price declines from scaring us to investing properly.