Sunday, February 24, 2019

Retail Underperformance Woes in Asia; VLL’s Magic Extends Thru the Week!


Retail Underperformance Woes in Asia; VLL’s Magic Extends Thru the Week!

Recall the angst endured by the retail investors on the underperformance of their equity portfolio?


It turns out that this hasn’t been limited to the Philippines

From Matthews Asia: (bold added)

Is it time to get back in?

To be whipsawed one way by the markets and then whipsawed back the other way. How exciting! To see the drama of acute declines in the fourth quarter of last year only to experience the joy of a reversal in fortunes at the start of this year.

Precisely this kind of behavior in Asia's markets in the past has deterred the long-term investor. It is such volatility in prices that has frightened the long-term saver and emboldened the short-term speculator. Is there no hope for Asia's markets to evolve into a platform for long-term saving and investment?

Of course, their answer is a Y-E-S!

Warren Buffett once warned that one shouldn’t ask a barber if one needs a haircut. That is because industry people will typically talk up their business regardless of the real conditions. And inherent optimism may be mostly anchored on the endowment effectbias (people ascribe more value to things merely because they own them)

So serious investors would have to learn how to think objectively, filter with emotional intelligence and use critical analysis rather than swallowing “hook, line and sinker” the typical establishment’s ‘buy, buy and buy’ literature, lest suffer the fate of “pigs getting slaughtered” (Bulls make money, bears make money, pigs get slaughtered)

It is important to realize that the industry’s incentives are different from those of the savers. That said, the tone of their literature is likely a manifestation of their interest rather than of the savers.
The current state of magnified volatility hasn’t emerged out of a vacuum.

Unprecedented market and economic interventions have engendered the grotesque mispricing of financial assets and the flagrant maladjustments in the economy as evidenced by negative bond yields and record debt levels. Risk ON has revived the $11 trillion (WSJ Feb 18) negative bond yields.

Unless one thinks that risks from these trillion dollar deviations can be ignored, then yes, take the position for the long-term.

However, the other perspective is that magnified volatility maybe symptoms of unsustainable imbalances in search of an outlet valveThat is, under such a scenario, the probability is skewed towards risks rather than on rewards. Hence, short-term positioning rather than the long term is warranted. 

High time preferences (short-term orientation/ticker tape mentality) are really products of inflation policies.

The high priest of (monetary) inflation, John Maynard Keynes admitted to this:

As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Haven’t we reached this state?

Anyway, back to the Philippines.
Would VLL’s repeated marking the close convince one to invest in the long-term?

Such end-session pumping signifies a short cut way of becoming a market-cap heavyweight. Except that such actions have NOT been the work of free markets.

And why wouldn’t there be magnified volatility when the prices have become utterly deformed?  Instead of a price clearing process, prices have been forced upwards for reasons other than to generate profits through price discovery. 

And why would such disfigured markets not be vulnerable to a crash?

And VLL has just been a symptom of the behavior that has characterized many actions at the PSE.
IF an SM led Friday +2.1% (mark-the-close) pump that helped pushed the PSYei 30 by .55% can happen, why not the price fix even the smaller issues?

And will such kind of actions deliver Alpha returns to the long-term investor? Or will it be maximum pain?

A reminder from Bill Blain:

The Market has but one objective: To inflict the maximum amount of pain on the maximum number of participants.
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