Wednesday, January 11, 2012

Philippine stocks at record high, time to stay away

If you adhere to an investment allocation principle, then its time to evaluate your portfolio. Because stock prices have gone up, you maybe overexposed to stocks. Let's say you follow an allocation of 40% stocks, 40% cash and 20% bonds. Two years ago, you invested 50,000 accordingly: 20k in stocks, 20k in cash and 10k in bonds. Now that Philippine stocks are near record highs, the value of your stock investment is taking up more than 40% of your portfolio. If you have additional funds to invest this year, its time to stay away from stocks. Otherwise you will miss your allocation target.

This is easier said than done since the tendency for investors is to buy high and sell low, very much the opposite of what a prudent investor does. In good times like what we have now, when we see the value of our stock investments go up substantially, it is very tempting to pour more money into such investments thinking it would go up even more. Restrain your emotions, fellow investor. Stick to your asset allocation and impose diversification. Remember that stock prices are subject to the whims of the market and could fall just as quickly as it has risen.

Where do you invest then? Place it according to your allocation strategy. If your cash is now only 30% of your portfolio, then bring it back to 40%. Always monitor, evaluate and re-balance your investments. Happy investing!

4 comments:

  1. The risk of investing especially in the stock market is minimized thru simple analysis of the market psychology. First, think of long term investments-5, 10 to 20 years. Take advantage of the compounding interests! Second, invest in great companies with track records that they will still be here over the next 50 to a hundred years! Third, invest regularly like monthly or quarterly. Finally, observe the SAM strategy applied by the truly rich club members of Bro Bo Sanchez. Buy at buy-below-price and sell at a target price and be amazed of your money’s growth over time.
    Happy Investing!

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    Replies
    1. Thank you for some excellent points junorchids, especially the one about buying low. It reminds me of what Robert Kiyosaki says: The profit is made when you buy, not when you sell.

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  2. Some emerging markets are hot others are not the chinese market is one of the greatest bargains around.

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  3. PSE Academy (www.pseacademy.com.ph) provides a comprehensive, interactive, and practical web-based investor education for market participants, would-be equity investors, and the public in general.

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