Risk Appetite is Back.. Yum Yum!

Since my post last May 5, the local stock market has risen quite substantially with mining stocks taking the spotlight.

I suppose that taking a vacation from my blogging was reasonable given that there wasn't much to talk about. Though on hindsight, it could've been a chance for me to trumpet to investors like you and me to take up positions on the cheap. Hindsight is not only 20/20 it's also 100% painful once you think about the things you should've but wouldn't.

Modesty aside though, I did take up small positions in the two stucks I was looking at during my last post, namely SMC and LC. At ngayon, hindi ako nag CCC heheh.

SMC did eventually fly, TWO MONTHS after; basing on my last post date. Then again, in that two months, my money earned more than what I would have earned if I had put it in a savings deposit 10 times over. If there were more people thinking along those lines, bank managers would face a major problem in maintaining their CASA objectives.

LC also gained quite substantially, along with other mining issues.

You see, if the PESO is increasing, so is the stock market, and so goes for commodity stocks. This trend I have noticed. This trend is also coupled with numerous positive news in the public.

One headline states -

UBS expects surge in IPOs

I recall that when there was a huge surge in IPOs, a huge downtrend also ensued thereafter. Hmmm. Gets me thinking that we can either earn some short term fast money; or, you can opt to liquidate your stuck positions at prices that are breakeven for you.

Another headline states -

PSE all set to extend trade hours

Well, the last time the PSE instituted a change, the market made a strong positive statement. Investors and traders alike saw their fortunes rise last year. The change I am referring to is the change in board lots; or rather, the elimination of it. Change is good!

Going back to my earlier point about having a chance for some short term gains; I say this because of this one other headline -

More portfolio investments coming Philippine's way - BSP

The last time that happened, you saw the stellar performance of equities in 2010. Traders are happy when there is an increase in foreign participation; however investors, may not be so happy because they know that foreigners can as easily sell off their shares.

Why is foreign participation a bane when it comes to selling? It's because the local market participants cannot absorb the volume. If we have major, major participation from local (i.e. Filipino) traders and investors, then the buying volume can match the selling volume. It's hard to explain this on paper. Perhaps I'll try in the future.

The syncing with the other ASEAN bourses should provide buoyancy for our market. Though I speculate that volatility will be the name of the game when that time does come.

Nonetheless, the next five months should be quite interesting. A lot of idle 'basura' stocks have just been resuscitated, like PWR and LIHC.

I am just amazed by the shortening cycle of the bull and the bear. Whereas before the transition from bear to bull was drawn out, now, it's only as long as three to four months. I'm excited with this development because that means there are now more local players compared to before. Products such as UITFs, Mutual Funds, and Variable Life Insurance have surely aided the information dissemination to the investing public. All good.

Perhaps now, Filipinos are gravitating towards non-guaranteed instruments (I use this term loosely of course).

After all, if you are in safe instruments, you are guaranteeing one thing - a sure rate of low return. It really depends on whether you want the risk or the return. Higher risk means higher returns; and vice versa.

Until then, thanks for reading... so appreciate the risk then appreciate the capital!

Guerilla Investing, 5000. PSE, 3400.

(Having the two numbers interchanged would also be fine by me hahaha)

Welcome to a fresh new Guerilla Investing!

I hope this more streamlined look and well arranged labels will help my readers sift through the glut of posts I've made since the start of this blog.

I was heartened by a blog milestone - 5000 visitors since I started blogging. Regardless if it's 5000 unique visitors or not, I hope in my own little way I was able to impart some knowledge on your road to financial independence.

Coupled with my personal bullishness on my blog is the bullishness of expectations of the new administration. To quote the news piece -

"According to ING’s quarterly Investor Dashboard Survey, the country experienced an 18-percentage-point increase in investor sentiment to 157 in the second quarter of 2010 from 139 in the first quarter."

Well recently, our stock market hit a new high breaking the 3,400 level after four tries to hit this level if I'm not mistaken. Given this, I would think that from an amateur technical analyst's understanding, we are going to hit high notes by the end of the year. This is not to say that the road ahead is full of roses.

Against this backdrop is that the BSP is keeping interest rates at lows due to uncertainties as well as the manageable inflation rate. This means that credit is cheap and it should help businesses expand. When businesses expand, then it can create jobs and potentially enjoy higher revenues. Bodes well for the stock market. This also bodes well for the fixed income market (bonds) because interest rate is the same.

Of course, contrarian thinkers will always say that this may have already been "priced in". If you don't already know, stock prices are always ahead of actual performance. This means that the price may have rose already with the anticipation of a news, a new project, a new high in revenues, etc. such that when the announcement is made to the press, the stock price doesn't move anymore.

In fact, from personal experience, it shows that - at least locally - when profits are announced, stock prices suddenly drop. This is why there's this oft quoted cliche, "Buy the rumor, sell the news".

So far our stock market has been insulated from what is happening worldwide. The DOW recently fell triple digits (again) so I wonder if we'll keep on being insulated by next week.

But the following data should give us confidence the the Philippine economy is still above water.

Remittances reached record level of $1.58B in May

In this article, noteworthy is this fact -

"The main sources of remittances in May were the United States, Canada, Saudi Arabia, Japan, the United Kingdom, Singapore, UAE and Italy. Combined inflows from these countries accounted for 81.5 percent of total for the five months to May."

With the continued influx of remittances and strong consumer confidence -

Auto sales jump 37% in 1st half of 2010

Salient points -

Commercial vehicle sales went up 39.8% over the past six months comparative period while passenger sales went up 32.2%. This to me is good news because it means both businesses and consumers are spending.

In an old post, I've said that key indicators for the lay investor include OFW remittances and car sales. Screen out the rosy news you read and focus on these hard numbers. If the stock market doesn't perform at par with these indicators, it could be a chance for you to buy stocks at their lows.

However, now that the index is at 3,400, I anticipate the market to move sideways. It can go higher but I'd rather it going sideways so there's a strong base at 3,400 before we continue hiking. Most of the blue chips have risen so it could be the second liner's chance to shine. Most of the second liner stocks are those not part of the PSE index that have recorded blowout revenues.

Notwithstanding all these positive news of late, the trouble with the local economy is the anticipated huge budget deficit. Investors both foreign and local will be looking to P Noy's first SONA with high hopes. Wang wangs are symbolic but we also need strong economic programs that promote investor confidence and generate jobs.

I Talk "Money Talks" (Part Three)

It's been a week since the proclamation of P. Noy and the market is now... well it's moving sideways with no clear direction yet as to whether it continue its flight... or your fright. Last Friday, the US market fell triple digit (if I remember right) just before their July 4 celebrations.

