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.

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.

The Breakout ... then the Breakdown

For local stock market players, they saw this week the meteoric rise and spectacular fall of IP - all in one week. The lucky speculators made money while newbies may have lost money and are now IPit. Tough luck? I suppose.

I'm not surprised most people are still turned off by the stock market. With movements like these, most of the general public still think that the stock market is just one form of gambling. It can be... only if you are a speculator and not an investor.

When you're a speculator, you can gain a lot, and lose a lot more if you're not careful and especially when you're greedy.

As previously mentioned, I don't review charts anymore for the simple fact that I don't have the software. When I trade, I just employ hit and run tactics, or buy on breakout and sell once it hits the second or third day. On average, I've noticed that stocks that breakout (i.e. price goes up from the usual trend of more than 5%) only last for up to three days at the most.

There are some stocks though that go up continually and if I'm not mistaken this was what happened to ORE recently. I don't know why it went up.

Mostly, these breakouts are fueled by speculation and stories of interest. If you didn't already know, E-Games (EG) was listed this week via introduction (don't ask me, I'm not particularly familiar with what it means). Since IPVG (IP) is the owner, its shares went up. Again, I don't know why. Perhaps it would add value to the mother company since listing of shares is one way of raising capital.

Whatever the reason, the stock went up. And it went up in style.

It went from 2.02 last Feb 15, to 2.70 to a high of 2.80 on Feb 16. That's a one day profit of almost 40%! You can't get that deal from a savings account nor a time deposit. Of course, with great price swings come great risks. After Feb 16, the stock just went downhill.

On Feb 17, it opened 2.70 only to close at 2.36. Following the bearish close of 2.36, it fell further to 2.12 on Thursday. By Friday Feb 19, the stock was only worth 1.98.

So if you did not sell on Feb 16, you actually lost money!

How will you know when to get out? I don't but charts can help.

I didn't read the chart in the first place though I doubt chart reading mattered for this stock. Again, while technical analysis (TA) is a good friend for any trader, you must also understand that at any given point, you should also be aware of the story. The story for IP was EG. There was no other compelling reason to buy the stock.

I guess common sense and having an honest and objective broker (yeah they exist) can save the day for you.

I'm still a believer in TA, but you also have to combine it with other disciplines, whether it be fundamental analysis, or just simple common sense. Of course, being less greedy would help a lot as well.

Until the next post...

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. 2

Welcome to Part Two.

This is a continuation of last week's post. Please go over here to get the actual post of Suze Orman.

We said that we'll use her 10 signs and compare it to the local setting. Let's move on.

7. They Want to Meet with you Alone

Your advisor needs to understand you and your partner’s financial emotions. If you’re married, have a life partner or are responsible for someone else’s finances, the advisor should never want to talk to you alone. Suze says, “Any advisor that wants to see you alone – something is wrong.”

My take -

Of course, it's obvious that this is applicable when you're planning your finances with your fiance, wife, or even your parents. Still, if you're just planning for your own finances, it's always nice to bring along a friend or a colleague. It always helps when somebody plays the devil's advocate.

6.They Don’t Ask About Your Needs

For example, your advisor suggests what you should invest without asking you questions such as - do you have credit card debt? Are you healthy? Is your job secure? Do you want to buy a home? Do you have will? Do you have a trust? Do you need a new car?, etc.,.

My take -

I couldn't agree more. Local insurance agents, real estate brokers, financial advisors just tell you that you have to invest, but do they guide your decision? Real estate is a good investment, but do you need it now? A mutual fund is nice to have, but are you ready to take on the risks?

Before you plunk down your hard earned money, consider the following pointers -

a. Pay your debts first. However, this is just a general rule. There are debts that are okay to
postpone paying if the money for debt payment can be used to invest in something that
earns you more.

b. Set up your emergency fund.

c. What exactly are you investing for? Retirement? A house? An MBA degree? A business?

d. If you should get sick, do you have enough funds or have health insurance to cover
yourself?

e. Ask for a second opinion. Most often when you're afraid of telling somebody you trust
about where you're going to put your money into, it's driven by two things - fear or pride.
Fear is fear of rejection from your peers and family. Pride because you know you're unsure
about it, and you don't want to hear somebody else confirming your doubts.

f. Are you taking care of somebody sick?

g. Ask the financial advisor if he has purchased any of the product he's selling. If he hasn't,
why?

