By Billy Cortez
US President Donald Trump’s moves to slap tariffs on some of America’s most important trading partners continue to rattle financial markets; and investors are now seriously concerned about the potential threat to what is now largely synchronized world economic growth.
The rising tensions over global trade war are prompting fund managers to start looking for companies that can dodge the trade war bullet and emerge as winners.
As we go to press, the local stock market has returned to the 7,000 territory when some investors bravely resorted to bargain-hunting even if the Philippine stock market has temporarily entered bear market.
The growing list of distressing international and local economic news not only makes some gloomy reading but is fuelling investors skepticism toward the equity markets. Investors are holding on to their cash a bit longer than they should and are not into much stock purchasing lately. They focus on the hole and not on the doughnut.
What they should probably do, now that local and international equity markets are down, is to be flexible enough to look at the whole picture from a more balanced perception.
They should not be scared to take advantage of some buying opportunities that could be carried out at present no matter how bleak the global economic outlook appears to be.
A bearish market like what we have now clearly offers value investing style a better chance of making money by purchasing known, listed stocks that might not be as bad as the market thinks they are today.
Not only that. To a value investor, schooled and trained as such, the thinking will be that what goes down will eventually go up; that an overreaction to unpleasant developments, both in the world and local economies, may obscure possible earnings and potential capital gains from some out-of-favor equities, particularly when market starts heading back to normalcy.
To the late Ben Graham, a stock is a bargain if its price is two-thirds or less of its net current asset value. So if the company’s net current asset (easy to arrive at ) is R75 per share, Mr, Graham would not pay more than 66% of R75, or roughly R50 for the share. (By the way, the most famous disciple of the Graham value investing style today is Warren Buffet, the legendary Wall Street billionaire investor.)
Therefore, any well-established stock trading at a big discount, with good earnings record, good cash flows and low price-earning or P/E ratio, are better choices for value investing . Such equities will not expose an investor’s portfolio to greater downside risks.
And when one finally decides to engage in value investing, which is essentially a bet that, given time the stock price will reflect the true value of the company, one must equally be prepared to hang on for the long haul, full of guts and courage to stay the course especially during those instances when share prices are tumbling down all over and nervousness prevails in the stock market.
As worries on trade war and rising US interest rates grow, this might as well be your best option. Focus on the doughnut not on the hole. Fortune, after all, favors the brave.
Atty. Billy Cortez is an independent board director at First Metro Securities and First Metro Equity Exchange-Traded Fund (Metrobank Group). He was formerly FINEX president and co chairman of the Capital Markets Development Council.