Author: Investa

The financial sector is an integral part of the economy. It provides support to individuals and businesses, allowing them to participate fully in markets. The financial industry is crucial to the economy, and if that fails, its failure ripples towards all sectors of society.

Take the Global Financial Crisis of 2008 that caused a global recession. More than a decade later, we are faced with yet another economic challenge; this time not caused by a housing bubble, but something even deadlier ー a virus that has spanned the entire globe, COVID-19.

Immediate Responses of the Financial Industry

Because of the measures introduced to slow the spread of the virus, banks are faced with difficulty in providing support to customers. As such, it has been of utmost importance for many banks to shift to online services quickly, while still being able to maintain efficient customer support. Banks must make possible and encourage online transactions by improving their online banking platforms ー providing tutorials for their online services and increasing their capabilities ー making it easy and accessible for anyone to transact remotely. It has been a top priority for many banks to improve their online services, and make the necessary adjustments not only with customers but also with the workflow of their employees. Even more crucial, they must ensure that these systems are sustainable. There is no end in sight for this pandemic, with social distancing measures here to stay, so they must make sure that these adjustments will work in the long-run.

With the numerous changes affecting every sector of society, it is now more important than ever for every sector to introduce change into their systems and assess their impact on society as a whole. The changes hit the financial sector quite strongly, but there is a need for business to go on as usual, given that banks provide an essential service to individuals and businesses. This pandemic, and the “new normal” it is introducing, requires increased customer support from the financial sector’s end and, most importantly, innovation and change towards more technologically-reliant methods of banking.

Looking Towards the Future

Even after the world has seen the worst of the pandemic, it will take years for society to return to any form of normalcy. While crises are difficult, it is also an opportunity for those who choose to take it. In the financial industry, it creates an opportunity for collaboration between traditional banking firms and more technologically-advanced firms, such as fintech startups. Fintechs are more well-placed to deal with the crisis at hand, as they already heavily rely on technological innovation. However, due to decreased economic activity and stock market crashes, investments will be geared towards safer avenues; thus, investments in startups may slow. On the other hand, traditional banks are not as well-equipped to deal with this change and can take cues from fintech on how to innovate their technology to provide smooth online services. There is a need for fintech to collaborate with traditional banks to secure funding, and traditional banks to look towards fintech for help with technological innovation. Already, there have been several collaborations between banks and more technologically-advanced firms before the pandemic began. Moving forward, banks should use this opportunity to collaborate even further with tech startups in an effort to create banking ecosystems that will ultimately make the banking experience more user-friendly and accessible.

What now?

This pandemic has shown that banks do play an integral part in the economy, and are doing their part in helping boost it. However, this could also prove to have negative effects on them in the long-run ー by introducing low-interest rates, it could be a struggle to bring the rates back to usual once the economy stabilizes. It is too soon to predict the future of our economy, and no one knows for sure how long it will take to bounce back. Government stimulus programs, low lending rates, and softened payment terms have proven to be beneficial, but looked at from a long-term perspective, if the economy continues to decline, the blow still goes to the banks who face defaulters and losses. Banks must then be able to balance being supportive and lenient with businesses, while still maintaining their security by cutting off those who they know will be unable to pay back. This may cause a public backlash, and turn around the increasingly positive view on the industry. In England, many banks, such as HSBC, have already suspended their dividends, which right away caused steep drops in their share prices.

With the future still unclear, the survival of banks ー and the world ー still ultimately boils down to how well governments are able to handle the pandemic. No matter how much industries prepare for the worst, the stimulus packages introduced by governments will not last forever, and the root problem still goes back to the public health crisis at hand. Moving forward, this pandemic serves as a critical juncture where many changes have been introduced. History has shown that during critical junctures like this, the winners and losers truly depend on who is able to innovate. Those who are able to adapt quickly will come out on top and survive, while those unwilling to adapt will lose steam and credibility quickly.