A needs and priority list should be in order before you sign your order ticket for a fund or reservation agreement with a real estate company. Trust me, most of these companies have your needs at the bottom of their priority list.


See you next week!

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!

Just a Commentary

I wasn't able to trade much of the stock market rally this year primarily because I was driven away by fear. I only started to take notice of the stock market when it was already July, and by then a lot of stocks already had a good run up, particularly the blue chip stocks.

I also dropped my Technistock service due to the lackluster performance of the stock market in 2008. There was no money to be made, only money to be lost.

Technistock was a great service because not only did it have charting (although incomparable to Metastock), it was linked to the stock market. The ticker moves in sync with the main board at the PSE so if there's a hot stock for the day, you can become an instant day trader. You know what stock to buy based on the momentum of buying.

Perhaps if the bull market returns, then I'd reconsider booking my subscription to their service.

So now, I just rely on the Reuters website (thanks to a friend for the tip) and read the news from time to time. The chart gets some getting used to, but it does serve the same purpose, albeit not 100% as efficient as I'd like it to be.

Last week was a dull week, at least for me. I missed out on ACR which made a nice move in a span of about 2-3 days. I don't know why it did though. I think there was something about mining rights there.

I'm still on my toes when it comes to the stock market as most of the stocks going up are the third liners and basura stocks. I would believe that the bull run still has legs if the blue chip stocks can inch higher and the volume is high. Remember, the index has risen by a substantial amount since the 2nd quarter of this year.

I personally think that the stock market has three waves -

The blue chip wave - bullishness creeps into the market, foreign buying is back

The mid cap wave - local players follow the lead of the foreigners, and they also start buying the mid cap stocks or second liners

The tidal wave - all sorts of rumors of backdoor listing, new mine find, speculation, enters the market and a lot of basura stocks and "dead" stocks are reincarnated. This signals the end of the bull market and means that the market is already at its peak

I think most of the stock prices have gotten way ahead of the actual profits the companies will be declaring. So that's a cause for concern, definitely. Then again, our index is still above 3000 so bullishness may still be alive.

Against a backdrop of lousy economic data, I wonder if there should be reason to be bullish for next year.

One thing I'd propose you to look at is the level of money supply. These days I'm sure people are out hunting for good returns. If there is excess money, then obviously, some of them may find its way into the stock market, thus spurring another run. And it doesn't have to be directly invested in stocks. Money can find its way to mutual funds, UITFs, insurance policies, etc, and the fund managers of all of these will just invest them in either the bond market... or the stock market.

Dubai was supposed to be a shocker, but the markets (outside of Dubai) seem to ignore it. I think that if there's another country that faces debt payment difficulties, then it just goes to show that the world economy still has a long ways to go in terms of recovery. It seems people are ignoring the bad news, and perking up their hopes based on the little good news that's out there.

The problem for next year could be oil prices. Due to speculation that the world economy will recover, buying up the contracts and what not may cause oil prices to rise faster than most economies' ability to grow.

The problem will just begin when that time comes. So don't forget to set money aside for a stormy day. The time for joyous celebration has not yet arrived.

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.

The PSEi, what now?

While the DOW recently made a new high Filipino stock market investors only made new sighs.

Thanks to the drama unfolding between two previous lovebirds - Former President Erap and Current Senator Panfilo Lacson - TEL was rattled and its price fell, bringing with its weight the PSEi or the Philippine Stock Market Index. Perhaps it was also timing because the market needed a breather first, a healthy correction so to speak. How long... and low it will get, only time will tell.

The basura stocks are making a comeback and for this I am worried. There are only two reasons why basura stocks go up, IMO even though I only started investing in late 2006.

One is that it is a bull market and speculators just want to make more money now that liquidity is back.

Two, the bull market is near its peak, so it's time to be defensive.

I'm no expert so I won't proffer any forecast. If you want a good analysis though, please visit the latest technical analysis of the PSEi by Mr. Dytoc here.

Some other stock market findings -

Meralco, a recent darling speculative stock has fallen by the way side.

Gold is above 1000 but PX is just there.

TEL is down. So is the index.

There was news recently saying that we will have a mining boom next year. I don't know about you but last year they said that about 2009. Oh well.

