Elections in any country have a unique effect in the stock market. Generally either the market will barely move or will take a dip as stock market players await the results of an election.
This coming Monday, the Philippines will be having its elections. Just less than 48 hours to go and the Filipino people will decide who their next set of leaders will be. Analyst has been expecting the Philippine stock exchange to go down because of election jitters compounded by the problems that hounds the European Union because of the problems in Greece. However the market has been resilient with the Philippine stock exchange index shedding only about 150+ points so far from its highest since the start of the global financial crisis.
For value investors, the effect of elections is just another chance of buying undervalued stocks or stocks selling at a fair price. This is another chance to be greedy when everybody else is fearful.
We are all praying for a peaceful and generally smooth election this coming Monday as the entire nations tries its first ever automated elections. However let it be noted that whatever the results of the elections will be take note that it does not matter to us value investors.
If we have peaceful elections and the transition to a new leadership is smooth then stocks are said to kick off and the bull will start raging. This will be very beneficial for the stocks that value investors hold as the market will start to realize the true value of previously undervalued shares, raising their prices. This is in consonance with the famous Benjamin Graham mantra which says that “In the short run, the market is a voting machine. In the long run, it’s a weighing machine.†(Another way of saying, true value will in the long run be reflected in its stock price)
However what is worst for the market (Best for value investors) is the fact that they will start to over value stocks and start buying at prices that does not make business sense. Every Tom, Dick and Harry will then start joining the bandwagon and the index will reach unprecedented new heights. By that time, value investors become fearful because every else has become so greedy.
If we will have a not so peaceful elections and all the predictions of critics and prophecies of doomsday prophets come true (Which I pray will not happen not for stocks sakes but for the country’s sake) then stocks will come tumbling down. This then becomes an opportunity to buy wonderful businesses with durable competitive advantage and not only at fair prices but at fire sale prices! It’s time to be greedy as everybody else is fearful.
Either way whatever the scenario is the value investor always wins and sleeps soundly at night because he invest intelligently and always does it in a way that makes business sense.
Happy voting this Monday and remember to vote wisely !
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