For quite some time now, the Philippine stock market has actually lived up to the decoupling theory. No, decoupling is not related to making babies.

My humble layman interpretation is that it means that the Philippine market is somewhat insulated from whatever happens to the US market. That is, if the US market goes down, we won't. If we do, it's not going to be as bad.

That's been the case, but perhaps because the proclamation was over and the market touched a 2-year high, it was reason for it to correct and "build a base" or support. If I read analysts correctly (in the news or forums), the Philippine market is still in an uptrend channel and it's just taking a breather now.

Time to go in? I don't know. Even Nostradamus cannot tell you if he were alive today. If you are investing, then anytime is a good time since you're investing your money and not touching it until you hit retirement or when your emergency fund is depleted.

With that said, let me list down for your benefit the stocks recommended in the previously concluded Money Talks.

Investor's caveat: Investment entails risks and you should be aware that returns and your capital are not guaranteed.

The stocks were selected by First Asset Metro based on their PE Ratio. An elaborate definition on PE Ratio can be found here. But for your benefit, it's one possible tool for an investor to use prior to investing in a particular company. However, it should not be your only basis for investing in one.

As Investopedia states, "it would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects."

Now, having said that, please also note that the P/E ratio is a mathematical formula which translates as -


The market value per share is the current stock price while earnings per share is computed


More or less, EPS is static depending on your time frame. The market value though is what's erratic.

So what's the relevance Mr. Guerilla Investing Blog? Well, my dear investor, if the stock price has increased, then simple math tells us that the PE ratio will increase. When a stock has a high PE ratio, it may mean that the stock has become "expensive" relatively to other stocks in the same industry.

At the time of the presentation, the stocks may have been trading at a particular PE Ratio. So since the market prices of the stocks indicated have changed already, then I don't see the point of having to list down the respective PE ratios of the stocks listed.

Confused about the multitude of terms? Anyways, I was also confused when I started reading up all the terms available in Finance 101. I learned the hard way - through reading and personal experience. But it's an investment in time that's well worth it.

So here goes the list (Based on ticker symbols) -

MBT
DMCI
AP
AEV
FGEN
PNB
EDC
SCC
AGI

Please note that just because the above are stock picks, it means that if you buy today, you gain tomorrow. The gains can happen in a matter of days, weeks, months, or even years. Further, since stock prices have fluctuations, then there can be instances where the market price will fall below your purchase price.

But it's specifically that sort of caveat given that makes you sleep soundly at night. If somebody is presenting a "financial" product to you with guaranteed returns higher than banks, then be wary. It could be a scam.

Whew, that was a lengthy post! I hope you learned something. Happy investing!

Directionless Market

Thanks for dropping by reader. I wasn't able to post anything last week, not that it mattered since there wasn't anything exciting to see in the market. There was a brief rally after Europe announced its rescue package but markets the world over has been on the way down since.

I expect the market to head with no direction. And lesson and experience tells me that when the market has no direction, it's better to stay out. Somehow, the saying that "sell in May and go away" is holding true thus far.

Putting the perspective of the US' bailout of its failing financial system in 2008, markets rallied for a while then just went south. It took quite a while before stock markets - and economies - rose again. Given the US bailout the time frame was close to 6 months, if memory serves me right.

But now, we're not talking about bailing out banks. We're talking about bailing out countries! So.... I shudder at the thought.

I got to wonder really. Banks mismanage money. Governments mismanage it too. So if that's the case, will it be better to just put your money in a stash? You can trade the stock market on your own, cash in the gains and always hold on to cash.

While this may sound enticing at some points, it somehow borders on paranoia. Time and time again, investing for the long term has been a boon for investors. I can't say yet if that's applicable in the Philippine setting as I haven't done that. Perhaps if I'm able to have enough to invest for the long haul, I can tell you in about 5-10 years hahaha. Right now, I'd rather be a trader than an investor.

The Philippines though, could be a bit insulated, sans foreign brokers dumping our stocks, given our relatively clean and peaceful national elections. I checked today's PSEi close, and we're now at 3,222. We're 100 points shy from the low last last week of 3,142. More pain to come.

It's inevitable, stock prices may have risen ahead of themselves (i.e. ahead of their projected earnings). While there is a crisis on going, this can serve as an opportunity for stock market newbies to enter at "cheaper" prices. Of course, this is a double edged sword. The path downwards could be continuous.

But, there's really a dearth of possible investment opportunities for the Filipino investor. Time deposit? Interest rate is too low. You're better off spending your money and enjoying your life. Mutual funds and UITF's? If you pick the equity fund they're investing in the same place - the local stock market. Except of course if you choose bond funds. Historically, when the stock markets are crashing, bond markets are cashing gains for investors. This is referred to as "flight to quality". Of course, this is just a simplistic definition.

Making money today is more difficult than it was a 20 years ago. Most industries have heavily entrenched players already. Margins are smaller given the stiff competition. So if you are afraid of shelling out money to be an entrepreneur, then there's a slower way to growth - investing for the long term.

The bloodbath in the markets can spell good opportunities for you. This is a pure speculation play but I would advise going to quality real estate stocks like SMPH, RLC, and ALI. The REIT is supposed to be passed into law sometime this year. With this, there'd be gains for these three big real estate companies. I suppose SMPH and RLC are the ones who stand to gain the most due to their massive square meters (or hectares? hehe) of leasing space.

Of course, if you will invest just for the speculation, then expect that the price can go both ways - up ... or down. Don't say I didn't warn you. Currently, I don't hold any of these stocks but I'm actively looking at them as opportunities.

Until my next post, stay safe with your cash :D (as of this writing the DOW JONES is down 70 points, and more bad news - mortgage delinquencies and new foreclosures increase)

Greece is the Word

Last week, we mentioned that there may be a possible downside risk to the market, who would've known that it would be this bad? We projected a support of somewhere at 3,200, unfortunately, the market settled at 3,142 last Friday. When I was talking to my broker, he told me that the index support was actually at 3,150 and not 3,200. Maybe it's due to the chart I'm using that's why I can't see clearly, or, it's just that my TA is rusty already.

Whatever the support is, Friday's close broke through 3,200 and 3,150.

While Friday was another depressing day, there were many trading opportunities - RLC, SMPH, AP and EDC - to name a few. Yes, while the market was dreary, these stocks offered (brave) traders opportunities to make money. In fact, AP closed higher than Thursday's closing price. EDC and AP's performance just shows that this year, power generation companies have much upside. Last year, the darling stock (which I missed #@$#) was Philex mining as it generated about 50-100% in return based on stock price. AP is this year's stock, which I also missed.

