Stock Market Strategy and Technical Analysis

I just received an e-mail from Apple Grace asking so many things about stock market. While I cannot asnwer all of the questions in one article because explaining the answers would require a lot of detailed pages and it may confuse you rather than enlightened. 

Here you go.

I came across your blog and i really hope you can help me "test the stock market waters".

 I have been working outside the country since 2007 and i just started to save a little for myself on august 2011. I have signed up with citiseconline under EIP Program. This is long term investing,right? Somehow, I understand how it works. However, I want to be "risky" and try trading but then, i am scared to begin.

Yung takot na namamayani pgdating sa pagsuong sa lugar na hindi natin kabisado ay normal lamang. Actually, karamihan sa atin ay natatakot lumabas sa ating mga comfort zone kung kayat nawawala ang oportunidad na dumarating sa atin. Kapag dumating ang oportunidad sa iyo, huwag mo nang bitiwan o pakawalan dahil hindi na ito babalik pa.

Sa stock market ganoon din ang proseso. Karamihan sa atin ay natatakot na maging risky dahil baka maubos lamang ang perang ating pinaghirapan.Kaya’t ang advise sa atin ay maging longterm investor para hindi ka na magisip pa kung bababa o tataas ang stock market. Bili ka lang ng blue chip companies then, hintayin mo na ang retirement at siguradong lalaki iyon at kasya sa iyong planong around the world travel kapag may edad ka na.

Ako naman, ang aking strategy sa stock market ay diversified strategy. Minsan, bumibili ako ng stocks kapag pababa ng pababa tulad ng nangyari sa Megaworld(MEG) last December 2011 dahil lang sa isang theory na crowded na ang property business.Well, sa ngayon balik siya sa dati at siyempre kumikita ako.(contrarian investor)

Pangalawa, binili ko rin yung Century Properties (CPG) stocks kahit bago lamang siya dahil nakabili kami ng aking asawa ng munting bahay mula sa kanila. I know how their marketing works and their property portfolios. So I bought it even though it is a very risky move on my part and that I may very well lose all my money with them. Kakalista lamang niya sa stock market last year through backdoor listing and nobody knows how it will perform in the near future since there are no financial statements yet. (Guerilla investor and taking risk).

Pangatlo, may stock ako sa FPH which is masyadong mabagal ang takbo. Ito naman yung stocks ko na mura as far as P/E ratio is concerned. Also ito yung stock ko na pangmatagalan dahil matatag ito, yung business which is energy and power is very defensive and not cyclical. Dividends are good also. (value investor).

 I will not set aside my EIP. I will trade small amounts while maintaining my EIP investments. I just do not know how it works. I do not know even how to project stocks, I do not know how to anticipate if it will fall down or plunge deeper or somehow, if it can recover.

Kung mahilig kang magbasa ng balita sa internet tungkol sa stock market, marami kang mababasa kung tataas o hindi ang stock market. Nagkalat ang mga kumpare at kumare ni Madam Auring.Maraming nanghuhula kung tataas ba o hindi ang stock market.

Technical analysis will help if a stock market will go down or up but it is not absolute.NOBODY can predict if a stock market will go down or up otherwise, siya na ang pinakamayamang tao sa Pilipinas dahil pwede siyang mangutang sa bangko, buy the stock and then sell at a profit kung sigurado siya na tataas ang stock market.

Fundamental analysis also is a guide in predicting the stock market. Macroeconomic factors like OFW remittances, consumer spending, interest rates, inflation, PPP, business environment, political settings and regulations will all affect in one way or another the stock market. Ang ating bansa maganda ang fundamentals kung kayat madaming mga foreigners ang nagiinvest sa atin. Tingnan mo ang ating stock market, it is the best perfoming stock market in the world sa taong ito. We need to give the credit where it is due.

Basically, what i understand is that, you will buy stocks then you will sell it if it goes up. Anticipation is what i do not understand. Will you help me? Also, can you suggest companies that i can buy stocks from that are not so risky? Trading is very risky while investing is not. Investing is synonymous to the adage "slowly but surely". But I wanna try trading. I hope you can help me understand the basic fundamentals of trading and how can I trade with minimal risk as a first timer.

