Invest while our economy is on the growth track
The global equity markets continue to rise. In retrospect, there’s a story behind this; the series of coordinated and unprecedented actions by central banks of developed economies, taken during the Great Recession of 2008, moving in lockstep to lower interest rates, to rescue banks and other financial institutions, and to stimulate their respective ailing economies, by pumping into said economies vast sums of money that eventually prevented a global meltdown, reversing economic direction towards global-based recovery.
The global message that many big companies are sending now is this: Businesses are improving a bit faster than expected as reflected in corporate earnings that are beating estimates in most cases. The reason behind the growth is that many companies around the world reacted positively and aggressively to the 2008 Great Recession by cutting costs and increasing efficiencies. So when orders started to come back the bottom lines began showing revenue growth. Revenues are great but they don’t mean anything if they’re not turned into profits. In fact, it’s the profits that investors get to keep; that’s why profits are the key ingredient to a great stock. How much is the company able to keep from the revenues it’s producing? The more it keeps, the better the return on equity. That’s what really counts for investors because the equity is what they own. Consistency of good earnings growth doesn’t happen by chance.
Across the Asian region, the economic policy makers’ common goal of regional economic growth is becoming a reality. Sort of the group’s prayers from a group rain dance are finally being heard. For the record, Citi’s recent economic forecast is expecting Asia to grow by 6.1% in the second half of 2017, slightly higher than the 5.9% a year ago. The regional economic growth is being powered by a resilient export-led manufacturing sector, substantial spending for capital equipment plus strong fiscal support and accommodative monetary conditions across the region.
In the meantime, the Philippine economy continues to figure prominently in the economic growth chart. Our economy has remained buoyant and its growth momentum continues. On the part of most investors, that’s a good reason to remain optimistic. Finance Secretary Carlos G. Dominguez III said, in a statement issued last week, that the 6.5% gross domestic product growth our economy posted in the second quarter “demonstrates well we are on the way to building a dynamic, investments-led and inclusive economy.” Indeed, the Philippines’ economic expansion during the April to June period remained among the fastest in the region.
Beyond that, as things bode well, what asset managers do is to undertake a two-step process to select the equity investments they put into their investment portfolios. First, they screen for quality, beginning with understanding the products a company makes and how it earns money. Then they examine a company’s legal and corporate structure, management, and financial data. Usually, they favor cash- generating companies with tangible assets on their balance sheets.
Now that we know what the economic announcements mean, we can determine how meaningful the numbers are for us. There will be plenty of experts telling us what they think and what we should do. Listen to all of them, but never make a buy or sell decision based on what others say. Always listen with a detached sense of calm. Don’t get caught up in other people’s hype.
A well- designed plan is a must for successful investing particularly if implemented with much patience, deep knowledge and strong discipline to stay the course; and avoid being swayed by the emotions of fear and greed.
No other way makes sense.