Trinidad Guardian
Thursday 24th November 2005
Learn from Soca Warriors
by Ian Narine[/size]
The total value of trades on the stock market last week was $16.2 million. That number usually constitutes a slow day let alone a whole week.
Sports, and in particular football more than anything else, was the dominant theme over the past week and once again this weeks article will try to link sport and investing.First, I must take the time to extend congratulations to the national football team on reaching the 2006 World Cup finals in Germany.
Being the smallest nation to have ever qualified is a great achievement in and of itself and takes on even greater significance when one considers that other seasoned football nations from our region, such as Panama and Guatemala, have never qualified for a World Cup.
It took all of 20 matches to achieve the goal of Germany 2006, the most qualifying matches played by any team in the World Cup tournament.
At the halfway stage of the journey T&T was at the bottom of our qualifying group after losing 2-1 to the USA and 5-1 to Guatemala, and overall the dream looked in tatters.
The team was able to turn it around and the rest, as they say, is now history.
There are parallels between the football and investing that investors would do well to recognise.
First of all, just as in the World Cup campaign, there must be a specific target to aim for.You cannot enter into a programme of investing without a specific goal in mind. Whether it be planning for your retirement, the purchase of a house, your children's education or any other desire, in order to be successful there must be something to aim at.
Remember the old saying: if you don't know where you are going then any road will take you there.
Not establishing a clear investment plan is often the biggest mistake made by investors.
The second parallel is that all is never lost and the journey is not over until it is actually over.Right now, the local stock market is, at best, trading flat, gains are difficult to come by and the road is quite bumpy indeed.
It may require an adjustment to your investment strategy. It may require changes to the plan but you can never reach the goal if you step out of the game.
As I ended last week—patience and perseverance is now the order of the day.
A couple of weeks ago I charted the performance of the US benchmark the Dow Jones Industrial Average (Dow) to highlight the then level of market volatility.
Look at the chart again and you will recognise that the daily volatility is gone and the market is now on the up (see graph).
Investors who were reading the last few articles in this space should now better appreciate the advice that you manage risk rather than avoid it.
By avoiding the risk associated with the volatility in the US markets many would have also inadvertently avoided the recent gains. A few months down the road one may very well be using the T&T market in this example.
No one can say for certain when a stock or market will begin to rally so the act of avoiding risk often proves counter productive to the overall investment objective.
Playing to the occasion
Not knowing when and how to adjust the investment plan is often the second biggest mistake made by investors.
T&T changed their coach and convinced a number of key players to return to national duty midway through the World Cup campaign, when things were not going according to the original plan. That proved instrumental in the success that we now enjoy.Some investors, primarily because there is no plan in the first place, are not able to adjust their tactics to suit the prevailing market conditions. Very often they end up simply trying to earn it in the same way that they lost it.
As an example there are investors that would have bought Guardian Holdings (GHL) at between $40-46.
Last week, the stock fell to $34 posting a 52-week low and falling by 12.8 per cent in one week.
There are those who will hold onto the stock regardless because their reason for buying the stock in the first place has not changed. Such investors view GHL as a good long-term investment and will see the fall in price as an opportunity to lower the average cost of GHL in their portfolio (buy more GHL).
However, there are others who no longer see the stock in the same light as when they bought it.
Some of these investors—rather than changing the strategy and disposing of the stock in preference to other opportunities which they consider more attractive—would instead hold on to the stock hoping that it would go back up sooner rather than later.
Last week, an analyst report suggested that GHL would be hard pressed to meet even its trailing earnings target—then recommended the stock as a hold.
The absence of a clear plan often means that your investments are "all over the place."
This is not a good thing when one considers that an investment should not be viewed in isolation but rather in the context of the overall portfolio.
Knowing how to manage a portfolio is also a critical part of investing and often the absence of adequate research and advice exacerbates the situation in that you are unable to determine when to buy, when to hold and when to sell.
If a stock falls from $40 to $30 then it has declined by 25 per cent. However, it needs to then appreciate by 33 per cent in order to return to the original price of $40. The latter is much more difficult to achieve than the former.
Instead of waiting for a stock to appreciate after it has fallen another option would be to sell once the stock ceases to meet the objectives of the portfolio and then find another stock whether it be on the T&T, Jamaica or even the US markets that better suits your risk/return profile. In that way, you can recoup the initial loss with less risk and often over a shorter time.
To take such a bold step of crystallising a loss in order to seek out gains elsewhere requires a fair amount of investing acumen.
Learning from the past
Such know how will not appear overnight hence the need to seek out the advice of a professional. However, investors can help themselves by learning from their environment.
The ability to quickly and accurately interpret information from our environment and adapt accordingly is essentially what separates the successful from the mediocre.
If we were to go back to the football for just a minute: I remember the two most famous football sons of our soil, Yorke and Latapy, being censured by their respective clubs for returning late after representing T&T some time in the past.Fast forward to today and after their crowning achievement of reaching the World Cup finals they immediately left following the match presumably to tend to their responsibilities as professional footballers—lesson learned.
However, as a nation we seemed not to have learned our lesson from past episodes.
In 1989, we declared a public holiday days before the match once we won. This time around we went a further step backward in that we waited until after most business were closed for the day and declared a holiday for the following day.
One also needs to consider whether it was appropriate to declare a public holiday to celebrate when significant parts of the country was still under flood waters.
Whatever the view the end result was a loss of productivity on Wednesday, Thursday and, in most instances, Friday of last week, no doubt resulting in millions of dollars in lost production.
The fall-out was evident on the T&T Stock Exchange where just 486,678 shares traded on Friday last with a meager value of $2.4 million.
When one also considers that there were two other public holidays in November, both of which fell on trading days, it is no wonder that this month the market has struggled for momentum with both the Composite Index and the All T&T Index declining by around one per cent over the course of last week.
With just about two to three weeks before the market traditionally goes into a lull for the Christmas season and with Carnival providing a distraction until the end of February (27 and 28) one would probably have to wait until late March 2006 before being able to establish a clear trend in the market.
During that time there will no doubt be isolated opportunities to keep investors interested but it is unlikely that there will be a sustained upward or downward movement in the market itself.
One thing is certain: the bravado of the past three years is well and truly over.
The recent floods, just as it did last year are expected to fuel inflation through higher food prices.I wrote that we should have expected these months ago and one wonders that with more than a year to prepare since the last round of flooding what monetary and infrastructural policies are in place to ensure that the benefits given in the last budget don't just evaporate on the back of spiraling food prices.
As an investor, there are certain circumstances that are beyond your control. What you can do though is to contact your adviser, establish a plan, stick to it, manage your risks according to your risk tolerance and learn to adapt as the market changes—don't keep making the same mistakes over and over.
Feel free to "vibes it up" but don't play games with your money.Ian Narine, managing director of Republic Securities Limited can be contacted via e-mail at inarine@republictt.com
The contents of this article are not to be used or considered as an offer to sell or a solicitation of an offer to buy. The information contained above has been obtained from, and any opinions therein are based upon, sources believed to be reliable. RSL makes no representation as to its accuracy or completeness and it should not be relied upon as such. All opinions and estimates therein reflect the judgement of the author and are subject to change without notice.
©2004-2005 Trinidad Publishing Company Limited
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