Ok. My favorite technical analsysis that I used are MACD and RSI. Madaming technical analysis ang gamit ng mga traders pero itong dalawang ito ang kadalasang ginagamit sa pagaanalisa ng trend sa stock market. Halimbawa, yung RSI, kapag 30 or below na ito ibig sabihin, oversold na ito. Tingnan mo yung RSI chart sa baba, naging less than 30 ito kung kaya bili na ako rito tapos benta after a few days. Kapag nakita ko ito, binibili ko yung stock dahil sooner babalik din ito sa kanyang dating range. Kapag 70 or more naman ito, overbought na, kapag nakita ko ito, antabay na ako sa preso nito araw-araw. Habang tumataas pa, hindi ko muna ibebenta pero oras na bumaba ito, sell na.

Sa MACD naman, ang titingnan ko ay yung kulay blue.Kapag yung kulay blue ay pumaitaas sa kulay yellow(Minsan red yan), magandang senyales yan. Ibig sabihin antabay ka na kung tataas pa ito. Kapag yung kulay yellow naman ang pumaitaas sa kulay red na linya, medyo maging alerto ka na dahil baka bumaba na ang presyo ng stock mo.

Alam kong hindi ko nasagot lahat ng katanungan mo. Pipilitin kong ipaliwanag sa pinakasimpleng pamamaraan ang mga technical analysis sa itaas sa blog na ito. O kaya naman ay pumunta ka sa OFW Investor para sa iba pang katanungan.

New PSE Trading Hours

The PSE trading hours starts at 9 am to 12 nn then from 1:30 pm to 3:30 pm Philippine time. This is good news to all of us because we don't have to wake up very early just to catch up with the trading hours of PSE.

In Dubai time, it will be from 5 am to 8 am then from 9:30 am to 11:30 am. Normally, I need to wake up at 5 am just to buy or sell some shares.

Now, I can do it even during the morning coffee break in our office.

This is a big comfort to most OFWs since this was done to accomodate us more in the stock market. Slowly, OFWs are now beginning to see the potential of the stock market.

Indirectly when we invest in the stock market, we are helping our country. Talk about patriotism in a lesser form.

Also, PSE is planning to join the crossborder trading with our neighbors. This means that we can buy shares of some ASEAN countries through PSE.

Source: PhilStar

Construction, Infrastructure and Allied Services Companies - 1st Part

With the advent of the PPP this year, we will take a look with the Construction, Infrastructure and Allied Services companies that are listed in the PSE.

http://www.flickr.com/photos/17155762@N00/1901721

Below is the list taken from www2.pse.com.ph. Some of the info were taken from the companies websites.

 AGP INDUSTRIAL CORPORATION

According to the quarterly report for period ended Sep 30, 2011 submitted to PSE, The Company has no operations since 1998 and, as shown in the accompanying financial statements, the Company continues to incur losses as the current management is assessing and identifying investment opportunities and various options regarding operations that the Company may undertake in the future.No operations.

CONCRETE AGGREGATES CORPORATION

The Company supplies the construction industry with processed aggregates, ready mix concrete, bituminous concrete mix, and pre-stressed/pre-cast concrete. Website: http://www.cac.com.ph/

Accounts                               Unaudited January to Sep 2011                      

Revenue                                11.45 million                                                       

Net Income                           6.56 million

P/E Ratio(Using Year-End-EPS)  is 72.38. Too high.                                    

EEI CORPORATION

EEI is a member of the Yuchengco Group of Companies and has been involved in the installation, construction and erection of power generating and transmission facilities, oil refineries, chemical production plants, cement plants, food and beverage manufacturing facilities, semiconductor assembly plants, road, rail and bridge infrastructures, and high rise landmarks, among others. It also operates a steel fabrication plant. Website: http://www.eei.com.ph/

Accounts                               Unaudited Jan to Sep 2011              

Consolidated Revenue       6,236,866,000                                     

Net Income                           581,529,000

P/E Ratio(Using Year-End-EPS) is 6.75. Worth digging further.                                        

FEDERAL RESOURCES INVESTMENT GROUP, INC.

Used to engage in the manufacture, marketing and distribution of various adhesives and sealants and other chemicals catering to an assortment of hardware, construction, do-it-yourself and other applications. In order to tap potential business opportunities, the Company deemed it necessary to broaden the scope of the Company's primary purpose by changing it to that of a holding company to allow for greater flexibility in its investment options.

Revenues for 2010 and 2011 consists of interest income only. Enough said. 

