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.

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.

Fall From Grace: The Horror Story of Banks

BREAKING NEWS - Lehman declares bankruptcy, Merrill Lynch sold, AIG in trouble


This has been a dull week for the local stock market. The rescue of Fannie Mae and Freddie Mac spurred a lot of kneejerk buying in many markets just this Monday but failed to entice our own. In fact we closed down from last Friday's close. It signaled what would be the performance for the market this week, boring - dismal - disappointing.

Overheard at the exchange: "This is better than counting sheep!"
(Photo Courtesy of BusinessWorld)

It's been one year already into the so called subprime crisis and US banks have been falling like dominoes ever since. All the big US banks - Citibank, Merril Lynch, Bear Stearns, Lehman Brothers, AIG - (apart from others) have seen their share prices fall off a cliff. Although I live thousands of miles away from the US, and am by no means an expert on the banking sector, (most especially that country's), it lends me to ask one simple question,

Should I entrust my money to a bank?

When I watch CNBC, and I hear all the commentaries from stock brokers, analysts, and research reports from the Citibanks, Merril Lynches, etc of the world, advising you to buy this (stock) sell this (stuck), I wonder, should I still be listening to these guys? It strikes me as quite odd when the big banks that have "asset management services", "investment advisory services" are now the ones in need of asset management and investment advisory advice. It is pure irony.

If I entrust my money to an institution that supposedly gives me the opportunity to grow my wealth, and then it severely disappoints by eventually wiping out my entire capital, wouldn't it be better for me to just hold on to cold, hard cash instead? The question that begs to be asked is,

What do banks do with your money?

Locally, I think our banks have low levels of exposure to US subprime securities. That is good. But with service that sucks, sometimes I wonder to myself if I should just put my money into a going concern instead. At the end of the day, banks may have a good business purpose for you, but it's the oldest tool of using OPM (other people's money). This could explain why our taipans almost always have their own banks. It could have been a spring board for them to wealth accumulation.

Lucio Tan - Allied Bank & PNB
Henry Sy - BDO
John Gokongwei - Robinsons Bank
George Ty - Metrobank & PSBank

The ongoing turmoil in the US financial sector should open the eyes of the banking consumer to be more vigilant about where their money goes to. Lehman Brothers is the new casualty in the financial turmoil, and people still don't know if there will be others who may follow the road to financial RIP.

I think the next time I enter a bank and some bank personnel talks to me about "investment advisory", "asset management", I'll just smile and say "No. Thank you."

I know where my assets should go, it's just that I do not have the time to do it on my own. The ones who are supposed to do that on your behalf are banks and investment institutions. But if financial institutions can't be trusted, who then can I trust? Maybe I should just forgo taking risks with investment placements and instead, place a time deposit and watch my money die due to inflation. At least, the principal does not die with the interest "gains".

Inflation, Up! Investments, Down!

I've confessed that I'm no economist, but I'm someone who tries to keep an eye on the economic numbers out there. It's a new practice for me actually. I only started to care about them when I began looking at investments.

GDP, GNP, inflation, etc. etc. These were terms and acronyms that drove me to sleep during my college days (hehe). I've never encountered an economics professor that made any sense to me, or at least taught me the relevance of knowing economic numbers. Further to that, there are only a handful of professors who can really teach beyond what is in the textbooks. But that's a subject for a future blog entry.

According to the news, Philippine inflation rose to 9.6 in May. This was a mark higher than the one registered in April, which was 8.3. Based on past history, this was the highest inflation rate in 9 years. The main culprit was food, which together with tobacco and beverages, comprise a big chunk of the inflation formula. Commodities, primarily oil also helped to increase the inflation rate.

Le Stuck Market

The news about the 9 year high inflation was headlined everywhere, and our stock market, already posting double digit declines from year ago, bled even further. Most of the stocks are at their 52 week lows already. Based from that alone, stocks should be zero risk right? It depends.

Megaworld is a good example. Prior to this month its 52 week low was somewhere in the 2.00 range. Look at its price now, 1.82. If you were of the school of thought that believed that 2.00 was a nice entry point, I think you'd be crying and cursing by now.

Benpres is another example. 2.30 was probably the 52 week low. it's now down to 1.80. Almost the same price as Megaworld, but with a far worse bearish performance.

Of the two, Megaworld is about to finish its double top plunge. Next week should be an interesting week for this battered stock. Further decline will bring it to 1.50, and then there should be consolidation. There'll likely be some rally en route to 1.50, and investors are advised to be on the short term holding mindset or stay away entirely from Megaworld. I'm not buying nor recommending this stock as fundamentally speaking, the BSP might still raise interest rates, ensuring Megaworld's continued spiral.

Well, my college professor should've told us, "Learn your economics now. It will help you understand and anticipate the direction of the stock market." Anyway, back to my topic.

I can imagine the dilemma investors have right now. I checked on this site, and almost 99% of the mutual funds are down for the year. Bond funds will be in deep trouble next since most Asian banks seem to be inflation-averse. This means that interest rates will resume their upward trend. Time to get that loan you've been trying to postpone. (I don't mean get a loan now, but if you have a business or a personal need that warrants a loan, get one now while you still can).

Dissecting Inflation

My broker told me that inflation in the Philippines is reported as YEAR ON YEAR. That certainly piqued my curiosity so I ventured to this website. Upon further investigation, national inflation actually DECELERATED in May from April by 0.5 percentage point. Look at this for some boring but important information.

Well now, is that a ray of hope for us?

As that hackneyed phrase goes, don't believe everything you read in the papers. Actually, what's better is to read between the lines. Obviously a headline of "9-year high inflation" is more news worthy and sensational than say "Inflation slows month on month in May".

I attribute it to the government's efforts to cushion the price of rice during April. As you have seen, news on the rice crisis died down during that month up until the end of May. The news shifted to Meralco, and Free Texting. There should be a study on the effects of news on investments and the economy. There's probably a correlation.

Apart from the government's efforts, I figure that maybe harvest time is near? Or maybe rice has been harvested, thereby decreasing the price for rice. I searched over the internet, albeit minimally, and couldn't find the exact time of harvest. What I have uncovered is that in general there are 2-3 times of harvest per year for rice.

What's interesting to note though, based from this article, is that we were actually a rice EXPORTER during the much maligned administration of Ferdinand Marcos. Thanks to my history professor, I didn't know that.

We may have a reprieve for rice... for now. But what worries me will be the price of oil. Rumors are rife that it would reach 60 to 65/liter this year. So for those who have multiple cars in the garage, maybe you can sell it to me for a dime eh? Haha.

Until my next entry.