T has often been said that the best time to buy into the equities market is when there is blood on the streets. This contrarian way of thinking does make sense. After all, it would tend to be an oversold market with most investors dumping their positions to get out of a bad market. Hopefully, being able to get a bargain will mean that you maximize your gain as the market turns around and recovers.
However, having blood on the streets is not the only thing you should consider before entering into the market. There are other considerations such as the fundamental soundness of the stock you want to get into and to determine if there are any structural factors that you need to take into consideration.
As to the first factor, is there blood on the streets? The quick and dirty answer is yes! We have gone through the Taal volcano eruption—which caused a decline in the automotive industry by 12 percent—and the more unsettling and ongoing global concern with the corona virus that has affected our supply chain, the tourism industry and the deployment of OFWs.
Considering that the Philippine Stock Exchange index has already gone down by about 20 percent from last year, there are some listed equities that may be oversold and undervalued, offering an interesting upside potential. Typically, I would look at consistently profitable companies that have a low P/E ratio, and would have indications of being undervalued with prices at close to or even below book value! Of course, you could also compare these ratios with similar companies within the same industry to gauge how much you really want to take a position on the stock.
You must also take into account industry or company specific issues that will affect the long term value of the equity stock you are planning to buy. These issues could be driven by advances in technology, changing market preferences, piracy, new environmental regulations, international trade agreements, government regulations and politics.
So is it time to buy Philippine equity stocks?
At the very least you should start considering it. Taking into account your other investment alternatives such as time deposits and money market placements which have a terribly low rate of return, perhaps you should take a potentially more volatile position that has a better upside potential in the longer term.
In general, it is probably too late to unload your position particularly if the stock you are holding on to is fundamentally sound. You don’t want to be unloading now when the prices are low and buy it back when they have recovered.
Depending on what you are looking for to suit your investment parameters, such as the need for cash dividends. There are stocks that do historically give consistent cash dividends. With a lower price, and the same cash dividend amount, this means that the yield is now going to be higher. You also don’t want to be part of the bandwagon, pushing the price down as everyone is selling and chasing the price up when everyone is buying.
Understand the situation, do your homework and take a stand. Nothing lasts forever: natural calamities will subside, global pandemics will end, a downturn in the economy is temporary and the politicians in power have a fixed term in office.
You are the only one who can decide if the risk you take is worth it.
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