FORTUNE CEMENT CORPORATION

Fortune Cement Corporation (FCC) was incorporated in 1967 and is engaged in the production and sale of ordinary Portland cement and Pozzolan cement. It completed its new Line II expansion program, increasing the total production capacity by 140% to 1.8 million metric tons of clinker, or about 50 million bags of cement annually. With the exception of the province of Rizal, FCC's plant is currently the only cement plant within the Calabarzon growth corridor.The Company is registered with Board of Investment as an expanding domestic producer of cement on a preferred pioneer status. As a registered enterprise, FCC is entitled to various incentives with respect to its registered expansion project, which includes an income tax holiday for a period of four years commencing 1996.

Can't find anywhere. Perhaps it is delisted already?

HOLCIM PHILIPPINES, INC.

Holcim is one of the world's leading suppliers of cement and aggregates. It holds interests in more than 70 countries on all continents. Holcim Philippines is a member of the Holcim Group. It is involved in the manufacture, sale and distribution of cement and ready mix concrete. It is committed to managing resources responsibly and working with communities to develop sustainable options for their future. Website:http://www.holcim.com.ph/

Accounts                               Unaudited Jan to Sep 2011              

Consolidated Revenue              16,496,859,000                                  

Net Income                                 2,066,965,000 

P/E Ratio(Using Year-End-EPS) is 17.33. Too high but 2010 P/E is 26. We'll check firther 

Based on the list above, I would like to research further on EEI and HLCM.

We will see the next list on my next blog...

PPP, GDP and You

Since it is the start of the New Year, I would like to focus my research on the construction and infrastructure industry. Last year, most of the PPPs (Public Private Partnership) got delayed except for one project which was awarded to Ayala Corporation last December 2011. This year, I am expecting an explosion in the PPPs to be rolled out.

According to PPP Center, there will 154.47 billion worth of PPP projects in 2012 that will be offered to corporations. This is a good sign for our economy because it will help in creating more jobs for us. At the same time, the GDP growth rate will increase from what we had last year. According to NSCB, , the GDP growth for the first nine months of 2011 is just 3.6% only, way lower than the estimates by economists and bankers at 5% or more. However, NEDA said there is a good chance that we achieved a 4.5 to 5.5 growth in 2011 once the 4^th quarter of 2011 is computed also.

I bet that the GDP growth rate this year will be more than 5%, considering the huge backlog of PPPs being rolled out this year. I do hope there will be no more delays this time.

Once these PPPs are executed, jobs will be created.

For example, the bridge in your town was destroyed by typhoon Sendong last year. Nobody can cross to the other side of the bridge because the river is swollen and the water is too deep. The government said they will erect a new bridge so that the commuters can pass by smoothly and education of the children would not be hampered.

Thus, the government announced an invitation to bid for the construction of the bridge through DPWH. Several companies made their bids to the government in the hope of getting the privilege in constructing the bridge. After a week of checking and scrutinizing the bids, the government announces the winner. The winner is Tulay Construction Company (TCC).

TCC began to mobilize its personnel upon receiving the Notice to Proceed from the government. It bought cement, sand, gravel and steels. New cranes and trucks were purchased also. The suppliers may hire new workers to keep up with the demand of TCC. These purchases made by TCC are helping the economy and pushes the GDP upwards.

TCC also began hiring additional laborers, masons, foremen, engineers and architects in support of constructing the bridge. They post the vacancies in your town hall and immediately the news came to you. So you went to the town hall to see the vacancies and upon seeing the opening for masons, your aura suddenly became bright. It sparks something in you because you know that you can do the job since you have a big, muscular body.

You applied for the job and you were hired instantly. The salary came and you now have a chance to buy your favorite Levi’s jeans which you have been dreaming of since last year. Your coworkers also bought some Levi’s jeans.

Because of PPPs, you were able to get a job and a source of income. Before, you were not able to buy a Levi’s jeans because you don’t have a job but now you can buy some stuff you can’t afford previously. Since you and your coworkers are new customers of Levis, the jeans company is now manufacturing more jeans to cater to their increasing customers. This increase in jeans production will push the GDP growth rate upwards.

Imagine how many Filipinos will be able to buy jeans if the 154.47 billion PPPs are executed this year. Perhaps, hundreds of thousand Filipinos will be able to work and buy goods and services.

How about us who invest in the stock market, how can we benefit from it? Well, it’s time to research and analyze about the construction companies bidding for these PPPs. Most likely than not, we will stumble upon a good prospect and we will buy it.