Perhaps I was too much concentrated on looking for stocks to trade that I forgot about investing for the long term, i.e. investing in quality stocks even if their price actions are not exciting. That's assuming I had the money to invest hehe. Sometimes it gets frustrating so just putting money in a mutual fund would be a better option. You don't have to spot the stocks and just rely on your investment fund manager. Anyway...

What caused the wild volatility this week? One word: Greece. There is a risk of a crisis contagion in the European Union.

Personally, I don't understand what's going on/wrong in Greece, just that I know they have a problem with their economy. I scoured the net for some information and stumbled upon BBC. They have a very lucid explanation. I think this part of their explanation sums it all up -

"For years, Greece has been spending money it doesn't have.

The government there took advantage of the economic good-times to borrow money and spend it on pay-rises for public workers and projects such as the 2004 Olympics.

It began to run-up a bigger and bigger deficit (the gap between how much a country brings-in from tax, and what it spends).

After the world economy went bad, Greece suffererd.

Banks started to view it as a country that might not be able to manage its money.

They worried Greece might eventually fail to pay its loans, and even go bankrupt.

To cover the risk, banks started charging Greece more to borrow cash - making the problem even worse.

Eventually the government there went looking for help."

But if this is a Greek problem, why are other countries affected? In the same BBC link, this explanation should tell you why -

"As well as Greece, banks and credit rating agencies are going through their books looking for other bad risks.

That means countries that have a big budget deficit, compared with how much money their economy generates.

Portugal and Spain are reckoned to be two that could face problems next.

The EU hopes that its bailout will reassure the money markets that their cash is safe.

However, that depends on Greece getting control of the situation and proving it can make the cuts needed.

The UK does not use the Euro currency, but could still be affected.

Its budget deficit is also large, and we could start to appear unattractive to lenders.

UK banks also hold some of the debt of countries such as Greece, Spain, and Portugal.

If they were to go bankrupt, it would mean more problems for Britain's banks."

How can one country hold debt of another country? It's quite similar to the Philippines selling bonds (bonds are a debt issuance) offshore. Did you know that the Philippines is Asia's biggest offshore bond issuer? Same article from ABSCBN states - "The debt-laden economy, which relies heavily on foreign and local borrowings to fund its budget shortfall, faces a budget deficit of P293 billion, or 3.5% of GDP, this year after a record shortfall of P298.5 billion, or 3.9% of GDP, in 2009."

Debt laden huh? I wonder if the Philippines will one day go down the Greek road to economic oblivion. Due to some minor research online, I found out that other European countries with big deficits are - France, Spain, Ireland, and the UK.

This entire drama is quite amusing when you look at it from the point of view of Personal Finance. Why? In personal finance, you are always advised that you should spend within your means. If some governments in the world cannot even practice this basic tenet, then it's no wonder their citizens also run up debt like there's no tomorrow. A lot of countries in the West have this affliction - using credit cards, mortgaging their houses, borrowing money to fund their yearning for affluence.

So what to expect for the Philippine market next week? A lot of it will now depend on domestic issues - obviously it is the elections. It will also depend on the actions that will be taken by EU prior to world markets opening for trading tomorrow.

Since the market has been sold down to 3,142, I'm sure we're almost nearing a selling climax. Unfortunately, since I don't have any data, we don't know if foreign brokers are dumping our stocks. For me, it's not about the charts anymore, but about market sentiment. The DOW fell by almost 1000 points supposedly due to a trader error and so that was a major major drag for this week. The good news? Our market was down by as much as 90 points but closed just down by 25. So perhaps, the market has support in 3,142, thereabouts.

I'm not a fan of economics and I don't think I ever will. Few really do since this isn't the most interesting of topics.

I hope that whoever becomes the next Philippine president has a well equipped brain that understands economics. Everybody is promising us the moon and the stars with no clear platform or agenda. Choose wisely. The country, and the stock market (as it is considered the barometer of the economy), depends on it.

The Beta...max?

We are just one week away from the national elections and perhaps, that could be a drag for the market due to uncertainties about the automated elections, and of course, anticipation to know who'll be the next President.

If the automated elections push through with little hitches, then on May 11, expect a good market rally (as long as foreign indices, especially the DOW go up too). So this coming week of May 4-7 will likely be a consolidation phase for the market. I tried my rusty knowledge of TA over at Yahoo, since I don't have a charting software. I tried reviewing the chart of the PSEi, or the index of the local market. (If you're a first time stock market trader and would like to know more about TA, go to Absolute Traders)

If my reading is correct, the index will just hover between 2-3% the resistance of 3,300. Certainly a dip back to 3,250 seems likely as the market needs fresh directions. The market may have that big a correction since there's no clear index support except somewhere at 3,200.

While the IMF has raised its forecast for the Philippines, but our deficit shot beyond the target for the first quarter. Earnings of most of the biggest Philippine corporations have been robust so that's quite a number of good news trouncing the bad. The next big story will be the Philippine election and I'm keeping my fingers crossed that all these naysayers about the election not pushing through, blah blah blah will not hold true.

Enough of the elections, there are more sites out there and more personalities who can give you a better opinion. So I digress.

Before you even begin to look at individual stocks, you should look first at the index and its trending. If the overall index is going down, then there's no sense picking individual stocks. These stocks will just be dragged lower by the index. The relationship of a particular stock to the overall index is called the Beta. Of course, don't take my word for it, so go to Investopedia (this is the link) for the exact definition. The higher the beta is of a stock, the more volatile it is. If you're lazy and you don't want to go to the link anymore, here's a quick definition -

A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

This data is not readily available and you need to do regression analysis as Investopedia suggests. Don't ask me how to do it, as I only do regrets analysis. Hehe. In the past, when I was still subscribing to Technistock, the data was ready, albeit not accurate.

But, without going into the actual computation, if you are a regular stock market trader, you will know more or less what stocks have a strong relationship to the market and which don't. I learned about Beta after browsing through a book on stock market investing. I didn't buy the book anymore as stock market books are quite expensive. If I stumble upon one of them in Book Sale, then that may make me decide to open my wallet...or coin purse.

It's always good to look at the bigger picture before you settle on any particular stock. As that cliche often quoted is, you cannot go against the market. So, before you take a plunge, study first. Good things come to those who wait... and study.

