Protection in Times of Crisis
THE global financial crisis is definitely upon us all. Despite
G-7 nations’ assurances that they will pump much-needed
funds into the financial and banking systems to save and protect
investments, we continue to see wild swings (more down swings
than upswings) in the global stock markets. Fears of a global
recession are gripping many investors. Thus, many sell out
for fear of being locked in or wiped out.
As to when this negative sentiment will end, nobody can tell.
But one thing seems certain — tougher times lie ahead.
The first thing to remember during times of crisis is that
liquidity is king. If you have very little cash, find ways
to convert some of your excess assets into cash. If you have
three cars and you really only need two to manage the coding
system, then sell one. Seek out respectable used car dealers,
compare their appraisal, then obviously go for the one offering
the highest deal.
For those with two or three houses, perhaps it’s time
to sell or put up for rent the other two. But before doing
so, be sure to put the properties in selling posture. Fix
everything that needs fixing. This way you can command a better
price.
It is also a good idea to take stock of the things you no
longer use like old but still serviceable clothes, shoes,
appliances, gadgets, etc. Organize a garage sale or join a
village tiangge in your community.
Even if you have sufficient cash or liquidity, you still
need to protect your cash and property from certain risks.
You can start by spreading your cash deposits over several
stable banks. If you have to keep money under your mattress,
keep only an amount good for a week. But mostly use the banking
system.
Find out if your assets like your house and cars are insurable.
If they are, then insure them. In tough times, it is always
good to transfer risks to insurance companies rather than
taking them on by yourself.
If you are one of those lucky ones awash in cash, then well
and good. You can convert your cash into an estate by getting
a life insurance against your life to cover your cash and
property assets. This way, you will have peace of mind that
your family will always enjoy the same level of wealth or,
hopefully, even more.
For those used to investing in the stock market but lack
the technical capability to appreciate the turns and swings
of the market, get some kind of training. Do not rely solely
on your stock market agents.
Below are seven guidelines for investing in the stock market:
1. If you’re a beginner and you value your hard-earned
cash, avoid highly speculative stocks. If you have to invest
in speculative stocks because of their high potential returns,
invest only what you can afford to lose.
2. Do some research on the listed company before investing.
Go for companies with large capital base and long years of
existence. Do not be misled by the number of big projects
they have. Some projects could be trapped in the sub-prime
lending maze – the Philippine market has lots of these
sub-prime lending schemes as well. Therefore, be very careful
in your assessment.
3. Begin with quality in mind. Ask whether the company is
really sound by asking some of its employees. You can ask
about their compensation system and see if they have a very
good career path system. If the company does not have a career
plan for its employees, avoid such company.
4. Wait for the right timing. If you think the price of the
stock is high, wait for seasonal drops in share prices. In
the Philippine stock market, October and November are usually
good months to buy because this is also the period when many
investors sell. When selling is aplenty, prices tend to go
down.
5. Accumulate dividends for reinvestment. Follow the lead
of the world’s wealthiest man, Warren Buffet, by reinvesting
dividends and growing your way into the company’s capital
structure. Cash out dividends only if there is need to.
6. Diversify. Spread your investment in two or three sound
listed companies. Investing in only one company may not give
you the kind of financial buffer you need. In the process,
learn how to sell and buy from companies you have selected.
7. Do not be afraid to take a loss. If your stock in one
company is down but the prospects of your other stocks are
high, don’t be afraid to sell that stock at a loss.
You will cover that loss from potential earnings you will
make from other stocks.
Stephen C. Naromal is a seasoned real estate analyst
and financial consultant.
Back to top
| 
