Invest now!

I am writing this on Thursday, July 14, 2005, after the rally last night in Makati for PGMA's resignation. The fact that she is still President puts the odds of her staying in power at 3 to 2, or 60% to 40%. If she is still in power after this weekend, the odds will increase to 70% to 30%, and if she survives after the State of the Nation address on the 25th of this month, it will further improve to 80% to 20%. The 20% probability of her removal from office will depend on the developments and result of the impeachment process.

There is an old saying, that business speculators should be investing or buying when there is "blood in the streets". This is a rather extreme opportunistic strategy; but I still remember attending the anti-Marcos rally in Cebu when Cory Aquino was asking us to boycott all the crony companies, and I said to a friend beside me, that if it wasn't so unpatriotic, it was the best time to buy shares of San Miguel, PLDT and other crony companies that were listed in the Big Board of the Stock Exchange. I did not buy then but I also did not sell, so after the political situation had settled, I made quite a bundle when I sold some of my stockholdings.

There is no such thing as a 100% sure investment. Even deposits and insurance have the risk of non-payment if the companies are unable to pay. Their certainty of payment and returns maybe in the 90% range, but there is still uncertainty. We also have to consider that the less risk the investment, the lower the investment return. This is the mathematical expectation of investment, where we multiply the probability of success of the investment by the expected monetary return, to be able to compare and rank investment alternatives. The most successful investors are those that get the most returns by getting correctly the probabilities of the success of their investment.

This brings us to why I think now is a good time to invest. Looking at the recent political happenings, there is an 80% chance that this will not last long and will not really affect the economy that badly. The economy/GNP will still grow, maybe at a slower rate of 5% mainly due to the momentum. It will take a full-scale revolution to make the economy stop on its tracks, and the people, except the extremists, will not allow that to happen. It is also inevitable that there will be political reform, parliamentary/federal structure, and less graft and corruption as it always happens after a political catharsis.

The remittances from Filipinos abroad will continue, since this is for their families; exports will continue and may even increase with the devalued peso; and domestic demand will be there because life has to go on. Government investment and expenditure may reduce, which might even be a good thing to reduce the budget deficit.

Companies like SMC, Jollibee, the Ayala Group, the SM, the Telcos, and the outsourcing industries, consider this political turmoil as temporary blips and will not alter their strategy or even miss a step. An economy growing at 5%per annum will translate into a sales growth of 10% to 15% in some companies, and profit growth in the 20% to 25% depending on their cost structure and productivity. So solid businessmen and strong businesses will continue to expand, modernize, and integrate their companies.

As to personal investments, if there is no direct impact of the political turmoil in your business, then you should continue to invest and expand if only to take advantage of the lower costs. As for passive investments, the stock market and earning properties would be the avenues. Deposit rates, even with the recent increase in the Banks reserve requirements, will not really go higher by much. At an 80% chance of success, it is time to INVEST.