P.S. CPM was the biggest gainer last week (ending April 27) and undoubtedly the biggest loser this week (ending April 30). Then again, 3.70 was a strong resistance. I'm just surprised that it went back all the way down to 3.15 (lowest for the day). Just another day for CPM I suppose.

The Great Unwinding?

Greetings readers! Sorry for not being able to post last week. I think I stayed too long in the office last week and just wanted to enjoy my weekend. Hehe.

In my previous post I mentioned that the blue chips were about to run out of steam and that it will pave the way for the second wave and third wave - the second liners and the basuras will be moving up soon. After my post, the market went up to a new high and then had some pretty big corrections along the way. Proof positive that the blue chips are not the place to be in at this point in the game.

Positive earnings news in the US were doused by the US government hounding Goldman Sachs and the looming default of Greece. Locally, a lot of companies have started publishing their quarterly results as well.

If you are a first time stock investor, I would like to advise you that if you read in the papers that XYZ company booked revenues and / or net income of so and so, DO NOT buy the stocks of XYZ company. You should learn from this stock market cliche - buy the rumor, sell the news. In the US, very good earnings serve as catalysts for propelling stocks higher. Locally though, it's another story.

This is perhaps because local companies are not so generous with their dividends. You see, in the US it follows that when a company reports "blowout earnings", a dividend is not too far away. Since investors anticipate that a particular company would distribute dividends, he/she will buy the stock now, driving and pushing up the stock price.

Locally, dividends aren't that common. The only way most Filipinos earn in the stock market is through stock price appreciation. Some people call it capital appreciation.

That's what I did (buying XYZ company because I was impressed by the earnings) when I started investing in stocks about 6 years or so back. I do not want you to do the same mistake I did. Of course, this should form part of your decision to buy the stocks of XYZ, but not right after earnings have been reported. The price will most often decline from its high.

When it's settled at a comfortable support price level, then you can start accumulating.

Let's try to acid test my hypothesis last week that you shouldn't be in blue chips. The following are their closing prices. Prices were sourced through PSE website.

April 8 April 23
ALI 13.75 13.75
AC 347.50 347.50
SMPH 9.70 10.00
TEL 2490 2445
GLO 1015 970
SM 392.50 397.50
BDO 43.50 41.50
MBT 50.50 50.50
BPI 45.50 45.50


The property stocks may have been buoyed by the prospects of the launching of the REIT product later in the year. Filipinos will then gain access again to a new investment vehicle. This is certainly good news because now, we have another avenue to multiply our wealth.

This data table of course does not mean that there were no trading opportunities in between. During the correction for example, ALI fell to 13 in April 20 and 13.25 April 21. So technically speaking, you could still have earned money if you were able to sell today.

Of course, there's that downside risk so why would you buy during the week of April 8? Sometimes there's a thin line between taking risks and being foolish.

The darling of the traders this week would have probably been CPM and ORE. CPM went from 3.25 last week to 3.65 this week. ORE on the other hand went from 1.56 last week to 1.90 at the close of today. Amazing huh? Yes, but it could go both ways, that is why I never want to make a recommendation for these sort of stocks. They're far too risky for the newbie traders.

At this point, the money will most likely be in the basura stocks. VLL today was a good daytrade so for those who grit their teeth today, they were rewarded handsomely. I didn't join the fray though so congratulations to those who did! Opportunities like this do not come so very often.

I still think that the market will correct soon, if not next week, then the week after next. The key thing to remember is - Don't give in to greed!

Trading with Caution Next Week

It's another long weekend this week coming from the Holy Week-end. For out of town trippers who took their long vacation last week, they should be rejoicing because soon, domestic travel will hurt their pockets due to the imposition of VAT. If Singapore is a fine city, then the Philippines is a taxing place to live in.

So if this is the case, then this will put a crimp on MPI, although not directly. I am recommending MPI as a long term buy but of course this is just my opinion. You should consult your own financial advisor. Investments have risks, whether you invest directly in a stock, or through mutual funds.

Recently, the stock market rose to a new high due to the increasingly bullish outlook... and supposedly an improving economy. The latter is hard to say but the DOW is going up so that could have been the inspiration for our stock market's recent incredible run. I'd still recommend taking a wait and see approach to buying any stocks at the moment for trading.

The blue chips having run up so much means that the first wave is almost over. The second wave and third wave is upon us so that means a lot of the basuras will be moving, along with the second liners. I don't know exactly what stocks can be considered second liners but I think these are stocks that don't have large capitalizations like the blue chip stocks like Ayala Corp, Ayala Land, SM Prime, etc.

In short, if you want to trade the local stock market, then you shouldn't be buying blue chips. Most blue chips are included in the PHISIX (index), so these are the stocks you will be staying away from in the near term.

If you plan to invest in an equity/stock mutual fund; then, now isn't the time to invest if you want to "time" your placement. Wait for a while further before you plunk down your money. Of course, this does not mean that you will be able to time it perfectly. In fact, it's better if you just invest and not think about whether if it's high or low as long as you utilize peso cost averaging.

If you are the type of person who has an account with a broker; then, if you want to earn a quick buck then look for basura stocks on the move. I don't give any hints on basura stocks because these are highly volatile stocks and you might have a heart attack just looking at the movement of their prices.

I think that the coming week will be a consolidation mode for the index or worse, a correction phase. If the index continues to go up, then there's the risk of "overheating" and thus set our market up for an even bigger correction. Tread (trade) with caution.

Resurrecting Your Finances

It's good to be able to blog again.

Two weeks ago today I was on a plane to Davao and spent the rest of the week there. Then the week after that, I was catching up on the work hours I lost while in Davao. It's just now, over the long Holy Weekend, that I'm able to relax and hammer away at my keyboard again.

While in the plane en route to Davao, my mind was fixated on the news about Cebu Pac's IPO this coming May. It's been a while since there's been any IPO in the local stock market. I can't remember how the following got listed - CPM and E-Games - but I know they were not IPOs. Their prices went up after their listing, albeit for a few days.

E-Games in particular also benefited its sister stock - IP (ticker for IPVG Corporation) - the stock rose...and died after about three days.

With Cebu Pac, JGS (ticker for JG Summit) also rose, and is now dead, more or less. Dead meaning the price isn't moving. Perhaps when the IPO date nears, JGS will have price activity once again.

In any case, the IPO of Cebu Pac would hopefully create excitement in the market... next to the post election rally.

