Up 8 and Great
March 9, 2016
The PSEi and global equities markets are down year-to-date in 2016. This is due to dropping crude oil prices, the weak global economy and fears of the upcoming US interest rate hike. However, after dropping in January, equities markets staged a come-back that produced decent gains so far in 2016. Back in January 29, we recommended the 2016 Defensive and Opportunistic Stock Portfolio to our clients. They were made up of ten stocks with high cash dividend yields and growth rates. We thought that in a worst case scenario, the high cash dividend yields will still produce actual gains that will outperform the 2016 projected inflation rate of 2.50-3% of the government, while the high growth component will boost the portfolio faster than the PSEi in the medium to long term recovery. The result in the stock portfolio’s young age is favorable as it trounced the PSEi and even the ASI.
Like the comic-book character Wolverine, stocks have a fast recuperative power from injury. Even Warren Buffett mentioned that capitalism has that innate power. So when markets are pounded down to the ground, strike, buy and compound gains and liquidity. And when markets are high, cosmic and exuberant, take profits and create liquidity. This is an ongoing process that we exercise and guide our good clients through the smoke of issues, criticisms, fear and depression. These cannot put good stocks and even people down.
Another investment portfolio that we monitor is the 2015 Stock Portfolio we recommended last December 29, 2014 to our clients. Down 3% from inception, this slightly outperforms the PSEi and outperforms the ASI. It has a below par performance. However, the optimistic thing about this investment portfolio is the still unutilized cash component of 50%. As mentioned before, this was the defensive property of the investment portfolio. It is a bazooka to be fired at the markets’ darkest hour. When is that? Well, it was headed there last January, but the markets recuperated through stimulus measures just like from China. Are the markets headed there again? There is a probability with the global economy still reeling from a deadly combination of high leverage and weakness. When that bazooka is fired, it will boost the investment portfolio faster than the markets during the recovery stage.
So now, the PSEi is just shy and below 7,000. This is a critical level in our PSEi Bands. It is the Central Value, our current value of the PSEi. Just before elections and the global economy still weak, the question is, “is the PSEi worthy to be at Central Value or even above it”? Does it deserve that level or even premium when other markets are downgraded. The thing is, one should not be exerting a lot of effort answering this question. Full effort is done on seeking value and minimizing risks in the Philippine stock market.
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