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 Pacquiao and the Stock Market

June 18, 2012

Pacquiao and the stock market

Monday, 18 June 2012 20:15 Edmund Lao and Kendrick Chua / Personal Finance

QUESTION: What do the stock market and Manny Pacquiao have in common?

Answer: They both follow a cycle of wins and losses.

On June 10, 2012, Pacquiao, a.k.a. The Nation’s Fist (60 wins with 38 KOs, 4 losses, 2 draws), lost a controversial match to a lesser known Tim Bradley. For the majority, his loss was attributed not to skills, but to the inconsistency of the decisions of the three judges (even the one who voted in favor of Pacquiao is also a suspect).  Pacquiao gave it all, but for him to have guaranteed a win, he should have knocked out his opponent in a very convincing fashion. The principle holds true for stock market investors and traders. For them to be convinced there is a bull run, the market has to consistently put up gains after gains with acceptable corrections in between.

Pacquiao had a stellar amateur record of 60 wins and 4 losses before his professional career started in 1995 as a light flyweight and gradually moved up the present welterweight.  He is currently the eight division World champion before “losing” to Bradley.

In the same manner, the stock market also had a remarkable record since the bull run started in 2003. The rally continued until 2007 and the Philippine Stock Exchange index averaged double-digit returns per annum during those years, highlighted by the 47-percent return in 2006.

But just like Pacquiao who recovers after each loss and continues a new winning streak, the index rebounded a year after the global financial crisis, and again, posted positive returns for three consecutive years. It was, in fact, adjudged as one of the three best performing stock markets in the world. Again, it is something for us to be proud of.

During his climb to success, Pacquiao put to shame the likes of “Golden Boy” Oscar de la Hoya, Ricky Hatton, Shane Mosley, Marco Antonio Barrera, Erik “El Terible” Morales, and Juan Manuel “Dinamita” Marquez, earning him the title “Pound for Pound King.” Pacquiao’s recent “setback” was his first in 16 fights since his loss to Morales in 2005. A closer look at his performance reveals a recurring cycle. Starting from his first professional fight in 1995, his first loss via knockout came at his 11th fight against Torrecampo in 1996. From then on, Pacquiao eerily lost every 16th fight. One came at the hands of Thai Medogoen Singsurant, and the other, from Morales. For boxing aficionados like us, it may just be a coincidence although it certainly looks uncann.

The stock market also encounters its own bust cycles and slowdowns. The first bust since the late Corazon Aquino became the President of the Philippines in 1986 was from 1991 to 1992. The second came in 1998 at the height of the Asian financial crisis, and the volatility persisted in the years to follow due to political instability.  Although not exactly a bust, the year 2005 marked a slowdown when the index just eked out a 10-percent return. Considering the failed coup attempt by the Magdalo, the stock market still did well. Last year the index eked out just 3 percent—its lowest positive return in more than a decade.

Going back to Pacquiao. Since his win against Ricky Hatton via knockout, his succeeding fights, as observers noted, were mediocre and lacked the killer instinct he once had. His fights lasted the whole 12 rounds. Except his bout against Miguel Cotto which he won via technical knockout, the rest ended in decisions sometimes marred by controversy like his trilogy with Juan Manuel Marquez. Experts opined that Pacquiao may be on the wane or age is catching up with him.

Slowing down happens to the stock market. Although it is not as consistent as Pacquiao’s losses, before the market goes into a bust, it reaches a point of slowing down. For technical analysts, good indicators are the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD).

The RSI measures the current and historical strength or weakness of the market based on its closing price. It works on the theory that if the market goes up rapidly, at some point it will be considered overbought. The reverse holds true. If the market goes down rapidly, at some point it will be considered oversold.  The MACD is used to spot changes in the strength, direction and momentum of the market.

At the moment, there is no definite sequel to the Pacquiao-Bradley fight. Bob Arum expressed his intention of a rematch sometime in November, but the majority still longs for the dream match between Pacquiao and Floyd Mayweather Jr. If the cycle holds true that Pacquiao wins after every loss, then Bradley or Mayweather is in deep trouble. In the same manner, the stock market is poised for a spectacular full-year return after its lackluster performance last year—that is, if the cycle holds true as well.

****

Edmund Lao and Kendrick Chua are registered financial planners of RFP Philippines. To learn about personal financial planning and certification, join the RFP Program Batch 28 from July 21 to September 15, 2012 and  visit http://www.rfp.ph or e-mail at info@rfp.ph.

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