How to Sell Stock after 20 Years of Accumulating

I received an e-mail from Josef Gamboa asking me if after 20 years of buying and accumulating stocks, selling the stocks won’t be a problem. Well, the answer is selling the stocks 20 years from now is as easy as buying the stocks today. Why did I say that? The stock market has been here for decades already and it is still existing and growing. The history tells us that stock market is here to stay. So for all of those people out there, who have been asking themselves if selling the stocks twenty years from now is not a problem, just sit back and relax.

Peso Cost Averaging

What Josef wanted to do is that he will just keep on buying his favorite stocks every month. He doesn’t care whether the stocks are up or down because in the long run, the prices will have an average price that is not too high or too low. It sits right there in the middle of lowest and highest prices of the stock. This type of investing is called peso cost averaging. This type of investment is good for the Filipinos who don’t know much about the stock market. In fact, some of the great investors prefer this type of investing.

Do you know Warren Buffet? He is arguably the most popular investor of all time. He is still alive mind you. He is one of the richest men in the world. He will buy stocks that he believed are cheap and then sell it after a decade, or two decades or three decades or sometimes he doesn’t sell it anymore. One of his mottos is “buy and hold forever”.  I hope one of us will become like him. Warren Buffet doesn’t do peso cost averaging but the similarity between his investing style and peso cost averaging is that when you buy a stock, you sell it after a long, long, long, long years.

So to Josef, what you planned to do is actually good. I know most of us are busy with our day jobs and we have limited time to study the stock market. Thus, peso cost averaging will most likely work for all of us. The system is simple but effective.

Buy Blue Chip Companies Only

In order to sell your stocks immediately after 20 years of accumulating them, you need to buy blue chip stocks only. Buy solid companies which will last until the next 50 years or so. Yes, buy blue chip companies only and ignore the rest. These big companies like PLDT, Ayala Land, BPI, Metrobank, URC, etc have big market capitalization. If your chosen company has a big market capitalization, you have a bigger chance of selling it immediately, because you have a lot of buyers that will buy that stock which includes the foreigners.

So how can you determine these blue chip companies? The best way to get the list of these companies is to check the Philippine Stock Index. This is the list of the 30 biggest companies in the Philippines otherwise known as blue chip companies. Sometimes the composition changes because some companies have met the requirements meted by PSE.

4 Steps in getting those 30 companies included in the Philippine Stock Index

         1.  Go to www2.pse.com.ph (actually this is the old website of PSE, but I prefer to use it because of my familiarity with its functions).

         2.   Click Stock Quotes

   3.  Click PSEi

     4.   The list of blue chip companies will appear

 

Ripe old age, Sell the shares and enjoy!

Ok, after 20 years you have decided to call it quits and enjoy the hardwork you have toiled in your entire life. You are now ready to retire and sell your stock investments.

As I have said above, in order to sell your stocks immediately, you must own blue chip companies only. For illustration purposes, you bought Megaworld Corporation for the last 20 years and you are ready to sell it. How in the world can you sell those stocks?

Alright, if your stockbroker is Citiseconline which I am very familiar with, just click the sell button, type the current price and sell all your shares. Sometimes, in just a matter of seconds, not minutes, your transaction will be executed and voila, your shares are now transferred to you cash account. Just ask Citiseconline to transfer the money in your bank account.

              5 Steps When You Sell Your  Stocks on Citiseconline

1.     Click Trade/Portfolio

2.       Click Portfolio

       3.       Click Sell

       4.    Click Sell and Fill up the blanks

      5.   Enter password then click place sell order

After 20 years, enjoy your retirement, Josef. Give me a note when you reach those 1 million pesos in your stock transactions.

Real Example of Margin Loan

Last December 2, 2011, I borrowed money from Citiseconline and bought SCC shares. This kind of loan is called margin loan. I bought the stock at 209 per share and now the current price is 213 already. I plan to sell it on Monday so that I can take my profits from it.

Make no mistake about it, margin loans are too risky for investors and this is not for everybody. You need to seek the advice of your consultant before plunging into it. In fact, if you don’t know anything about stock market, I advice don’t do it. You need to know a lot of the seasonality of the stock market, the fundamentals, the technical and your own research.

I just wanted to share how the computation of the interest on this margin loan. Let me provide a real example on this. But before that, just remember these two things. Borrowed money + interest = Total cost. Just stick to that. Borrowed money + interest = total cost. My goal is to sell the SCC shares more than the total cost I borrowed and take the profit.

