Thursday, October 1, 2009

Quarterly Reports, Stock Indices and Taxes

After the initial recovery/rally last May - June of 2009, DJIA and PSEi fell around -10%.
After accumulating stocks such as MEG (0.7), SM (200) and AC (200) at low levels, I was forced to sell them since I thought that the initial rally was a fluke. Although I still made a pretty large profit around 15-25%, if I did not sell, I should have made more than 50%.

Ever since I invested/traded in stocks, my mindset was always to be a mid-term to long-term trader, holding stocks for at least a month or so, depending on its performance. If the value of my stocks fell, I usually gave it around 2-4 weeks to redeem itself before I sold.

However, during the Q2 period, my thinking changed, I held stocks for a maximum of 4 days, since I usually sold before the weekend, gain or loss. On fear that the rally will be short. Which also did not work for me (stock speculation) .

Here are the mistakes that cost me a lot of opportunity losses.

1. Ave Buy for MEG at 0.7, Sold it at 1.0
  • I always buy MEG since it's P/E ratio is low and it's potential earnings are high. Further, the negative press about its substandard condos, just proves that they always cut costs. And selling condos for me is not about the price or quality, it is about hiring good sales people.
  • Sold since I've heard from a lot of my fellow traders that MEG might fall back to 0.3 level based on the valuations it got from the Deutsche Bank report and that MEG is having a hard time selling units and their BPO rentals are getting hit by the recession. (Job cuts)
2. Ave Buy for PX at 6ish, Sold it at 6.5
  • I don't really know much about the mining industry, I just bought it since it's one of the mining stocks that has a low and positive P/E, and Gold prices are going up.
  • Sold because I don't really now much about the mining industry. Thus, I don't know what indicators I should watch. I'll probably never going to put my money on mining anytime soon.
3. Ave Buy for SM and AC at 200ish, Sold at 250+
  • I bought SM and AC since during that time, its P/E was less than or equal to 10ish. Also, it is a no brain-er since SM and AC will be the last corporations to be wiped out by the recession, thus on all stock you might want to buy, SM and AC are the safest.
  • Sold because I felt the valuations of AC and SM is not at par with the current economic conditions. I was wrong.
4. Ave Buy for MER at 45, sold at 45 (2008)
  • It was really cheap that time. And during recessions, the best advice is to buy utility stocks. Aside from food, clothing and shelter, this is the next staple.
  • Sold for no reason, I just thought that other stocks have better potential than MER.
5. Ave Buy for MER at 120, sold at 200ish (2009)
  • Bought it back, since I've read about the turf wars between MVP and Ramon Ang.
  • Sold because I thought that the 10% gain per day cannot be sustained.

So given all these mistakes, the lessons I've learned is that I should not base my decisions for the short term. Also, most of the times, my analysis of a stock is amplified based on the charts.

For example, if I thought that MEG might have a negative EPS since most BPO are cutting jobs, my emotions gets amplified 10 times when the DJIA drops 100+ points.

Thus, I should think more logically when making decisions. (This applies on life too.)

Further, the charts proves that people tend to get scared before the Quarterly earnings, thus they tend to sell and hold on to their cash, then invest if the Quarterly earnings tends to be favorable.

Now, since the trend on the DJIA is showing that it might loss another 10% since the Q3 earnings reports is on its way, I think that DJIA would fall to about 9100 level and PSEI at 2700. But this is assuming Q3 will follow Q2's movements. Thus, I'm speculating that after the 9100 levels of DJIA, it will reach 10000 and PSEI at 3000 by Q4. Thus, I've decided to hold on to my stocks.

Further, coming from the BPO and IT sector, there is definitely a large surge in IT and BPO job demand for the past 3 months; thus, this is really a concrete evidence that the economy has really improved compared to the First Half levels.

First Half : I sent out my resumes last December 2008, I got a call and a Job offer last February 2009.
Second Half : I sent out my resume last August of 2009, I got 4+ calls a day on the same week and got a multiple Job Offers on the same month.

I feel optimistic that 10K DJIA and 3K PSI is due on Q4. However, there's still one factor that I do not have any idea how it will affect the markets though, and that is TAXES.

Since, if you held a stock for more than a year, you will have to pay taxes for the capital gains you make that year; thus, people tend to sell stocks before the year's end (October-November) and start buying again by December - January. Thus, a sell off might happen at Q3-Q4.

On the other hand, most of the stocks held today is bought last March-July thus, a sell-off might come late, probably at Q1 next year.

Although, a sell-off for tax reasons is not an indicator of a worsening economy, it is however another buying opportunity that we might make huge profits from.

If you know more about selling off due to taxes, please post a comment.