Abelardo “Billy” Cortez l July 23, 2024 l Manila Bulletin
The pendulum in the capital market continues to swing back toward “be afraid” from the other side that reads “the coast is clear”.
In the field of human psychology, we know there’s such a thing as confirmation bias. People wanting to hear only what they want to hear; people believing in information that will only be consistent with their previous beliefs. People with such mindset tend to assume their decision-making processes are better and probably more rational than anyone else. They rather forget facts that may undermine their investment position. Investors with this kind of attitude, believe that risk assessments as well as due diligence no longer matter, conveniently forgetting that investing has always been a companion of risks.
Fear and greed remain pervasive in the global financial markets. So-called financial geniuses remain active in cooking up new ways to induce and seduce investors to part with their investible funds, always promising high returns to people who never suspected that these crooks were up to something wrong. It seems huge monetary incentives warp the judgement of a number of good men so that even when things start looking bad, they’ll still take in more investment risks without some cautious guidance.
On the part of many individual and corporate investors, their best intentions are sometimes clouded by instant gratification and their usual focus is always on short-term, high yield returns; they become less defensive and easily get caught in a difficult investment predicament.
These caveats are true in investing. Most investors must cut thru the confusing marketplace jargon and misleading claims about performance. Dangers exist for investors for two major reasons. First, most people are vulnerable because they prefer simplistic explanations and, secondly, numbers appear more conclusive than softer inputs.
Would it be too much to ask your fund manager this basic question: What else could go wrong? Would it be a bother to ask him the specific risks taken, how profits were made, or losses incurred in your investment portfolio? If they can’t give you relevant replies to these questions, that’s a real red flag. It is in the transition of the investing public from not believing to believing, from pessimism to optimism that they’re willing to take a shot at making money which, of course, is distinctly different than trying not to lose money.
The strong crowd sentiments in the financial markets have been those of greed and fear: the fear of losing everything, and the greed to double or triple it. The wave of greed begins in rising markets and it is probably greed that forms the tops of a bull market.
Same thing happens when there is fear. When prices start to fall, it is again that unconscious, impulse to be part of the crowd that causes investors to sell into a market bottom. Good news, bad news, friends, and strangers all conspire to make the financial markets go into a rollercoaster frenzy. The safe course is for the investors to stick to one criterion which is always mentioned in most investment books, buy only when the price is below book value. It is important to appreciate the implication of this reality. A
good number of investment opportunities, over the years, have made some prudent, cautious investors very rich. Undoubtedly, it is advantageous to predict when such turns in business cycle will occur, since most sustained and substantial swings in the capital market are closely associated with corresponding swings in the business cycle. People get rich by doing things in a certain way, and, in order to do things that way, people must learn to think a certain way.
We need a spark. The local capital market volume isn’t that great yet. It continues to struggle.
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Atty. Abelardo “Billy” Cortez is formerly FINEX national president. He’s board director of IAFEI (International Association of Financial Executives Institutes) as well as independent board director at First Metro Investment Bank’s companies/subsidiaries (Metrobank Group). He’s an awardee of the Most Distinguished Bedan Alumnus in the field of banking and finance from San Beda College.
The views and opinions expressed above are those of the author and do not necessarily represent the views of FINEX. Photo from Pinterest.