Speaking of the market, it has been rising... but the volume hasn't, so it's best to adopt a wait and see approach. Volume is a very important indicator, pointing you towards the right direction when you are trying to time the market. Of course, Warren Buffett will tell you that you can never time the market. Actually, you can, to a certain extent, with the help of technical analysis. You can also time your entry to a particular stock.

I learned about technical analysis from Absolute Traders. They recently had an event which unfortunately, I wasn't able to attend. If you are an active stock trader or you plan to be, it's good to attend their seminars.

Technical analysis isn't a fool proof system and it depends on personal discipline. Unfortunately, most people do not have trading discipline, i.e. we make decisions to buy a particular stock based on fear or greed. If you can make decisions mechanically, then it's good to trade. Otherwise, you're better off buying a quality stock and holding to it until the day you need your money.

Or, you might want to look at investing via mutual funds. Let the professional money managers select the stocks for you. Do note that I use the term "investing" and not trading. Investing is a continuing approach, i.e. you put money into something continuously with the aim of withdrawing those funds only when you are about to retire, or, if the money was meant for a bigger investment (usually real estate) or a future expense (wedding, child's education, hospital expenses, etc).

If you invested in stocks or stock mutual funds in 2007 or 2008 and invested only one time, then your money has (thankfully) recovered most of its value. But that's the wrong way of investing. In fact it's not investing.

Real investing is doing it consistently, usually monthly, using a portion of your monthly paycheck as investment fund. Then, whether it's a stock, or a mutual fund, you invest monthly in the same security. By doing this, you are doing peso cost averaging, so you are able to average out the buying values, whether it's in the highs or in the lows.

With peso cost averaging, you are able to "resurrect" your money over the long term because even if you bought at times of market highs or peak prices, you'll also have times where you buy at the lows. Volatility can be a friend.

I don't confess to be a money expert. I'm still learning along the way, reading books, watching news, and learning from others. Money is easily spent but not so easily earned. So if you are not aware of what you are getting yourself into, whether it is in bonds, stocks, real estate, insurance, or what not, it's best to just go via the safer way of investing - buy and hold and diversifying the kinds of investments you get yourself into.

Childhood Allowance: Inflation Gauge

Economics, along with Chemistry, Physics, and other Science and Math subjects are one of the most sought after subjects in the country if you want to have a fit of headache or want to sleep in class.

I've only met a few people in my life who can honestly and sincerely say that they rather enjoyed these classes. I've met fewer teachers who made these subjects interesting. Most of them just talked to the blackboard and lifted materials from the textbook.

Thankfully, there's the Internet and there are loads of books that explain these topics more interestingly. Perhaps not listening to your teacher gave birth to the book industry's "guide for dummies" series of books. Watching CNBC and Bloomberg also helps. So it's not entirely true that the television is an idiot box.

Recently, I had my hair cut and I was given a kiddie magazine to read. I suppose it was randomly given to me and it did not mean anything. In a short article contained in the magazine, there was a topic on the amount of allowance kids these days get, compared to what their parents were getting in the past.

That got me thinking.

Kids these days supposedly get about 150-250 a day. It sounds a lot to someone (like me) who received between 50-100 during my time. My parents had even "less", and most of the times, none, during their younger days.

At 250 a day, that's about 5,000 in a month. Even if we use 150, that translates to 3,000 a month. So assuming you have a child that's in high school already and your salary is about 25,000 - 30,000 (gross) a month, I'm amazed we Filipinos are still able to survive. Imagine, you still have to pay the tuition, your rent, utilities, etc. Frankly, I'm surprised some even have anything left to invest with.

If you don't read (or ignore) business news and skip on important data like inflation, just look at the allowance example. Your 50 pesos then is worth a third today (if your allowance is 150). Therefore, put another way, what you could buy for 50 pesos then, you have to pay 3x more today. Of course, this is just a simple straight computation. You can still purchase decent meals at about 50.00.

So how much of an increase in allowance (or inflation) was that? Assuming the climb in minimum allowance from 50-150 took about 15 years, that's about 13% annually. That's much higher than the inflation rate published by the government. If I'm not mistaken the average inflation rate is about 6-8% annually.

Of course, this simple computation does not take into account possible increases in spending power of Filipinos. For all we know, the increase in allowance means that parents today earn more than their parents a generation before.

So, while foreigners still look at the Philippines as a Third World, or, a Developing Country, in my opinion there is quite a substantial middle class in the country. However, the middle class are those easily wiped out during economic crises. They are also one of those who stand to benefit right away in an improving economy.

What's the relevance of inflation? As you can see, whatever you spend today, you will likely pay more for the same services a few years from now. Given this (frightening) set of numbers, I wouldn't be surprised to see children receiving 500 a day in my lifetime.

You also have to think about yourself. If you want to retire respectably and be able to afford future expensive healthcare expenses, then you better start saving... and investing for the future.

Going back, as you can see, you don't have to have an economics degree or any degree for that matter to know about critical information that directly affects your money.

Learn how to use your common sense. Unfortunately, common sense is not taught in school. It's taught by your parents and brought about by the experiences you go through. Too often people tend to stick to textbook style thinking and problem solving, failing to see that problems are simple if you just use a little bit of common sense.

So if you use your common sense, then you'd know that saving now is better than saving later. Further to this, it's better to invest now, than saving now. Ciao for now.

Some Trading Insights

Apologies that I wasn't able to post anything last week.

I live a double life. The other life is that of excitement, espionage and entrigue hehehe.

Seriously, There were just too many activities at work that my personal time was spent on resting.

I wish I'd be able to quit my job and just focus my efforts on trading for a living. Supposedly, that's possible. Perhaps in a bull market, you can. But only with proper tools like Technistock. It's an expensive tool though as you are required to pay a monthly subscription fee. But it's well worth the investment for as long as you're running with the bulls.

When I was a subscriber in the past, I let my technical analysis lessons take a backseat and just focused on the price action and the buying momentum. I believe this is a technique called tape reading. I was able to trade with greater success.

Of course, being in a bull market certainly helps a lot.

Personally, even if trading for a living were possible, it's still better to have a regular source of income called a salary. Besides, if you're employed in a good company you also get some benefits like company health insurance and then some.

However, when you're working, you can't afford to trade, at least the short term trading sort. Short term, at least for me, are the trades you do in one day called day trading - you're in and out the same day - or those you hold on for not more than 3 days.

The reason why you buy these particular stocks is called "buying on breakout". You don't know the story or why it's going up but you just buy it because it's gone up substantially from its normal price range. Even if you have a crude charting tool such as the one in the PSE website, you can more or less gauge if it's a breakout.

