‘THE sheep pretend the wolf will never come. The sheepdog lives for that day.” The Philippines stock market has been one of the best global performing markets during the past two years. There are many factors that will push prices higher in 2013. The Philippine Stock Exchange index above 7,000 by year-end is probable.
However, there is a disturbing trend that has been going on for two years that seems to be accelerating. It is rooted in the premise that the stock market will continue to go higher and higher and give higher and higher returns. The trend I am worried about is the belief that the stock market is a sensible investment vehicle for everyone.
Granted, a person can invest through a managed investment program, such as mutual funds, and these funds do help reduce the risk. But there is always a downside risk. There is an old stock-market saying that when the shoeshine boys start investing in the stock market, that is the time to sell. While there may not be many shoeshine stands left, there are a variety of lower-income individuals who are being encouraged to put their excess money in the market. Is it time to sell when the domestic helpers are investing?
The sheep pretend that the wolf will never come because they are told not to worry about the possibility of a wolf.
The Hong Kong stock and commodity markets were hot in the early 1990s. Prices more than doubled in two years. Prices tripled in less than four years. The only topic of conversation upon getting into the taxicab was “The Market.” Yet from January 1994 to the end of that year, the market lost nearly 40 percent. During the 1997 Asian financial crisis, the Hong Kong stock market dropped more than 50 percent. More recently, that stock market fell almost 60 percent from 2007 to 2009. The taxi drivers probably did not get caught in the last downturn; they decided not to be the sheep of the stock exchange.
Investors must understand...