危机 ー the Chinese characters meaning crisis. It is made up of two characters: the first symbolizing danger, the second for opportunity. While crises pose imminent threats and are often difficult to overcome, there is always a silver lining to it. Those who are quick to take advantage of the changes brought about by crises are the first to reap its benefits, seizing an opportunity to expand, innovate, and foster habits for success that are built to last.

With all this information regarding foreign markets already laid out, it’s time to put it into practice by beginning our trading journey! However, you may be asking yourself if now is even a good time to be making investments. Given everything that is happening, it may seem risky to be putting our money into unstable markets. The ongoing pandemic has turned out to not only be a health crisis but an economic one as well. Markets have been crashing and countries are struggling to keep their GDPs afloat. In this article, we will be looking into how markets are doing around the world, and how to invest in a truly uncertain time such as this.

Philippine Markets

A recent InvestaDaily article about Investing in the time of COVID-19 touched on how industries in the Philippines are doing given the ongoing pandemic.

The stock market plunged by 6.8%, and industries such as tourism, entertainment, and automotive have not been spared by huge losses. According to the British bank HSBC, our GDP contracted by 0.2% in the first quarter of 2020, and they predict a 7% contraction in the second quarter, 4.3% in the third, and 3.9% in the fourth, bringing the full-year contraction rate to 3.85%. The entertainment industry will see a revenue loss of 82.3%, while the travel industry will see an 81.9% loss. Our unemployment rate is at an all-time high of 17.7%, with 4.9 million Filipinos unemployed. These drastic numbers were brought about by the harsh ECQ, putting many individuals out of business.

Additionally, the drastic quarantine measures instilled a high level of fear in many Filipinos, reflecting in our consumer spending habits. Even as we are easing out of ECQ, the fear instilled during those 3 months stops many from buying goods, leading to a drop in consumer demand, and ultimately, large layoffs and companies shuttering. Though these facts may be concerning, there is still space for investments and opportunities if one looks in the right place. With many still stuck in their homes and practicing social distancing, technology has been brought to the forefront of this “new normal” we are seeing. A huge shift in online means of conducting business and communicating will bring huge opportunities in the technology industry. Technology will be leading our future, and there is no better time to invest in it than the present.

International Markets

IMF’s Managing Director Kirstalina Georgieva said that, “Global growth will turn sharply negative in 2020” due to COVID-19, and she was not wrong. Mercatus predicts that the US GDP will contract by 10% due to the first two months of the COVID-19 lockdowns, and the World Trade Organization expects global trade to fall by 13% – 32% this year.

Adding on to that, the United Nations expects global GDP to fall by 1% this year, all due to the pandemic we are currently facing. However, as many countries are slowly starting to recover from the pandemic and opening up their economies, there is a glimpse of a silver lining. US markets were looking stronger in April and May following widespread disarray and panic in March, and in June, the S&P 500 turned positive. Despite this, the US is still cautious, and as several states are reopening their economies, fears of a second wave of infections are reflecting in the stock market. These fears of a second wave are solidified by an increase in cases being reported in China, sparking fears of a lockdown in the business hub of Beijing, and infection rates are beginning to spike once again in the US.

Truly, the only thing that will stabilize markets for the long-run is a vaccine for COVID-19, which does not seem to be near in sight. However, if a second wave does happen, the world is better prepared for it – given that we have already gone through a first wave, many professionals are aware of the best practices, and will better contain the virus. Though futures indicate that the Dow Jones will fall by 500 points and the S&P has already fallen by 1.8% this week, there is hope that once the fear of a second wave calms down, markets will return to somewhat normal numbers.

Is it safe to invest?

