Sounds Greek to Me

People who invest and trade in the stock market, mutual funds, and UITFs, would know what I'm talking about just by the title alone.

Those who don't, can just refer to the definition of that phrase.

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It's about what's happening in the stock market lately - locally and globally.

Three years after Lehman Brothers, we now have another banking system problem, this time from Europe, with the origins coming from Greece.

According to Wikipedia, Ancient Greece is considered by most historians to be the foundational culture of Western Civilization. So, Modern Greece will now be considered as the foundation of the second crisis crippling the globe. The first one was the States just three years back.


I won't offer to conjecture further about it. There are people more qualified to give their opinion about the situation. Further, there's enough news on the web, print, and TV so I am sure you've at least a bit of an idea as to what is happening.

However, I think locally, no one - outside the financial industry / and the investing public anyway - really cares about it.

The up side of having so many domestic problems is that you don't have time to worry about issues outside your national borders. Of course, that doesn't mean we won't be affected by it.

Plus, you still have a job, so I don't think that you'd be minding the prevailing crisis that much - yet.

But, if you're someone who's been investing (or just started to), you'd be worrying about what's happening to the values of your investment holdings.

If you're someone who invests, you are doing what most financial advisors and planners would term, increasing your passive income.

Active income is the money derived from blood, sweat, and tears - i.e. your job, business, your sidelines and moonlighting, etc.

Passive income produces blood, sweat, and tears if your stocks/UITFs/mutual funds falls below your cost of investment.

Just kidding. =)

Most people would like to have a high active income in the form of big paychecks, then also spend massively. It's a vicious cycle.

Others resort to multiple sources - sell beauty products, tutor, teach, etc. - to increase the income coming in.

Of course, if you are someone who is an employee earning just above the minimum wage, you will be doing the latter example. Or, you may have opted to work on foreign shores.

Nonetheless, the precondition to going into increasing your passive income, is to have an adequate active income with spending for expenses that's just right. Unlike Greece and most other nations, you should have a personal budget surplus.

Now, where do you put this surplus in?

You must find something that makes your money grow while you work, eat, sleep, play, etc. In short, without increasing your work load, you have an instrument where your money works for you.

I would like to think that a lot more people are going into the investment bandwagon. Bank deposits are not considered an investment, but they serve a purpose because they provide liquidity AND capital protection (unless you put your money in LBC Bank).

If you would like to know what an investment is, at least to me, it is something that generates returns higher than the inflation rate. Ideally, it should not be too liquid so that you are not tempted to spend it right away. And, usually, the returns are not guaranteed.

So, until then, appreciate the risk, then appreciate the capital.

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!

Down..on your luck?

The market now has a direction: Down.

Last year, the PSEi went up by more than 30%. Now, we're down by about 10% already, if I remember the news correctly.

In between there were a lot of superstar stocks like Aboitiz Power (AP), Semirara (SCC), DMCI (DMC), among others, that went up more than 50%.

I don't know how many were able to enjoy the ride of the aforementioned stocks. If you're one of them, then congratulations to you!

While experts and pundits will say that stock selection is a skill, you still need an element of luck on your side.

Few - if not none - business books will tell you that luck is also needed to be successful in business. I think that applies also to stock trading (and not investing).

People of course will question the credibility of a business book if luck was somehow placed in the equation of success.

I say that luck is important because I've had experiences in the past when I bought a stock and then it just goes up. I've also had experiences counter to that of course, i.e. for no reason it goes down. And when I say "going up" or "going down", it's more than 10%.

Mostly these are small to medium companies that get jockeyed for what reason, I don't know.

Of course, this is not to say that you if you are "unlucky" in stocks you should choose to avoid it completely. By unlucky, I mean if you have only made money 1 out of 10 trades you've made.

You don't have to stress yourself by choosing what to buy. Go to a professional and get yourself a mutual fund or UITF.

The commission, fees, charges that you get billed for are well worth the stress.

Until the next post!

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.

Investing...or speculating?

A friend of mine asked me a few days ago if it was time to buy the dollar.

At first, I was hesitant to answer. How do you give financial advice to a friend without sounding like a know-it-all?

I just gave a straight and honest question -

Why are you buying the dollar?

No words were uttered.

I broke the silence by asking the person a few more hard-nosed questions -

Are you using the dollar for something? e.g. going abroad, paying for something, among others.