I miss the days when I would trade using Technistock. It was easy to trade using that terminal. It was connected to the stock market so you could see the buying and selling momentum of any listed stock. Unfortunately, I'm now back to being a career person and just trade from time to time.

I now rely on four things -

Charts
Gut feel
Speculation
Common Sense

The third is not recommended for investors, only for traders with a stomach for risk. For investors, I still suggest you take up a course in Technical Analysis. Fundamental Analysis is also important but do you have the time to go over financial statements?

The second one, gut feel, may not be common to everyone. I don't pride myself of having an innate super ability called gut feel. I only have a batting average of about 70-80%. Usually my gut feel is held back by fear only to realize that I should have acted on it. That split second of indecision has caused me countless lost opportunities.

The last one, common sense, is based on your understanding of the news coming out of your government (where ever you are in the world). If you believe the numbers and think that the economy will grow then pick the sectors likely to be the first beneficiaries. Otherwise, just put your money under your pillow (although this isn't recommended).

Anyway, next week will be an interesting week. Also, keep in mind that the elections are coming. Unlike the US, election years in the Philippines cause the market to move sideways if my memory serves me right.

Thanks for dropping by my blog. I hope my post today is able to satisfy the readers who patiently visit my blog every so often.

Simple Arithmetic & Education Woes

I'm back and I hope my post sparks your interest.

In a different blog, I earlier wrote that the quality of Philippine education can be accurately assessed by the people who man (or wo-man) the department stores. Today, I realized that the cashier can also be a good indicator. In two separate instances (actually two fastfood joints), I was reminded that the quality of education in the Philippines is continually degenerating.

Probably this is my version of Freakonomics, but just by observing them you learn a lot of things. During lunch time today, I was with a friend and we went to a restaurant to (obviously) eat. It was already 1:00 in the afternoon so people were sparse and some tables were not yet cleaned.

We found a place to settle in and proceeded to the counter to order. After ordering, the comely cashier politely said, "Sir, total bill is Php 210.00."

I leafed through the bills on my breast pocket and realized that I had a 500.00 bill. I also knew that I had a couple of coins in my infamous coin purse (people who have seen it swear at me because I also store bills in it. It's a quirk).

So I replied, "I'll just give you Php 510.00."

The cashier just stared at me then accepted my bill. The cash register opened up and she took out Php 280.00 and gave it to me. "Here's your change."

For a moment there, I froze and my neurons sparked like wildfire sending signals to my mouth as it uttered the words, "Miss, shouldn't I get Php 300.00?"

The cashier was taken aback so her colleague came over and realized the situation. She asked her how much I gave and how much the bill was. The error was rectified thereafter. In what would be an embarrasing situation, her colleague took out a calculator and gently showed her why it was 300.00.

I thought that was that... who would have thought?

During the afternoon, I was to have a light snack with somebody.

Same scene, except that the restaurant was packed because it was mid-afternoon. After finding a quaint table, we decided to order already. After finishing our order, the cashier told me, "Your bill is Php 202.00."

I gave her a 1,000 bill, and she asked if I had 2.00 coins to which I answered in the affirmative.

The cash register opens and she gives me - surprise surprise - 790.00. What the...?

Anyway, it was resolved shortly thereafter.

Two times in a day? Maybe it's because of their harried state. But in the first instance, I and my friend were the only customer in line. I would believe this to be so for the second instance, but still....

People talk about the brain drain here and I couldn't agree more. In my current work, it's been a month already but I've only gotten a mishmash of so-so applicants for critical positions in my division. I thought that there are many people out there looking for jobs? It's either applicants are picky or there's no pool of quality applicants to pick from. So the story continues...

Buy and Hold a.k.a. Die if you haven't sold

Recently, one of Guerilla Investing's sources of inspiration - Mr. Warren Buffett - has been hit by a series of setbacks. His company's stock has dropped 34% from last year. He is now the second richest man (not that that's a bad thing) due to a shrinkage of over 50% of his net worth - down to just $37 billion from $62 billion a year ago. His flagship company, Berkshire Hathaway has just lost its top credit rating from Fitch.

Another of our idol, Mr. Marc Faber, declared that the strategy being employed by Warren Buffett "is already dead, and has been dead for the past 10 years." I've attended one of the former's talks here in the country before but it's a tad difficult trying to understand his English due to his strong Swiss accent.