Though the world is in a state of uncertainty right now, it would not be a good idea to halt your trading journey at once. There is no end in sight for this pandemic, and so, though it is not the most ideal place to be trading, it should not stop one from doing so as well. Taking Warren Buffet’s advice, who has survived many recessions, it is a good time to find undervalued businesses at good prices. With technology seeming to lead our future, it is a good time to seek out stocks in the tech industry, especially ones that have high potential yet have not reflected in its stock prices. Especially important is the philosophy of buying stocks over time. Especially now that prices are lower, it is a good rule of thumb to keep buying stocks at low prices and wait a longer period of time for those stocks to increase in price. Additionally, one should not wait for the prices to bottom out, as this is near-impossible to predict. Keep buying stocks until the trend turns upward, and wait for the price to go up enough to make up for any losses.

Though now may not be the most ideal time to begin, there isn’t a bad situation where you cannot find any good. At such a critical time, it is important to do your research, carefully analyze the market, and avoid making rash decisions. As Buffet once said, “Be fearful when others are greedy and greedy when others are fearful” – though this should not be taken to the extreme, it serves as a reminder to see the upside to any negative situation, and turn seemingly negative situations into positive ones.

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This article is a continuation of the Going Global series. If you haven’t read the global articles, check it out here:

Going Global: How do I Start Trading Internationally?
Going Global: A Deeper Look at the US Markets
Cryptocurrency: The Money of Our Future?

The Going Global series aims to introduce traders, whether beginners or advanced, to the international stock markets. Throughout this series, we will explore the pros and cons of international investing, how to kickstart your international portfolio, and many more tips to navigate this more complex trading world.

Life is a series of small decisions that compound and magnify over time.

When you choose to be disciplined even on the amount of food you intake even when it’s just lessening the consumption of rice or soft drinks, a day won’t matter but a hundred days of that would take a faster effect of notice coupled with exercise and a better selection of food. So it is with weight management that we can see this translating to most every facet of our lives. Indeed Naval Ravikant said that “All returns in life are compound interest whether money, relationships or habits”. She doesn’t love you at first sight. It just grows over time. Play the long term game.

A friend told me to listen to his podcast so I’m linking it here if you wish to know more about the entirety of the episode:

Naval Ravikant: How to be Rich
https://open.spotify.com/episode/1DW2fkyEkgZaEP40Mj6H9m?si=yw9hyGOlSEaDTs6woz-1Ag

The Rational Optimist Principle

You have to be a rational optimist. You have to know the downside but be action biased nonetheless. Cynics and Pessimists unfortunately have given up and so the world to them is where nobody can do anything. This is why they’d rather you fail than succeed to make them look less bad.

It reminds me of an entrepreneur who asked the audience if they’ve eaten and if they could raise their hands if they owned a smartphone — everyone raised their hands and so he said his TAM (total addressable market) was so huge. The CEO I’m pertaining to was Tim Steiner who headed Ocado, the leader of online groceries in the U.K.

He built his business 20 years ago in 2000 even when there was just the start of the internet wireless infrastructure and when smartphones were too bulky and too expensive, he decided to believe that e-commerce was a future for mankind and built a traditional retail company with a technology component.

OCDO got listed 2009 and 11 years later is 22X from the lows and 11X your money from the IPO price. What astonished me about Ocado is that the founder built his company even when nobody was truly a strong believer in e-commerce. Of course, today these are no brainer the safest companies and the most valuable ones. The top ten market caps of the world all belong to the e-commerce space with all the platforms accelerating growth by an excess of 30-300% whether small or large bases. In fact from a secular trend, not only is this space the fastest-growing secular trend – but it also is the default and what people today expect.

Historical Timeline of Select Ecommerce Giants:

Amazon 1-2700 ; 23 years

Ocado 100-2200: 11 years

Shopify 18-900: 6 years

Mercado Libre 7-1000; 11 years

JD 19-60; 7 years

Pinduoduo 16-90: 3 years

Sea Limited 10-110: 3 years

Alibaba 68-240: 6 years

Etsy 7-95: 5 years

Investing in online commerce was and truly has been a rewarding trend even in the year of the pandemic especially since the already strong secular trend got even more accelerated and had a higher penetration rate throughout the world as the physical retail shops and stores had to close down. Not only did they recover the first during the March 23 global low, but they also had as a sector been the first to go all-time highs and continue to lead the market higher. While their valuations may prompt excessive price to sales ratios, some may argue that these are warranted considering their huge potential especially as some of them have barely scratched the surface versus their country’s counterparts.