Then I further told the person that if there is no need to use the dollar, why bother buying the dollar? I said that there are a lot of peso investments out there like mutual funds and unit investment trust funds, the stock market, bonds, etc.

Then I was greeted by the million dollar (or peso) cliche -

The person had a friend who bought dollars before, and then kept it for a long time, and "is doing well now."

For a moment there I felt like the words were taken from my mouth.

Flashback to a few nights ago, I was watching the Suzie Orman show. There was a caller who was asking if she should take the advice of her good neighbor who happens to also be a financial advisor. The neighbor was suggesting that she take some big investments in a fund (or some such).

Suzie Orman then probed further, how many years has her neighbor been a financial advisor? The caller said that it's been about 2 years. Obviously Suzie was not in favor. In fact, she went into hysterics.

The friend asking me was experiencing the same dilemma.

Just because a friend has the best intentions mean that they are giving you the best recommendations.

To be continued...

How to make money in...

Welcome to a new Guerilla Investing Series Special which will be a series of posts headlined by the title "How to make money in...". For the first in the series, we'll tackle the stock market.

I've written other series in the past and they include primers on investing, unique perspectives on conventional personal finance concepts, the purpose of having your personal mission statement, and of course my continuing take on the Waves of Philippine Business. The last one is still on hold as I'm further developing it.

So what about the stock market? I'm not going to teach you about technical analysis or fundamental analysis (Go to Absolute Traders instead!). I'm going to teach you how to make money consistently by sharing with you an approach that has proven successful for a selected elite group of stock traders.

I don't know them personally. I only got acquainted to their style of trading through my broker. If you are a fan of Robert Kiyosaki, he defines a stock broker as someone who is more broke than you. While that diatribe certainly will raise some eyebrows (especially of stock brokers), let's examine what my broker broke to me. I summarized them as such-

1. Have a Monogamous relationship with your Stock

He has a client who only buys one stock. Yes, just one. Regardless of whether the market is a Yogi Bear, a Red Bull or a Panda market, he only sticks to one stock. My broker would narrate to me how this client would call out of the blue and give a buy order for his (only) favorite stock. Whenever it came to selling time, this guy made a tidy profit.

This person didn't enjoy GEO like profits during the boom market (oh don't you miss the yesteryears of 2006 and 2007?) but he did enjoy profits CONSISTENTLY even during the bear market. Luck? More like excellent stock knowledge of his stock.

2. Have an experienced broker who has knowledge on Technical Analysis and Fundamental Analysis.

I'm no genius. I'll probably take a million years trying to absorb the rudiments of fundamental analysis. Moreover, a broker who is knowledgeable on Technical Analysis can give support to what you see (or maybe, perceived to see) in a selected stock if you pride yourself to be a technician. Since you have to have a broker (unless you trade online) to transact, then why not get his aid? A broker's duty is not just to do salestalk. He has to do a meaningful salestalk.

3. If you are in it for the long haul, learn to average down

The statement could be debatable but I think it is self explanatory. Just make sure you are buying a "good stock with fundamentals" like Ayala Corp., SM Prime, etc.

4. If you are in it for the short haul, learn to cut your losses.

Learn to internalize the catch phrase "don't catch a falling knife" and you'll soon realize that you have to call it quits when your trade goes awry.

5. If you want to feel a gain, you have to invest or trade big.

Usually 50K as a minimum would be a better start. So save up!

6. Timing Timing!

In real estate, location is everything. But redounded to its basic investment philosophy, timing is the more crucial factor, and this is most true for the stock market. Sure, you won't catch the absolute bottom or the absolute high, but if you have a bit of experience you'll know if you're early or worse, late into the investment.

Just look at the tell tale signs. For the stock market when IPOs are the norm, it means the market is about to peak. There were gajillions of IPOs in 2006 and 2007. Most of those that did an IPO in 2007 were flops.

If you follow rule number one and combine it with this rule, then you would know when your favorite stock is at its highest... or its lowest.

So that's it for now. Simple rules to remember. I hope you gained some new insights today. Come back for more and learn more about guerilla investing's guide to investments. =D

Is Sanity Insured by the PDIC? Hmm...

Guerilla Investing is back! Thank you for patiently waiting for my new post, dear reader. I'd like to take a break first from my posting on the waves of Philippine business.

While this piece of news had broken out last week, I think that it will remain a strong reminder for us in the present time... and in the future. I'm talking about a series of bank holidays declared by a number of rural banks.