Anyway....

I am sure that the span of Warren's career has saw him going through some of the toughest financial climates post-Great Depression. And time and time again, he's been able to prove his critics wrong. The only question now is whether this will still hold true 5 or 10 years from now.

Certainly those who follow the buy and hold method have seen their wealth dwindle by 40-50% from their original investment values. Even our local mutual fund companies have suffered a great deal in terms of their NAVPS.

I guess instead of focusing on the buy and hold strategy, it's better to stick to the other philosophy that Warren Buffett preaches - that is, to diversify. There's also a mainstream thought that you shouldn't invest more than you can lose.

These simple reminders hopefully stick with us even when the bull run returns. Everything moves in cycles.

Have a happy weekend!

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

Year Ender

Hello Readers! Glad to have you back here.

I have been having troubles with my schedules this December because this blog writer is in the midst of something. I won't elaborate other than this might be the last post for 2008. I'll be able to post something new once more probably by next week or the first full week of January.

Again, I'd like to have a reprieve from my "Waves of Philippine Business". I'd like to review some of my 2008 forecasts and see if I got any right.

A few of my business predictions were wrong, notably my prediction of the revival of the semiconductor business (our exports sank). Who'd have thought that the US economy would be so bad?

A prediction I got correct was the launch of a new financial product. This happens to be the capital-protected insurance product being sold by AXA and Sun Life of Canada.

Another one I got correct was the Mining bust (look at the share price of Atlas Mining). And then there's my comment on the food business. Malls are packed with people, but most of them aren't buying stuffs... they're eating.

This year, there were two problems - crazy inflation and a lousy economy.

I would think that 2009 would be even worse. During the last quarter of 2008, more and more US companies signaled job cuts. The effects of the job cuts on their economy might be felt more by 2009 (if it hasn't yet already). So brace yourself for next year!

To give a ray of hope though, when everybody's so negative, it's the case that most company profit targets have been scaled down. The consequence of this is that if companies beat their forecasts, stock prices will soar. When stock prices soar, then your investments will also start recovering.

I'll give my fearless forecast for 2009 in my next post.

Before I bid adieu to 2008 though, I'd like to critique some of the forecasts made by investment bankers January of 2008.

The Peso will reach 38-40 by end - 2008 - DEBUNKED
The PHISIX will have a new high - DEBUNKED
NYMEX Crude prices will reach 200 a barrel - DEBUNKED

Investment bankers don't have crystal balls. If they had, most of them would have shifted careers prior to their company's closure.

In the end, it's the tried and tested simple investment rule that matters. In Guerilla Investing speak, we call it, "Have a SIS."

S - save
I - invest
S - simplify (your life)

Happy New Year!

Investing in the Time of Financial Cholera

Since I won't be able to post anything original (again) this Friday, I thought maybe I'd share with new readers two of my previous posts that are worth your while. Both of these are mostly applicable only to the Philippine setting, but I'm sure they're good reads... modesty aside =p

The first is entitled "Investing in the Time of Financial Cholera". This is a post I wrote March of this year. Incidentally, this also came out in the Business Mirror. I used to contribute articles to the newspaper while I still had the time. It came out March 10 of this year. Reading it would give you a broad view of how I look at investments.

The Financial Cholera has already reached epic proportions with most markets down by a whopping 50% on average.

The second one is entitled, "White Lies Beneath". This is my article, which also came out in the Business Mirror, on investment scams.

Enjoy and hope to see you back here next week! :-)

The Waves of Philippine Business P. 5

Healthcare, the next wave

Last week I mentioned that the next wave for Philippine business could possibly be in the arena of healthcare. You may be wondering, healthcare? Didn't we just send off the last batch of graduating nurses abroad?

While the local healthcare system is certainly needing of more nurses, it makes sense - at least to me - that this is the plausible next wave for business opportunities. One must remember that healthcare is a very very broad word that carries with it a lot of sub-industries. Which is why it's worth noting them down.

Let me name them -

Health Insurance
Health Products
Health (ier) Foods
Hospital Care
Nursing Home
Cheaper Medicines
Medicinal Alternatives

In fact, healthcare may also encompass other industries like dermatology clinics and the booming wellness clinics like spas. With that in mind though, it seems that I am again, behind the curve.