A few months ago, Facebook invested $5.7B for a 9.9% stake in India’s largest conglomerate Reliance Industries to further help India’s JIO Mart which effectively serves as India’s aspirations to be an e-commerce giant powered by WhatsApp payments. It, of course, sent both stocks surging more than 10% the next day and consequently more than 30-40% the next few months but it ultimately shows to you that while it may seem that Amazon’s been growing forever, the point is that Amazon’s 26% growth in e-commerce this 1Q2020 is still the highest quarterly revenue it made over the last 23 years as we are talking about growing 26% when you’ve been growing from less than 1Million revenues to ultimately 75billion or 1 to 75,000 million.

Bill Gates famously said that we overestimate changes in 2 years but underestimate long term changes in 10 Years.

Source: TheQuotes

How many people are underestimating the online education trend? The remote work collaboration trend? The financial digital payment trend? Some of these trends have been underpinned and underway for over 10 years. While many people may have appreciated these services more so during the pandemic, the crisis only was a catalyst to accelerate previously strong existing trends that sent most of them from 100-300-500% increases in over 3 months from the March low to the present June highs. If you don’t believe me, check the charts Square 37-100, Fastly 11-60, Zoom video 80-240, Chegg 30-70.

Notwithstanding all the secular winners, we do note that historical corrections on even the secular winners can happen and actually has a high probability of giving entries to others who think “they’ve missed the ride.”

While I’m pleased to tell you I’ve made 70-200% gains on some of the names I’ve mentioned above, it was mostly brought about by being aware that these sectors stand to benefit the most from the pandemic but also have the understanding that my upside was irrationally higher than my downside. This was especially true with our conviction plays on Sea Limited and Pinduoduo. (We first covered these names as buys inside our Awesome10x inner circle group at 30 and 19 respectively.) I also had featured it in my classes and spoke a lot about it even on my social pages publicly.

Please check them out and follow me for great Awesome10x returns.

See you and may you have Awesome10x returns too! ⁃ Nikki Yu, CMT

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Contributor:

Name: Nikki Yu
Investagrams Username: @facelesstrader

Channels:

Twitter: @facelesstrader
Spotify: Facelesstrader
Website: www.awesome10X.com
Facebook: www.facebook.com/FacelesstraderPH
Medium: medium.com/@nikkiyu
Youtube: Awesome10X

About the Contributor:

Nikki Yu holds a Chartered Market Technician (CMT) designation, is Philippine Chapter Chair and has been working in the financial industry for over a decade. Prior jobs include equity research assistant, private bank marketing assistant, equity trader and broker. She is currently a financial advisor to clients in Wealth Securities Inc. and lives in Manila Philippines. She enjoys teaching about the markets and holds workshops teaching individuals how to create their long term nest eggs. Her medium profile www.medium.com/@nikkiyu. Her Spotify channel is Faceless Trader. Twitter is @facelesstrader. She teaches people how to globally invest in 10X trends via www.awesome10X.com. Subscribe to her free daily and weekly videos through Youtube: Awesome10X.

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Theory and Experience are two different things. Although backtesting may give us expectation, the market will not always give us copycat results. The road to be a consistently profitable trader doesn’t end in theory but we must also adapt in the randomness of the market. Therefore, it is highly suggested that we must put your theory to test or at least check the charts on a daily basis even without participation.

What is Forwardtesting?

Forwardtesting is the testing of strategy in the actual market condition. Unlike Backtesting, this is where our biases are restricted since we can’t see the right side of the chart. The part of the chart which is the unknown and unidentifiable.

The void where only man from the future can predict 100%. All are probable.