And I don't mean holiday as some sort of national holiday. I'm referring to a holiday that refers to your money bidding you a (potentially) eternal holiday from your wallet/passbook. Depositors beware.

Last December 10, I read in the Inquirer that two rural banks - Philippine Countryside Rural Bank Inc. (PCRBI) and its sister company, Pilipino Rural Bank Inc. (PRBI) declared a bank holiday. The two banks are under the Legacy group (I wonder what legacy they want to leave the depositors, hmmm?). What's also worry-some is that the Bankgo Sentral ng Pilipinas found that the Legacy group also had a slew of undercapitalized banks namely -

Rural Bank of San Jose (Batangas) Inc.,
Rural Bank of Carmen (Cebu) Inc.,
Rural Bank of Calatagan (Batangas) Inc. (now Dynamic Rural Bank),
Rural Bank of DARBCI Inc.,
Rural Bank of Kananga (Leyte) Inc. (now First Interstate Rural Bank), and
Rural Bank of Bisayas Minglanilla (now Bank of East Asia)

According to the same news article, "the rural banks under the Legacy group have a capital deficiency of P2.5 billion that ranged from P1.4 million for Dynamic Bank to P983.5 million for the Rural Bank of Parañaque."

Okay, what's the punchline here?

Rural banks, at least from my experience, are the ones who offer double-your-money-in-five-years time deposit placements. But to just define it that way would obviously highlight my bias. Let's take a brief view of what the Philippine banking system looks like, based on how banks are classified -

Universal Banks
Commercial Banks
Thrift Banks
Rural Bank / Cooperatives

Primarily, the distinction among them are what they can do, how much capitalization is required, and what loan/deposit products they can sell. For more details, visit the online encyclopedia Wikipedia. Here's the link.

Using my Neanderthal internet skills, I could not find anything substantial about the banking system history in the BSP website. Maybe you'd have better luck?

As of December 13, 7 of the 10 banks under the Legacy group had already been placed under BSP receivership-

1. Philippine Countryside Rural Bank (PCRB) with branches in Mandaue City, Lapu-Lapu City and Liloan in Cebu,

2. Bank of East Asia based in Minglanilla, Cebu

3. First Interstate Bank in Tacloban City.

4. Rural Bank of Paranaque

5. Rural Bank of Bais in Negros Oriental

6. Pilipino Rural Bank (with branches in Mandaue and Argao in Cebu and Tagbilaran City in Bohol)

7. Rural Bank of San Jose in Batangas.

What is receivership? According to Investopedia, "A type of bankruptcy a company enters when a receiver is appointed by bankruptcy courts or creditors to run the company." In this case, the PDIC is the receiver.

The RBAP or the Rural Bankers Association of the Philippines issued a statement that amidst these problems were isolated and unique to few and that most rural banks “continue to outperform the entire Philippine Baking System.”

Okay. If you say so.

Why do I have a bit of sarcasm there?

Well, last May, a person came to me asking me if he should make a placement with Bank of Paranaque. He said that the bank was offering him 20% p.a., which meant that your money would be doubled in just five years. Naturally I was skeptical.

He said that the bank representative, who I am sure had this person's interests in mind (ho-hum) said, "If you want, just deposit 250,000 only. This is almost risk free as the PDIC insures your deposit up to that amount."

This guy also defended the rural bank since "hindi ito scam, kasi kasama siya sa RBAP." (This isn't a scam since the bank is a member of the RBAP.")

Go figure.

I hope he didn't commit to the investment since he didn't want conservative investments like pension or regular boring interest rates time deposits.

If you are in the same shoes as this person, and somebody is offering you a product like this, regardless of the institution, ask yourself this -

We are in the midst of a global recession. How and where will the institution get a return of 20% YEARLY?

Next question to ask yourself is, if Wall Street was able to put a triple A rating on subprime mortgage backed securities, what else is there that can't be manipulated? I smell a ticking time bomb in the local banking sector if some banks out there continue to sell their double your money in 5 years time deposit products.

What tips can I offer you? Check the t-bills rate. Check the performance of the real estate sector. Look at the stock market. Do you see offers of 20% yields?

Didn't think so.

