Stocks’ run still good but ‘expensive’ – Stotz

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The equities market may sustain a bull run for three years but Philippine shares, which have been trading in record territory, may now be regarded as expensive at over 20 times their price-to-earnings (PE) ratio, a stock market expert said on Tuesday.

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“Maybe the optimism is good, but not that dangerously optimistic. I see the market is not in that phase yet. But that can come. It’s expensive but not really that expensive,” said Andrew Stotz CFA, chief executive officer of A. Stotz Investment Research and president of CFA Society Thailand.

“I think when you talk about prospects, three years is possible. You know, maybe one or two years – it’s still possible to sustain that growth. But there’s a difference between economic growth and stock market growth,” Stotz said told reporters.

Stotz is in the country for a series of talks in universities and educational institutions about investing in the stock market. He is also promoting his book that teaches average people to invest in the stock market and the considerations that affect investing strategies and methods.

The Philippines’ more than 20 times PE is the highest in the region.

Taiwan, Korean, China, Hong Kong have 10 times to 15 times PE. On March 4, the Philippine Stock Exchange index (PSEi) posted 18th all time high record at 7,847.83.

Stotz said investors should not confuse “economic growth with share prices growth.

“In China, for example, if you put your money in the stock market for 20 years, what would be your average return? Average annual return is 1 percent. The stock market went up, flashed (higher) and then crashed.

But that was the fastest growth economy in all of Asia. Growing at 15-20 percent over those 20 years,” he added.

He said the Philippines could have 10 more years of economic growth “but that doesn’t mean they [investors]are going to get great share prices growth.”

“So what I’m trying to say is be careful to not let news report tell you the GDP is really great and the companies saying ‘our profits are going to continue to grow.’ It doesn’t mean that you’re going to make that same money in the stock market,” Stotz said.

“So be very careful about linking those two together. Sometimes it’s right, sometimes it’s not,” he said.

Investors should build their knowledge and find methods suitable to their style of investing to determine what are the stocks to invest in and appropriate to their method, Stotz said.

He said upon determining the stocks, investors should focus on this portfolio for the next 20 to 40 years, depending on one’s age.

But the earlier a person starts to invest, the more power of the “compounding” factor over time works to the advantage of an equity investor, Stotz said.

He said investors should keep the risks under the “Seatbelt and Airbag” principle where the seatbelt is “diversification” of investments and the airbag is engaging in long-term fixed-income assets such as bonds as fallback when the stock market unexpectedly plunges.

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