Of course, you should not discount the other indicator - volume. Volume should also be higher than its usual volume. Both indicators - the price chart and the volume are all available in the website.

Breakouts last for not more than 3 days, as experience reminds me. There can be exceptions of course, but if I were you don't tempt fate and be content with your earnings. Greed kills. Really, it does.

You can still trade even if you're employed but you will have to trade the "big waves" so to speak. Since your work is 8-5, and trading hours is 930-1210, you can't possibly look at the ticker.

What you can do though is select a few stocks that you can monitor after office hours. Of course this goes without saying that you have some sort of charting software. You might try using the charting available at PSE.

By selecting a few stocks, you are focused in your approach. You know more or less when they hit their highs or their lows. This means limiting also your exposure to the stocks that you know. This requires the highest level of discipline as most, if not all, are always tempted to make a quick profit by trading speculative stocks.

Remember greed? Greed happens both ways - when you're holding on to a stock or when you're just about to get in.

Now if you don't have a charting software, the other alternative is to just read the newspaper. Look at the prices and what the index level is currently at.

Wait for that correction, it will necessarily come.

Then wait until the market index correction has been substantial, usually about 5% and start buying some quality stocks, ie the blue chip stocks. Remember, wave 1 = blue chips, wave 2 = second liners, wave 3 = basura stocks, wave 4 = it's your turn to wave goodbye (at least momentarily) to buying stocks.

While the index is down by "just" 5% the stocks may have lost even more. This is tricky though as you also have to know if the entire market is in a bullish, bearish, or sideway mode. Read the news, watch CNBC, watch Bloomberg. It takes some time but once you've watched them a couple of times you'll know if the market is in either one of those modes I mentioned.

I hope I was able to offer something new and useful to you. I also recently finished an article about investing in stock / equity mutual funds, so my mind has been lacking as of late with regards things to write about. Until then...

What stocks to invest in 2010?

It's a good thing the market has rebounded from its lows. The 3,000 level would prove to be a psychological resistance in the near term. The market apparently shrugged off the news of potential brownouts in the nation's capital due to positive movements in global indexes (and the possible rescue of Greece).

The market will probably have some pretty wild swings in the first - and probably second - quarter of the year as the Philippine election story starts to unfold. In an ideal world, i.e. a world sans the financial crisis, there are supposed to be stocks that should pick up in an election year. (I think we're still in a crisis, but as governments worldwide start planning their exit strategies, it's a surer sign that economies are stabilizing.)

What stocks could these be?

Well, let me first give a disclaimer. I don't have any charting software. I don't have access to brokerage reports. And, I also don't have any inside dibs in any of the stocks/companies I'll mention in a short while. I'm just basing these suggestions purely on common sense. Buyer beware please. Investments entail risk and if you make a wrong move, you can see your capital losing worth by double digits.

Continue to buy "defensive" stocks. If I understand correctly, defensive stocks are utility companies - power generation, power distribution, water distribution, telecoms and healthcare. Of those listed I am looking at AP, EDC, FGEN, MWC, MPI, and of course TEL.

The reasoning is that even if the economy stays flat, companies and individuals will continue to use the phone, take a bath or use the computer. If the economy picks up, power usage goes up, people eat out more so water usage will follow, there'll be more cellphone usage as opposed to landline. The problem for the power and water distribution sector this year? El Niño baby.

What about election plays? Well I suppose that'll be the media stocks, that is - GMA and ABS CBN. I'm pretty sure their first half revenues will shoot up due to the ad spend by the "friends of (insert politician's name)". Another possible stock that may rise could be JFC. Perhaps those running for office would distribute Chicken Joy whenever they make their campaign runs? URC / SMC / PIP could also benefit.

Pure speculation stock for 2010? VLL! I'm sure the stock will fly if Villar wins the presidency. Hehehe.

One caveat for investors is that unlike foreign exchanges, ours is quite volatile because we are at the mercy of foreign brokerages. If something pushes up their fears about our market, they dump even the above quality stocks like there's no tomorrow. Of course, if you're a investing for the long term, this is of no concern to you. In fact, these could be buying opportunities.

Also, most of the local major companies and conglomerates have tightly held shares, and the owners and the management team don't always change. This means whatever they're doing good will continue for as long as they're led by the same group of people. So, if their businesses are doing well under their management, you can more or less predict that this will still be the case in the foreseeable future.

Fall from Greece

And you thought that the market would go up January. Historically, the stock market goes up in December and there's a follow through in January. After reaching a high of 3,121 last January 14, the market has tripped all the way to 2,855 last February 5.

A 9% drop in value.

This is just the index. What about individual stocks? Well, they're definitely much worse, sad to say. A few posts back, we mentioned that the market was ripe for a correction. One of the critical signs that the market is about to peak is when basura stocks are going up like crazy.

Who would have known that we'll be where we are today? Markets worldwide just fell through the roof.

Of course, warnings are just that... warnings. Nobody can predict with precision when exactly these corrections happen. It's just wise to stay ahead of the curve. But how?

I suppose when you're more careful, you'll be less and less exposed (i.e. invested) when you have a nagging feeling that the market is close to a peak. One way of staying ahead of the curve is to be able to read charts. Now, a charting software is in order.

The PSE has its a site with crude charting available. If you don't have a full fledged software, you can just stick to what they can offer.

The first step is not just looking at your favorite stock's chart but to look at the entire index first. Your stock will just follow the direction of the index.

If you don't have the patience or attitude for chart reading, you can just read the news and just look at the overall trending. Obviously most of the news have been negative, recently, there's been a focus on Greece and its potential for debt default.

Because they're part of the EU, most of the European share markets fell. For one reason or another, other markets in the world, notably Asia were also dragged down. The US market is also in the brink of falling through the 10,000 level. Wonder if that will happen.

Of course, the falling of these markets is not entirely due to the default risk of Greece. Unemployment in the US is still high, the Chinese wants to impose tightening, metal prices and oil are falling across the board. Perhaps people are doubting the recovery story.

Most of the markets may have gone way ahead of themselves last year. Now that people realize that the recovery isn't one straight line up, doubt and fear have set in. When that happens markets fall.

If you're a trader, now is not the time to be buying. Wait for some signs of stability.

Warning Signs of a Bad Financial Advisor - P. 4

Welcome to the last set of the "Warning Signs of a Bad Financial Advisor" series. This first one came out a few posts back.

The entire series is borrowed from Suze Orman so please visit the actual slide show over at CNBC.

Without further ado...

