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Monday, July 1, 2013

Lessons on Portfolio Management

The market volatility for the past few weeks has shaken the resolve of most newbies (and even oldies) to the stock market. Analysts consensus is we are NOT in the "bear market" territory. Though the steep and abrupt dip caught everyone by suprise, the market is going through a healthy correction. In a speech delivered by BSP Governor Amando M. Tetangco Jr. for The Asset Forum last June 26, 2013 he said:

There is always volatility on the way to recovery. The road to recovery is never a straight path. Keep the main things, main. In other words, focus on your goal and don't be distracted because volatility is inevitable.

He maintains that: The Philippine fundamentals are solid, and we have built up safeguards to ride out the volatilities. The exchange rate will continue to be market-determined, and the BSP will maintain its strategic market presence in order to avoid excesses in volatilities and to provide appropriate market guidance.

BSP Governor Amando Tetangco Jr.

We should always keep in mind the important lessons of portfolio management (lifted from COL Financial newsletter):

1. Diversification - Although stocks should form part of every investor's portfolio, it should not be the only instrument in your portfolio. Moreover, your equity portfolio should contain more than one stock and stocks should come from different industries. That way, your are protected from any significant downturns caused by unforseen circumstances.

2. Think Long Term - Use money that you do not need in the short term. While volatile in nature, studies have shown that stocks beat returns of other popular investment instruments over time. Having a short term perspective only puts you at risk to selling stocks at a "bad time".

3. Discipline - Stick to the discipline of consistently buying stocks of good quality companies to guarantee returns overtime. Don't let the fearful market condition stop you from buying stocks that are now trading at attractive valuations.

As I stressed in my previous blog entry, this market slump is the best time to buy. Don't panic. Stick to your game.

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