Why is Forwardtesting important?

This will shorten our data gathering. We may combine the given data on our backtesting in analyzing if our strategy has an edge or not. Take note that like backtesting, forwardtesting alone may not give us an edge if done alone. We must forwardtest a minimum of 5 years of data to test our strategy in almost all market conditions if we want to use this testing method alone.

How to Forwardtest?

There are 3 methods I used in my forwardtesting method.

1. PAPER TRADING.

This is a similar process done on backtesting. Personally, after market hours, I will check the charts and see if there is a tradeable set-up within my rules or strategy that I am testing in the historical data. I will encode this to my excel file and check the next day if the entry-level was hit. Once the entry-level is hit, this will automatically be part of my data pool and will check in the following days if the desired exit level, whether cut loss or take profit level were hit. This is the best way to hasten your data gathering and analysis since both will be in theory level and you will know if your strategy works in the current market condition.

2. VIRTUAL TRADING.

There are tools that will give us the feel of the actual trading while not spending an amount of money. Some of the brokers (esp. in foreign markets) and Investagrams offer these services.

Before I stepped into the foreign market, I traded 6 months on the virtual platform to see if my strategies from the local market worked on the foreign market. This will give you familiarity with the market structure, market conditions, spreads, and the broker’s platform.

3. SMALL BETS.

This is where you put your money on the line for a strategy/trading plan that is already backtested but needs additional conviction in trading it on the actual market condition. Since money is on the line, emotions will be a factor in the decision of your execution. In this part, you will know if the tested data is tradeable based on your personality, emotional capability, and market’s actual volatility. Data gathering will be useless if you can’t execute the plan that you are testing. Start betting a small amount that is ok for you to lose. Treat it as if you are paying for a toll fee for the expressway so that you can go to your destination faster.

Personally, I am using a VAR (value at risk) at around 0.25% – 0.50% whenever I trade newly backtested strategies. However, strategies under Forwardtesting phase are my least priorities since it is best to prioritize your Triple A set-ups whenever that opportunity comes.

Tips: For local market to minimize the impact of your fees, your trades must be above Php 8,000.00

Always remember that theory was made to be executed. An idea without execution is just a dream. An execution without an idea is a disaster. It is important that theory and execution are hand in hand in your trading career. A good plan based on gathered data is your aftermath from your newbie days. The only thing you should worry about is executing it consistently with controlled emotions.

Trading is a continuous process of gathering data, testing your strategies, familiarizing your advantages, controlling your emotions and mastering your craft.

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Contributor:

Full Name: Jan-Angel Echano
Investagrams username: @Soral
Channels:
www.investagrams.com/Profile/soral
www.facebook.com/soraltrading
www.twitter.com/SoralTrading
www.instagram.com/jan_soral/
www.anchor.fm/soral
www.youtube.com/c/SoralTrading

About the Contributor:
A passionate trader who aims to share the reality, the HOWs and the WHYs in trading. My goal is to help traders and investors like me to continuously improve and refine our skills to the path of mastery.

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When you start out in the markets, especially if you began during a sideways or bear market, the first type of selling you get accustomed to is selling at a small loss or cutting your losses.

However, once the market environment finally becomes friendlier to a long-only market like the Philippines, you start to see some gains in your portfolio. Not just a few 5% to 10% winners, but you start to see your positions go up 20% to 30%.

You get hyped! Your hard work of studying the markets day in and day out and continuous cutting of losses finally paid off. You believe all your stocks are going to the moon and you’re about to experience your first bagger. All until the stocks you hold hit their resistance levels, make a climax top, or close below a key moving average and start to reverse. You give up the majority of your profits, or even end up at a loss.

What happened? You may be wondering. You had all these spectacular gains in a short period of time, but you lost it almost as fast as you made it. What happened was you didn’t know how to sell at a PROFIT. You got used to cutting your losses small and once the tide finally turned in the market you made some money, but only on paper. Selling at a profit is a totally different ball game from selling at a loss.