2. Advisor Wants a Check Directly Made out to Him/Her

The ultimate warning sign is if the advisor asks you to write a check made out to him/her personally. Every check is to be payable to an institution. (i.e. TD Ameritrade, Schwab, etc.,) “This is absolutely essential. More than one "adviser" has flown the coop with dozens of clients' money’ Suze says.

My take -

I think this is pretty obvious, but even if it is, there are still people who are too trusting and fall victim to clever scammers. I'd take it a step further by also asking for a provisional receipt if an original receipt cannot be issued yet. The receipt serves as proof that you paid for something.

And the last one...

1.They Don’t Inform You of Changes

The last warning sign is if your advisor doesn’t inform you of any drastic changes. Suze explains, “If a stock has gone down, or is not performing the way he or she expected it would, you are to hear about it from him/her, not read about your money first in the newspaper.”

My take -

Even the good financial advisors often forget this. It's a service to the client and shows transparency. Of course, this is assuming your financial advisor actually has any knowledge about what's going on. They usually rely on what their head office feeds them anyway.

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Okay, that wraps up this series. I hope you've learned something new as much as I did. Money can be earned if you've lost some in investments. The general rule is that as you grow older, the more conservative you should be with your funds.

Until the next post!

Warning Signs of a Bad Financial Advisor P. 3

Continuing into part three of a series.

5. They Don’t Have Answers to Questions or Concerns

Beware if your advisor doesn’t get you the information you request about an investment. They should answer any questions that you have about how you’re investing your money.

My take -

Couldn't agree more.

4.Legitimate Monthly Statements

Your advisor should send you a monthly statement summarizing all that month’s transactions, including deposits, withdrawals, and current positions held. This statement must come directly from the brokerage firm that's holding your money, not from your adviser's office.

My take -

Well most financial consultants here will sell you mutual funds, variable life insurance products, as well as other insurance and pension products. If you are investing in bonds or stocks, chances are it's through the bank manager - friend or your stock broker. This being the case, then I'd assume that the statements will come from the bank or the stock brokerage firm.

If these are mutual funds, then you should be receiving statements from the mutual fund company unless you opted for online statements.

I can't speak for how scammers work though I'd think that these companies also send you a statement just to convince you that they are the real thing. I wrote a blog entry in the past on how to spot investment scams.

3. They Don’t Send You Quarterly & Annual Reports

You should receive quarterly and annual reports from your advisor. These reports explain the return your advisor is getting on your investments, as well as all fees and commissions. The figures on his/her report must match the report that is generated directly from the brokerage firm.

These reports should illustrate all the realized gains or losses (all the money you actually made or lost from selling an investment) and all the unrealized gains and losses (investments you own but have not yet sold and thus that have not yet realized a profit or loss). These reports should also include returns of the overall index. You want everything on paper

My Take -

I would like to believe that the mutual fund companies do send you these kinds of statements. For UITFs though, you'd have to record the gain or loss on your own. The NAVPU are reflected daily in the bank's website anyways.


Well I hope you are taking these lessons to heart. See you in the next entry!

Warning Signs of a Bad Financial Advisor P.1

A few days ago I stumbled upon this article by Suze Orman down at www.cnbc.com. The title of this blog entry is exactly the same as the one she wrote. There's no better title for it.

I think that as we start the year 2010, before you think about investing your hard earned money, know first if the person you're about to talk to can be trusted.

While her list is quite complete, not all of them may be applicable to the local setting.

Here are the warning signs -

10. They Rush You

You meet the advisor who says there’s a deadline on the investment. Suze explains, “There is NO investment out there that you have to rush in -- especially today. They are a salesperson and not a financial advisor.”

My take -

I think this is a fair statement. While you shouldn't dilly dally with investing your money, there's no need to rush either. Your money should be invested soonest, but your decision on what and where to invest shouldn't be rushed.

9. They Don’t Tell You How They're Paid

There is a cost associated with any investment that you make. It is most likely that you will pay the advisor’s fee, load or commission. The advisor needs to be clear on what it’s going to cost you.

My take -

As that hackneyed statement goes, honesty is the best policy. A financial advisor who is fully transparent with you earns brownie points. Further, you know this person can be trusted. This will also avoid any misunderstanding between you and your financial advisor. You shouldn't be shy with your questions, so fire them away!

8. They Want to Put Everything in One Investment

“Be very wary if your financial advisor wants you to put all or most of your money into one single investment. You should diversify your money…. You don’t want to put money above FDIC limits, or state guaranty limits on annuities.” - Suze

My take -

Another cliche comes to mind - Don't put all your eggs in one basket.

If you are fortunate enough to be financially well off, don't put all your money in properties only as they are highly illiquid investments. If you're just starting out, don't put all your money in stocks or stock heavy mutual funds or UITF's. You need to balance it off with some quality bonds.

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Will be back with the rest of the list in the next post. Happy Investing!

The Weekender

Our market recently fell below 3,000, only to recover last Friday. Has the market finally found its peak? I would have wanted to review the chart, alas, I don't have any.

Some of the stocks that went up (and that really caused me to raise my eyebrows) -

Atok Big Wedge (Ticker: AB)
Macondray (Ticker: MRAY)
Philrealty Holdings (RLT)

LIHC went to as high as 12.75 sometime this week and then fell to 10.00 before closing at 10.50 Friday.

I'm just going to repeat my message - be wary of the market. Speculation is the name of the game and the bubble that it will create could burst soon.

The dollar is picking up. My personal opinion is that the dollar will increase in the medium term. But, in terms of the relation between peso and dollar, there will be a lag effect because in December, the peso is historically stronger due to the OFW remittances being converted to peso.
So if you are a speculator, then you can use this month as a window of opportunity.

Remember that investing is different from speculating. If you think that you need the dollars for a future dollar denominated expense then by all means go for it. Otherwise, don't buy dollars (or any other currency for that matter) just because "you know it'll go up". Like that a book title I saw recently in a bookstore, "Hope is not a strategy."

Investing ... or speculating? (continued)

I was that blunt and the friend pondered about what I said. The friend agreed that that was true.

So that was my cue to say that there were more to investment decision making than just listening to what your other friends are doing. I also told the friend that before deciding on what kind of investment to take, an emergency fund should be put up first.

People are far more interested to get into the action rather than planning ahead. What does this mean? People want to see their money grow right away without considering if they have money set aside for a stormy day. Humans are generally a greedy bunch.

Instead of asking, where can I invest? You should first ask, where can I invest without risking my near term prospects? I.e., if you have paper loss sometime down the road, do you have money to keep you going (and living) if you should lose your job or lose a business?

