VIEWS FROM THE PEAK: The market is not dead, it just changed

By Alfred Benjamin R. Garcia, AP Securities research head 

Two decades ago, the most common investment advice was to “Buy and hold.” This is typically a one-time buy of shares in a fundamentally sound company that was trading at discounted levels or at an attractive IPO price, and just holding on to it until retirement or until the funds are needed elsewhere.

It was an infallible strategy back when the market was in a ten-year bull run that was only briefly interrupted by the Global Financial Crisis of 2008-2009.

The market became a bit choppier in the mid-2010s, and a new investment buzzword entered the public consciousness—peso cost averaging. This involved spotting a fundamentally sound company and buying in regularly spaced tranches regardless of price. 

The idea was that investors can build their positions without worrying about the ideal entry price. This worked perfectly in a choppy market that was generally trending upward, allowing investors to profit from this strategy.

Alfred Benjamin R. Garcia 
AP Securites, research 

The death of buy-and-hold and peso cost averaging

However, a hypothetical investor who bought shares of one of the bluest blue-chip stocks, SM Investments Corp. (SM), at its closing price on the last trading day of January 2015, would have gained 25.9 percent by holding it until the last trading day of January 2025. 

This seems like a fairly robust return, but it actually translates to a deeply unimpressive annual return of 2.3 percent over the past ten years.

If this hypothetical investor bought shares of FMETF, First Metro Investments’ index-tracking exchange-traded fund (ETF), at the end of January 2015 and held it for ten years, he would have lost 11.0 percent.

But what if this hypothetical investor applied the peso cost averaging method and bought the same peso amount of SM or FMETF at the end of every month over the span of five years starting January 2015 and then held onto it until the tenth year? He would have lost 1.7 percent on SM and 11.3 percent on FMETF.

The stock market of today is obviously a very different beast from what it was 10 or 20 years ago. We have been stuck in a broad sideways trend since the pandemic, characterized by wild swings but generally heading nowhere. 

This is not to say that it is no longer a profitable market, as money can always be made for as long as the price is moving. However, it must be emphasized that buy-and-hold and peso cost averaging are no longer viable investment strategies in a market like this.

Furthermore, the internet era, social media, and generative AI tools have given us instant access to unlimited information that is chopped up into bite-sized pieces. 

This has led to a near-constant flux of information that has to be priced in, creating a rapidly shifting landscape that can be overwhelming to follow.

Be smart, be nimble

What works now is active portfolio management, where investment choices must be constantly evaluated and re-evaluated. 

"The stock market of today is obviously a very different beast from what it was 10 or 20 years ago. We have been stuck in a broad sideways trend since the pandemic, characterized by wild swings but generally heading nowhere."

"This is not to say that it is no longer a profitable market, as money can always be made for as long as the price is moving. However, it must be emphasized that buy-and-hold and peso cost averaging are no longer viable investment strategies in a market like this."
- Alfred Garcia, AP Securities 

The only ones getting decent returns now are full-time traders, investors who have their money in actively managed equity funds, or lucky stock pickers that bought into PLUS, CBC, or HVN. 

This has led to passive or less-sophisticated investors losing money, and now retail investors have been mostly driven out of the market. It may sound cynical, but it is a painful reality that the market is now a playground for big boys where little kids can get hurt if they try to join in the fun.

What does this mean for the average Juan? One option is to step back and let the professionals handle it—invest your hard-earned money in actively managed funds, or have it managed by a trustworthy investment professional. 

The other option is to learn the tricks of the trade—equip yourself with the knowledge to make smart and timely decisions, and become a more dynamic investor. We likened the market to a playground where little kids can get hurt, but it is also a place where smart and nimble investors—no matter their size—can still join the fun.

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