When is the right time to sell stocks?

MANILA – When is the right time to sell stocks?

A study by a chartered financial analyst showed that if momentum has been going on for around five months, stock investors should be careful.

“What I did is I did a study where I looked at all stocks across Asia and tried to identify how many months of continuous momentum before it started to slow down,” Andrew Stotz told ANC’s “On The Money.”

Stotz studied around 7,500 stocks across Asian markets except Japan, and then looked for investible stocks with a market capitalization of at least $500 million, reducing the total number of stocks to 1,200.

Tracking performance from December 2003 to June 2014, Stotz discovered that only 56 percent of investible stocks in Asia rose 5 to 7 consecutive months at least once in the past 10 years.

Forty-six percent of the time, prices were going up, but 48 percent of the time, stocks dropped.

Only 21 percent of stocks continued to give positive return for a second month while only 10 percent gave positive returns for the third month straight.

Only 5 percent gave positive returns for four consecutive months.
Financial adviser Salve Duplito explained this means there have been more losing months than winning months in the past 10 years in Asian stock markets.

The study also showed that long-lasting momentum is rare, and only 10 percent of the time does momentum last for more than four months.

“What you end up with is, let’s say about 4 to 5 months, is the period of time when momentum is fresh. But after 4 to 5 months, momentum gets stale,” said Stotz.

Stotz warned that because stock prices are rising, newcomers are at risk of crashing because they don’t know how to sell.

“The Philippines has been going on such a great run, that anytime we get great runs in the market particularly when it really starts to go [up], that attracts newcomers into the market,” he said.

To prevent crashing in the stock market, Stotz advised investors to look at fundamentals, valuation, risk and momentum.

He also advised to avoid cheap stocks that never move, and to take advantage of opportunities to make money in the market.

“If you’re into momentum investing, you’re hardcore. This is an investment style that is high risk, and if you don’t do it well, you can lose a lot of money,” said Duplito.

“Investing styles are very personal strategies, finding your own style that works with your own quirks takes time. Be patient and don’t be afraid to try new ones,” she added.

source: www.abs-cbnnews.com

Can investors trust stock analysts?

MANILA, Philippines – Can an average investor rely on the average analyst to predict the future?

This is the question that Andrew Stotz, president of the CFA Society Thailand, wanted to answer when he conducted a 10-year study on the Asian stock market and the accuracy of stock analysts.

Stotz studied all Asian markets except Japan for a 10-year period and analyzed data for 16,500 stocks.

He analyzed historical earnings per share data and compared it with analysts’ consensus estimates for the next 12 months.

“I’ve tested whether analysts are successful in forecasting and the answer is: it is pretty close to a coin flip,” he told ANC’s “On The Money.”

“On average, it’s about 50-50. But when they’re wrong, they’re really wrong. So about 50 percent of the time, I showed that analysts can be wrong in their target prices by more than 30 percent positive or negative,” he added.

Analysts did better during good years, but failed to catch a collapsing market because they tend to have positive bias.

Stotz’s data also showed that Philippine analysts are the only group with forecasts that soundly beat historical numbers, but these forecasts only covered 20 stocks in most years and in a couple of years, analysts had historic forecasts for only one stock.

Despite these results, Stotz noted that analysts are still needed because they make the market more efficient.

“We need analysts. If we didn’t have analysts, the market wouldn’t be efficient…The ability of an analyst to make a difference today is much more difficult than it was 20 or 30 years ago,” Stotz said.

He added that it is acceptable to depend on financial professionals for information, but don’t “over rely.”

“They’re not your all-in-all answer for your money problems,” he said.

Stotz said investors have three ways to avoid being over dependent on analysts:

focus on the past and present;
focus on reducing risk by spreading investments across many stocks, mutual funds, or exchange-traded funds; and
stay invested over a long period of time to get the benefits of compounding money.

source: www.abs-cbnnews.com

Thinking of investing in stocks? Here are some tips

MANILA, Philippines – To be a successful stock trader, you must first get into the mindset that you won’t simply get rich through trading stocks, a financial analyst said.

Andrew Stotz, the president of CFA Society Thailand, said there is a good reason why most of the world’s 500 richest people listed by Forbes are not stock traders.

“What you find is that the people who get rich in this world get rich from building successful businesses. That’s where real wealth is generated. It doesn’t come from the stock market,” he told ANC’s “On The Money.”

Stotz cited American billionaire Warren Buffet, who ranks high among the world’s billionaires, as a business owner “who only uses the stock market as a place to buy and sell.”

Investing in the stock market, Stotz said, is about protecting your wealth while also trying to get a decent return.

“If you can go into investing by realizing ‘I’m not getting rich from this,’ now you have the right mindset to invest. If you go in thinking I’m going to get rich from this, that doesn’t happen,” he said.

According to Stotz, the 5 major factors that determine return are inflation, dividends, growth in book value, possibility share price dilution, and the “dream factor.”




“Take any stock and let’s say last year people were willing to pay 10 in price for one in earnings. A year later they’re willing to pay 15 in price for one in earnings. What has changed? That inflation in the PE or other metrics is what I call the ‘dream factor,’” Stotz explained.

He warned, however, that when price-to-earnings ratio gets higher than 15 times, then the stock trader should realize that the “dream factor” can turn into a nightmare.

“The amazing thing about the stock market is that it’s so complex, you can never develop a rule. There is no rule that consistently works so you have to be aware of shifting sands,” he said.

“When investing in stocks, we ought to rely less on predicting the future. Know where we are today and where the market has been in the past. Predicting the future gives you a false sense of security,” he added.

source: www.abs-cbnnews.com