This coming weekend, the TGFI (The Global Filipino Investors) Financial Literacy Summit will be held at the SMX Convention Center at the Mall of Asia. On Sunday afternoon, I will be addressing the question of “How to Determine a Possible Stock Market Crash”.
Having been accused of starting a “crash” for publicly saying stock prices were going to go down—back to before the 1997 financial crisis—maybe somebody figures I might know something about the topic. Of course, I never get credit for calling a stock market rally when it happens, obviously proving that life is not fair.
Being a big fan of those trying to increase the “financial literacy” of the public, I strongly support events such as TGFI is holding. However, I am not a big fan of what is usually rolled up in the concept and presentation of this “literacy” thing.
For example, if you truly want to be financially literate, you should know what the impact is and will be of the London Inter-bank Offered Rate (Libor) having increased for 37 consecutive sessions, the longest streak of advances since November 2005. Further, the genuine financially literates are concerned why global bank deposit and money market rates have not moved higher with Libor rates.
Does that depth of financial literacy matter to you? Not any more than simply knowing the “medical literacy” of laying off the sugar and salt and having a medical check-up once a year.
However, this summit will expose you to many diverse investment possibilities and that is good. The key is that you will learn about many various business opportunities, as well as some passive investment options. Whether that should be placed under financial literacy is not really important.
When you attend the summit, you would do well to keep the following in mind. Any business that sells a product or service is only successful if the public buys that product or service. That depends on how well (read profitably) you run the business and also how much demand there is for your product or service. Owning and operating a business can give you a great opportunity to become wealthier.
Passive investments—those which you have no control over price movement—such as the stock market is different. With your business, you control price and can create demand by lowering the price. That is because even if SM has many dozen department stores and supermarkets, total sales are made of millions of individual transactions one by one. If it were feasible, SM would like to know why you walked out of the department store last Saturday without buying something because you as an individual are critical to the retail business model.
The same is true of real estate—one buyer and one seller at a time. With the stock market, cryptocurrency, and foreign exchange, there are countless buyers and sellers transacting at the same time. If you decide to lower the price at which you are willing to sell your stock market shares, it means nothing to the overall stock market. Conversely, if one seller in a large condominium complex lowers the price of a unit, it can affect the selling price of all the other units.
Therefore, the way to understand price movement on the stock market is to see the big picture of how total—not a particular individual’s —money is moving in and out. This also applies to specific stock-market issues. The question then is, what do you look for to measure this money flow? When you know that, then you can anticipate a coming stock market crash.
E-mail me at [email protected] Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
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