Thursday, February 17, 2011

Positioning to outperform

A number of traders I know have begun to think that the market has started to bottom out; as a matter of fact, just the other day "The Inquirer" has an article that says an economist figures that the sell-off would be over by March and that foreigners would be buying into the market soon. I would like to think things are looking up, but I just can't seem to find the confidence to put my money back into the market. As soon as I realized that the month was going to see a steady outflow of investment, I unloaded a good amount of my portfolio (20-25 percent) and reinvested it somewhere else. I would likewise wish for everyone else to exercise the same amount of caution when investing in equities at this point. I would like to emphasize that I am NOT changing my long-term views on the market, which is that we are in the middle of a bull run.

I remember some traders commenting that the past two years, the market was all about one direction; up. Today, we have to be selective in what we buy. I would like to disagree with that statement, in my humble opinion I believe it has never been about putting your money in any random stock. By doing so, we end up gambling, we might as well head to casinos. I'd like to think people who assume that is the case, have just decided to not do their homework and ride the bull market by putting into random stocks and chasing tips.

The way I look at things is that we have to constantly position ourselves to outperform. To outperform there are a number of factors we have to look into. Low P/E's, good growth in earnings, liquidity, good comparison to sectoral and index averages, and of course a company that gets the foreign brokers interested. Some of these stocks, I have already mentioned before; companies like DMC, EDC, SCC, MBT, AP. These companies are poised to outperform the market soon, once all this negative sentiment passes. I would put my money on it; oh wait, I already have.

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