Better Late than Never

Yet, sometimes being behind the curve has its benefits. If you're the pioneer in a certain industry, you almost always have bigger challenges to surmount. This means then, that you also have to have more capital and tons more amounts of perseverance, to survive. Of course, the flipside is that the returns are much higher. The reason is that you have to teach your target market and to acquaint them, and to convince them that they need your product / service.

This brings to mind Smart Money. Smart Money was launched sometime in the earlier part of this century, and to my knowledge, it flunked. This year, they relaunched the product with heavy TV advertising. I wonder if it's made inroads already into the psyche of Filipino consumers. I think that mobile commerce is a lucrative business (more on this in a future post), but right now, the market is still small.

The critical base - the masa crowd, believe it or not, are important in sustaining any business. Consumer goods companies need them to survive. SM needs them to survive. Tutuban and 168 Mall needs them to survive. Since a majority still dont have access to Internet in their homes, it will take more time for mobile commerce companies to really fly in this country.

The other market for mobile commerce - the middle class market - would be a good target market. But in my opinion, I think they are just not ready yet for mobile commerce. Besides, the supposedly cheaper prices of Internet cannot match the vastness of the catalogue (and of course price) of products found in Divisoria. People still brave the horrendous traffic and pickpocketers just to find a good bargain. Moreover, you can't try on a shirt or a pair of shoes on the net now can you?

What am I trying to drive at here?

While using Smart Money alone as an example is not a good indicator, I am relying here on pure gut feel. A gut feel that tells me that being the first isn't always the brightest idea. Especially for an SME entrepreneur.

As you can see, being the first may have its advantages; however, it also brings with it a confounding set of problems. Being behind the curve, albeit not too behind, will allow you to cash in on a certain market without having to put up an insane amount of capital.

Business Cycle

Business will always come in cycles, no matter what an optimistic economist may say otherwise. The current housing problem in the United States is nothing extraordinary, you can't keep on buying houses. There's got to be a plateau at a certain stage. It's what businesses do during the plateau stage that ensures its survival.

The business cycle usually comes in four stages. The infancy stage, the growth stage, the maturity stage and the decline stage. The length of time per stage depends on business to business, industry to industry. Apart from that, you have to know also if there is a decline stage at all for a particular industry.

So far, the telecoms industry is in a prolonged maturity stage. I doubt that there'd be a decline stage in the foreseeable future. People need to communicate. The decline stage though, will come for a particular type of technology. Like how pagers were wiped out from the face of the earth with the entry of the more compact mobile phone.

More in my next enry. Thanks for dropping by!

** I'm posting later than Friday, for that I apologize. I'm busy doing something right now and I have to prioritize them over my blogging. Thanks for dropping by :-)

The Waves of Philippine Business P. 4

OFW Remittances Revisited

No one should belittle the impact OFWs have made for the country. Obviously, having a lot of OFWs also signifies that there is an underlying fundamental problem within the country. Nonetheless, they are and will continue to be the driving force for the local economy.

I discussed about how - knowingly or unknowingly - we have moved up the value chain in terms of talent exports, by sending engineers, interior designers, and recently, nurses.

I would like to explore how OFW remittances have also moved up the higher value spending chain.

It used to be that remittances brought back home would go to necessities - food and clothing. The first high value product were the household appliances, foremost of that was the TV. I was blessed to have travelled abroad while I was still young. I distinctly remember a lot of our compatriots sending back TV sets. While waiting for your baggage at the luggage counter, you'd see a lot of them being ferried out.

Fast forward to the present and now OFW remittances are being used to pay for college education, automobiles, and until recently cart franchises and real estate. As I've said in the second part of this series, an important charting tool to forecast what the next Philippine business wave will be is to understand where and what OFW remittances are being spent on.

However, you don't always need to have the latest data for you to know the answer. You just have to be more perceptive of your surrounding. Take for instance the franchising industry in the country. The franchising business in the country is said to be worth an estimated 15 percent of the annual (Philippine) retail sales of roughly $5 billion. Where did the money come from to fuel enormous growth rates for the franchising industry? Why the OFW remittances of course.

Even though most of our overseas Filipinos have established their lives offshore, I don't doubt that when they are near retiring age, they will return to their homeland. But since they know the value of hard earned money, they don't want to come back here empty handed.