Three Rules of Thumb for Investing

My blog entry was supposed to have come out last Friday, as this is my scheduled updating day. Unfortunately, things came up once again, and moi wasn't able to update anything up until today.
While the financial fallout continues to be in the headlines (this yahoo link keeps on updating its headline) and Ben Bernanke warning that it could spill over to the US economy (hasn't it already?), what can us small investors do?

I read one local site's take on the issue, which I like. And I've got my four syllables for everyone -

DI-VER-SI-FY

Everyone, including this blogger, has forgotten the golden rule in investing. To joke about it, you'd be in better shape if you had investments in both Merrill Lynch and Lehman Brothers, than solely in just Lehman yes?

I've got another four syllable advice for you

TIME HO-RI-ZON

Oftentimes, we forget that investments take time to grow. Fast money? More like fast money down the drain.

People always follow the herd, and the last person to follow it usually ends up buying at the most expensive, at the highest peak of the asset's price. I always wonder how the poor guy feels now when he bought stocks in 2007. Herd followers most often make the poorest of decisions, oftentimes forgetting that when he bought the stock (or whatever asset for that matter), it wasn't supposed to be just for an overnight duration.

I am speaking from experience here. So learn from it.

Lastly, another golden rule is this 4+1 syllabic word, and that is

E-MER-GEN-CY FUND

Don't be enamored by the (attach noun here like real estate, insurance, stock, what have you) broker. I once posted an entry about it. Why do I say so?

One of the magical one liners these brokers use is this -

"Buying (my product) is also a (savings tool, investment, etc)"

This is true. But somewhere along the sales pitch, this person forgot that the prospect's salary goes to pay for his / her rent, food expense, utilities expense, perhaps his other mortgage, etc. That is why folks, in the off chance that you get suckered into deal by a sweet talking agent, it's best to have an emergency fund tucked into your investment portfolio. You never know when rainy days - or financial meltdowns - will come along.

Signs of the Hard Times

Hello blog and blog readers, it's been a long while since I last posted a blog entry. Been quite busy doing some assignments that I hardly have time (and brain juice) to think of anything to write about.

The stock market has been sucky year to date, as with most - if not all - investments, namely UITFs, mutual funds, variable life insurance. The question everyone is asking is, where can I place my money now?

The answer eludes me as well.

I haven't gone offshore nor lived far from these here shores, but I know that in other countries, they have a diverse array of available investment products in the market. As compared to ours, they probably have higher yielding bank savings deposits, et. al.

Think about our local ones, our bank savings nets us less than 1% per annum. This is a far cry from the inflation rate of the country, which is threatening to go even higher. Apart from the fact that they have (really) gross interest rates, they also have really gross service. The level of service in our banks today is measured by how big your assets are with the bank.

I tend to think that in the Philippines, there are only two major types of investments -

CAPUTI - Capital Protected. Unprotected from Inflation (or better known as KAPUT, because your money goes kaput when inflation is taken into account)

IPITCU - Inflation Protected But Capital Unprotected (or for people who have money invested in stocks, UITFs, "Ipit ako ngayon", a euphemism for "I can't liquidate my investments", or sometimes, a euphemism also for "I wish I were dead right now")

In these difficult times, a friend of mine said that you should put your money in hard assets like property and jewelry (fake ones need not be accounted for). I agree, but with a caveat.

These won't fluctuate as much, however, the problem is during these times, you also want to stay liquid. But if you have extra cash and you have nowhere to put it into, maybe it's time you tried eyeing those two hard assets.

In the absence of economic data, investors such as you should open your eyes. As I put it myself, everyone should be an observant economist. As well, it also means that in the absence of data, it should be observations of hard reality.

Take a trip to Divisoria, the first thing that you will notice is the lack of traffic. In the long history of Divisoria, there has never been a time where traffic was scarce. We could attribute it to the summer season (i.e. students, one of the major drivers of the Philippine economy), when students have headed back to their home province.

But that's just one viewpoint. Most of the people who shop and buy stuff in Divisoria are people from the lower classes. These are the people hit hardest by the rising oil and rice prices.

Yes, the high cost of rice importation has put the "P" to the "rice".

Even the usual traffic along Lawton to City Hall has dwindled.

What else must you check out?

Check out the parking space at the local mall. See if it's full of cars, or full of open spaces.

This June will be the most critical point in time, at least for me. When the school starts, try to see if business starts to pick up. If not, then hold on to your butts (and cash), 2008 will not be as auspicious as the number 8 should be.