Pulling the trigger

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AYA LARAYA

AYA LARAYA

As the PSEi flirts with the 8,100-level, social media is once again filled with people agonizing over whether it is a good time to enter the market or should they just wait for any correction likely in this proverbial “Ghost Month” and enter then. These people are often joined in their indecisiveness by investors who are questioning whether now would be a good time to pocket at least some of the gains or if they should hold on for bigger gains later on. The interesting thing is that though these two groups are on opposite sides of the investing spectrum; they both suffer from the same issue: The lack of a clear plan.

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For those not in the market now is a season of regret. After being down in the early part of 2016, the PSEi has climbed rather quickly following the election of Rodrigo Duterte as the nation’s president. In fact, there is a very real chance that the index might leap to a new high later this year. So, for people who hemmed and hawed early on the wish to have taken a position a few months ago is very, very strong. However, if you had spoken to them earlier, you would have seen and heard the usual arguments as to why they were not investing yet: the market was too volatile, elections were coming, they were waiting for the bottom etc., etc. And when the market did turn, they were left flat footed. It was actually quite interesting that in their arguments they were quite specific as to why they were not investing, but quite vague as to when and why they would invest.

Here’s the thing, taking a position in any stock is always a scary thing. Something can always go wrong; no system or theory can predict accurately what is in store. So if you are going to enter the market make sure you have a clear plan and trigger-point. What do I mean by this? Simply, if you want to buy a stock, set a price and/or a condition then act on it. For example: If you want to buy Ayala Corporation shares, set a price (say 800 pesos) or a condition (when a technical indicator like the MACD sends a buy signal), and buy when your condition is met. It really is that simple.

Now, can you be wrong?

Definitely. If you spend a lot of time in the stock market, you will be wrong on multiple occasions. But that fear should not prevent you from acting. What you can do is to study and learn multiple techniques so that you can develop your own set of trigger points and thereby be able to act more decisively when it comes to investing in the market.

As for the people on the other side; they have the rather nice problem of trying to decide whether to take profits at this point or not. Personally speaking, the decision to take profits is pretty much the hardest decision for me to make since there is always the very real and very human temptation to hold out for just a little bit more gain. Additionally, there is the very common fear that once a person sells a position, the stock will rocket upwards and leave that person gnashing his teeth in regret. Want an example? Just ask people who sold Double Dragon (DD) at 10 pesos and saw it shoot upwards some time later.

Just like the first scenario though, the key to minimizing, if not avoiding, the emotional stress this scenario brings is to have a well-defined trigger point. Instead of a target-buying price, you should set a selling price and sell when it is reached. Of course, that is easier said than done; but there really is no better solution. If you were initially happy with a 10% gain, why would the stock rising to 12 percent or more depress you? If you weren’t happy with 10 percent, why did you sell then? Just like no one can predict the bottom with 100 percent accuracy, no one can also unfailingly predict a market top. At the end of the day, you have to be clear on what triggers you will rely on to determine your market actions. Yes, they will not always work and there will always be room for improvement or refinement but not having those trigger points will almost always leave you with a sense of frustration regardless which way the market moves.

Aya Laraya has been working in different financial industries for over two decades, from stocks, managed funds, banking and real estate. He is currently a professor at the Australian Catholic University, wherein he teaches Finance and Economics. He is also an instructor in Corporate Finance at the Bradford College of U.K. Executive MBA Program. He founded and created Pesos and Sense, an educational company whose goal is to empower Filipinos by teaching simple and practical knowledge in making independent and wise choices in handling their money.

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