Our goal in this article is to show you three different ways on how you can take profits on your winning trades. Here they are:

• Using a target profit
• Selling into strength
• Selling into weakness

USING A TARGET PROFIT

A target profit, or commonly referred to as TP levels, is a place in the chart where you sell your position at a profit. Your TP will usually be placed in areas of resistance; whether it’s an intraday high or a multi-year resistance level. Instead of further discussing what a TP is, let’s show you some examples.

SELLING INTO STRENGTH

Another style you can incorporate into your selling strategy is the concept of selling into strength. Famous growth stock investors and market wizards Mark Minervini and David Ryan usually sell into strength when they’re taking profits. Selling into strength means you’re selling your position (or a portion of your position) while the getting is good. You sell on the way up as prices continue to rise.

What’s the logic behind this? The reason you want to sell into strength is that you want to lock in gains before the stock starts to reverse. Selling into strength also ensures that your equity curve continues to go up in an uptrending fashion. This style is especially important for those handling big funds since you will need to sell your position not when you want, but when the market gives you an opportunity to do so. What better time to find a ton of buyers other than when the price is going up?

When you sell into strength, however, note that you’re most likely going to sell too early. BUT THAT’S OKAY! The goal is not to sell at the top, but it’s to sell at a price higher than your cost on a consistent basis. There are now hard and fast rules when selling into strength, but generally, you can begin lightening up on your positions when a stock is up huge in one day or makes a climax top (up 15%, 20%, or more) when everyone believes it’s going to the moon (climax top) or when the trade has made 2x your average gain.

If you were able to get this below 10, the best area to sell into strength was at 15 pesos. The stock was in the process of putting in a climax top by going up 50% in one day after already going up 250% in a few weeks. People were also getting extremely euphoric, a dangerous sign. We all know what happened the next day.

Here’s another reason why selling into strength is a viable option, especially in stocks that get extended. If you planned to trail your profits on $IDC using EMA20, you would’ve given up 40% profits on the trade. Who wants to give up that much room? That’s why it’s important to sell portions of your position on the way up to lock in some gains especially when the stock gets extended, everyone gets euphoric, or the trade is 2x or 3x your average gain.

SELLING INTO WEAKNESS

Selling into weakness is basically trend following. This is the opposite of selling into strength where you tend to sell too early on the way up. When you sell into weakness, you wait for a confirmed reversal of an uptrend (by using trail stops of your choice) and sell on the way down. So if your tendency is to sell too early by selling into strength, when you sell into weakness you will usually sell too late.

HOWEVER, by focusing on selling into weakness during BULL MARKETS you may latch on to a market leader for a big move, possibly even a triple-digit return type of move. When you use trails stops, you’re basically going to be stuck with the trade until the trend reverses and the price closes below your chosen trail stop, if prices continue to go higher with minor pullbacks, then you may be in for a long profitable ride.

This is probably the best example to showcase the potential gain if you sell into weakness in a strong stock in a bull market. If you bought $MAC during the breakout at around June 2017 and trailed your position simply using EMA50, you would’ve been stopped out at around 19.70 pesos, a near 500% gain. This is the power of trend following.

IN CONCLUSION

There are no hard and fast rules for selling at a profit, what matters most is choosing the right approach that best suits your personality. No one style mentioned above is better than the other, there is only what works best for you. The most important thing to remember is that you must EXECUTE on your chosen approach. You’re also not just limited to choosing one of the three discussed, you can use all three depending on the situation.

You can also do a COMBINATION of the three approaches. You can sell 50% of your position into strength to lock in some gains, then trail the remaining half using EMA50 to take advantage of a potential big move. It’s up to you on what combination you want to use.

Most importantly, when selling at a profit DON’T KICK YOURSELF FOR NOT SELLING THE TOP! Here’s a quote by Baron Rothschild, a great trade from the 1900, “I never buy at the bottom and I always sell too soon.”