To know if you are just speculating or actually investing with your investible funds, here are some possible "indicators". -

1. You focus on the short term, rather than the long term

2. Fear drives your decision to sell...

3. ...and Greed drives your decision to buy a new investment

4. Your decision is anchored on hope and slight delusion (a stock has fallen by 15% and you still think that those behind the stock will support it and it'll eventually recover more than 15% sometime soon)

5. Where there's smoke, there's fire, and more often than not, you get burned

6. You are fidgety, checking your investments more often than you have to

7. You boast when you have paper gains, and then gloat when you realize them...

8. ... and you don't tell anybody when you take a loss or have a paper loss...

9. ... or if you did tell someone, you just go back to telling your "war stories" of "I earned so and so in the past"

Speculation is gambling. You might have better chances at the casino than in the investment world.

Investing is based on logical decisions. You don't have to be a fundie or a technician to become an excellent investor. If you know how to save money, then you're already on your way to becoming one.

MP, Metro Pacific and Manny Pacquiao

The index recently broke the 3,000 barrier and closed up at 3,034 last Friday for the year. Due to losses in the US (and perhaps people cashing in to bet for Pacquiao-Cotto fight) the market lost momentum on the 13th. Philex also lost its luster Friday and fell by 14% to 16.75, bringing down with it the mining index. Those who bought at the 19 range better be wary.

Having risen by 100% in such a short time may mean a free fall in also the same short period to God knows where. There is no strong support for the stock having risen continuously when it breached the 10 barrier. The good thing though, at least for those who bought at the 13 level, is that they still made money (assuming they exited at 19). That's still almost 50%.

I could be wrong.

The performance of these two stocks this year - Meralco and Philex - reflects the state of our market. It is both bullish and speculative. Basura stocks are gaining and even blue chip stocks are being speculated upon. Some of the other winners for this year was WEB, and the Angping stocks, especially Nihao is back with a vengeance. As we reach the year end rally (hopefully), you may wish to take the time to think about 2010.

If you think 2010 will be a better year, then hold on to your stocks and buy the corrections. Otherwise, this could be your time to scale back and take profits while there is one. I wanted to look at the volume, as well as the amount of foreign buying for this year, but I don't have access to those information. Those are also good indicators as to the sustainability of the recent bullishness in the market.

Winners during the past week were Philex (double your money in less than a month, code: PX), Century Peak Minerals (code: CPM), Alsons Consolidated (Code: ACR), I-remit (I), and TK Steel (T). There were also other stocks that rose, mostly basura stocks, and index issues. The worst performer, at least based on the stocks that I monitor, was Metro Pacific, falling by almost 30%. What's amazing is that they recorded huge revenues.

The stock price perhaps does not reflect the correct value. At least for now. Having made so many acquisitions, as well as the possibility of diluting shareholders, bearish sentiment has killed the stock. But as Buffett is says, "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

I visited their website and looked at the businesses they now hold - hospitals, toll roads, water utilities. These are businesses that do well when the economy is good, and don't suffer as much when the economy is bad.

Using common sense, I think Metro Pacific is a buy, although it will definitely be a long term buy (as long as 2-3 years from today) as we still have to wait what happens when they list new shares (unless they've done so already, I don't track the news that much). Its 52-week high is 7.10 and 52-week low is 2.08. Trading volume for the stock has increased substantially this year. But of course, there's the threat by GSIS over the recent acquisition of Meralco shares.

GSIS killed Meralco last year and they migh very well do the same for MPI this year. Sniff the news whenever it's out in the press.

I also don't know much about financial ratios so I don't bother reviewing them. What I do know is that perhaps, there's a lot of debt going around at MPI.

Of course, this is just my opinion. Investor discretion is advised and you should consult with your own financial advisor. Investments take time to generate consistent cash flows and 3 years is about the right time frame to expect the kind of revenues that MPI holdings should have with its current portfolio of companies.

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At least the other MP (not listed in the PSE) made winners of those who betted for him in today's fight. I'm talking about Manny Pacquiao. He beat Cotto with a TKO (hey that rhymes).

Congratulations to Pacquiao! I just hope he doesn't enter politics.

In the U.S., there's been an attempt to correlate Tiger Wood's golf games to the performance of the Dow Jones. Perhaps, we should do one for Manny Pacquiao and the Philippine Index.

Until then, be careful where you invest. Tomorrow may be another up day because of the euphoria as well as the positive end for the Dow last Friday.

Bonda rito lang po

I write for Tulay, an English fortnightly publication of World News (a local Chinese language daily). For some time now, I've been writing business articles after doing features and what not in the previous issues. I am supposed to contribute also to Money Sense, a personal finance magazine, but due to my work, I experience difficulties submitting articles. It disappoints me that I can't contribute as much. It means I have less time to give people ideas about investments, savings, et. al. (likewise for this blog)

Most of my later business articles with Tulay were about personal finance and retail investment opportunities for the local market. As I began doing those articles, it became obvious that the available instruments are redundant. There are too many providers offering you the same stuff. But don't get me wrong, these are all good and the fund managers and the banks managing the UITFs or mutual funds actually serve as institutional investors, particularly for the stock market.

The one market I would like to understand is the bond market. It's not as exciting as the stock market but bonds are generally accepted as safer security investments. Usually, most of the bonds issued are gobbled up by banks and financial institutions, and there's really nothing left for the retail investors.

Every now and then though, something does pop up as opportunities for the small investors. These are the corporate bonds and retail treasury bonds. The problem with these two types of bonds, at least to my knowledge, is that they do not offer this neat investment trick called compounding.

Why?

Upon investment of a bond, the interest is credited monthly to your account. So in effect, you're giving your money to the lender, letting him use it, and then returning it to you after 3 or 5 years - but only the principal because the interest has been credited to you already. Classic case of OPM, other people's money. Of course, that's just a jaded view of bonds.

The plus side of investing in these kinds of bonds is that you let your money work for you. So at least you can expect something quarterly that's higher than the regular savings or time deposit. But in the long run, you should also be looking at investments that have a compounding effect.

Compounding means that the interest you earn is rolled back into the principal, thus earning you more each time there's additional interest applied to it. Supposedly, stocks and mutual funds have a compounding effect.

What I do know is that they appreciate in value over the long term, so your original investment is getting bigger. So there's capital appreciation, but not necessarily compounding. Compounding will happen though, if there were dividends, and you invest it back to the fund or stock.

Compounding is also one way, if not the only way, you can escape the dangers of inflation.

Until the next post, invest wisely.