It is for this reason that they have setup a business for their children (or for themselves). That way, they'd still have a source of livelihood once they are here. Some OFWs don't wait until retirement age to come back. These people build up their capital and come back here to put up their SME's.

If business does not suit their tastes, then a roof above their heads is something that holds mass appeal. OFW remittances, proving their economic clout once again, fueled the growth of the local real estate sector. With the burdgeoning supply though, it remains to be seen if this sector will continue to post record gains. Demand has to plateau and it will take a number of years before demand catches up with supply. I touched lightly on the property sector a few posts back.

In tracking the progress of OFW remittances, I project that the next wave of growth would be in the arena of investments. This won't necessarily translate into instant huge volumes in the local stock market though, chap. But the remittances have found their way into the subscription of retail investments like mutual funds and unit investment trust funds.

In fact, I am behind the curve already. Based from the SEC, in the year 2000, our mutual fund industry was already valued at US$ 161M.

These three - business, real estate and investments - are where the money is and will be. Among the three, business, particularly SME's will continue to thrive as opposed to real estate and investments. Cohesively, all three are considered investments anyway. Investments don't just mean mutual funds and stocks and bonds. They also mean putting money in real estate or a going concern. Since we have been in this Investment Wave for quite some time already, probably 3-5 years, growth won't be as insane as in years past. So it's important to extend our lenses even further.

In my bold attempt at trying to be a pseudo business guru, I think the next logical wave would be in the area of healthcare. I'll talk about that in my next entry.

The Waves of Philippine Business P. 3

I mentioned in the first part of this series, that hindsight is 20/20, and foresight is ensuring you still have 20/20. It's about being prepared for the future. It is a bold attempt for me to be discussing about the waves of Philippine business. I'm no business guru. I just have a penchant for observation and deep thought. Quiet dissertation, so to speak.

I mentioned also that the biggest and most important indicator are OFW Remittances. This is the single most crucial factor that drives the Philippine Economy. Sure consumption is equally important. But to put things in perspective - if we are to illustrate it - the Philippine Economy is like a jeepney.

Consumption is the jeepney driver, OFW remittances are the passengers. The more passengers the jeepney driver has, the bigger his consumption power is. When he sees a lot of prospective passengers on the street, he'll drive the jeepney faster to finish his first trip and go right back to picking the next batch of passengers on his second trip. The Philippine Economy explained.

OFW remittances are the sole reason why the Philippine economy continues to exist. That's why even with high corruption level, bad business practices, rising poverty level, and dwindling natural resources, we aren't going under anytime soon. Obviously, all of these negative factors will catch up with the country one day, but when? The answer is up in the air.

I quoted John Gokonwei earlier, mentioning that we are a country that consumes everything, and produces nothing. Reading between the lines, it means that we have a low manufacturing base in the country. This is beacause most have migrated to investor-friendly China in the past few years. Apart from that, the lack of labor unions in that country allow foreign companies to scrimp on wages.

Even if we don't have a diverse set of manufacturing plants in the country, we still export our number one produce - human talent. However, unlike plants that manufacture goods in just a number of days or weeks or months, ours take years. It takes 20 years to send off able workers. Anyone younger than that would be considered illegal.

Since population is a growing resource for us, there are many who have gone abroad already. There is just so many Filipinos in that age range. So in understanding OFW remittances and OFW exports, we have to know, how many productive individuals are in that age range? And the next important question is, when will the existing ones retire? When they retire, do they plan to come back?

You can see where question leads to, but let's skip that for the moment.

As I've mentioned, even though we don't have a lot of manufacturers here, we are still exporters by my definition. Exporters of labor. But what have you been noticing? We don't just export DH (domestic helpers) anymore, we now export healthcare professionals, apart from engineers or IT professionals.

And this is something that is interesting to talk about. It's basically a hindsight analysis. In most manufacturing countries, they must go up the value chain to survive. China won't survive by just producing cheap garments. They must venture also into technology.

In the same way, our labor exports have gone up the value chain - by producing nurses. And like high value goods, our high value professionals produce/remit more dollars back home, thus driving our economy even more. With growing competition from Indonesia of domestic helpers, (at least in Hong Kong) it's interesting to note that we have shifted our human exports to a different industry.

It is in these analyses that will spring forth a slew of ideas. We'll discuss more in my next entry. Happy Halloween!