Computation of interest is like this: (Amount Borrowed * No. of Days * 18%) / 365 days) + 12%VAT.

OK, here is the real example of it. If you have an excel sheet and just copy the formulas I presented here, you will have a clearer picture when you do your own computation.

Borrowed Money	100,615.95
No. of Days of Borrowed Money	(Dec 11 minus Dec 2)                                  9 days
Interest	18% per year
No of Days in one Year	365
Interest	(100,615.95 x 9 days x 18% ÷ 365 days)      446.57
VAT	(446.57 x 12%)                                             53.59
Total Interest Cost	101,116.11

My total interest cost for 9 days is 500.16. When you sell, you incur tax again. My previous computation on selling transaction cost is 0.795% of the stock value. So, that is another cost to consider. If I will sell my 480 SCC shares at 213, the total value is 102,240. Selling cost would be 812.80 (102,240 x 0.795%).

Stock Value - Total Interest Cost - Selling Cost = Profit

102,240 – 101,116.11 – 812.80 = 311.09

My profit for 9 days is 311.09 without spending any pesos. Not bad. My prepaid card for the week is covered because of this. Wink.

If you are not prepared to go through the emotional roller coaster ride just in case the stock go down, ignore this margin loan.

“There are risks that you cannot afford to take, but there are also risks that you cannot afford not to take”.

Real Example of Cash Dividend

Today, I received a notification from Citiseconline, my online stockbroker saying that the cash dividend declared by Security Bank will be credited in my account at the end of the day. Wunderbar!

Please take a look at the notification of the cash dividend I received from Citiseconline. I received around 1,000 pesos from SECB. Taxes already deducted.

December 6, 2011   Attention: RANDY XXXXX

 This is to inform you of your cash dividend entitlement with details as follows:  

Account No. : XXXXX

Stock Code : SECB

Cash Dividend (Php) : 1.00 / share

Ex-Date : November 3, 2011

No. of Shares Entitled to Cash Dividend : 1,080

Gross Amount (Php) : 1,080.00

Less Withholding Tax (Php) : 108.00

Net Amount (Php) : 972.00

Cash dividend is money paid to stockholders, normally out of the corporation's current earnings or accumulated profits. All dividends must be declared by the board of directors and are taxable as income to the recipients.

Before I received my cash dividends, there are four dates that a cash dividend must walk through. These are the declaration date, ex-date, record date and the payment date.

Let us take a look at the declaration of cash dividends by Security Bank last October 21, 2011 taken from www2.pse.com.ph.

Date : 10/21/2011

Content : Please be informed that we received the BSP approval of the regular semestral cash dividend of P0.50 per share and special cash dividend of P0.50 per share of Security Bank Corporation. The record date for SBC's P1.00 per share cash dividend is on November 9, 2011, while the payment date falls on December 6, 2011.

CASH DIVIDEND (REGULAR): CASH - P0.50 per share

EX-DATE - November 3, 2011

RECORD DATE - November 9, 2011

PAYMENT DATE - December 6, 2011

CASH DIVIDEND (SPECIAL): CASH - P0.50 per share

EX-DATE - November 3, 2011

RECORD DATE - November 9, 2011

PAYMENT DATE - December 6, 2011

1.     Declaration date – the date when the directors of the company announce that a dividend will be paid to stockholders. Also called the “announcement date”.  

a.     In our example above, the declaration date is October 21, 2011. Dito inaanunsyo na may dibindendong paparating sa mga investors.

2.     Ex Date – this is the cut-off date in which the sellers are still entitled with the dividends. 

a.     In our example above, the ex date is November 3, 2011.             Kung bibili ka ng SECB stocks sa Nov 3, 2011, hindi ka na kasali sa bibigyan ng cash dividends dahil nga ang cut-off ay Nov 3, 2011 o ang tinatawag na ex-date. Pero kung ikaw naman ang nagbenta ng stocks noong Nov 3, 2011, kasama ka pa rin sa listahan ng mga makakatangap ng dibidendo.

3.    Record Date – The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.

a.     In our example above, the record date is Nov 9,2011. Dito tinitingnan kung sino ang mga may hawak ng SECB stocks as of November 3, 2011 para malaman ng kumpanya kung sino ang mga dapat bayaran ng cash dividends.

4.    Payment Date - The date on which a declared stock dividend is scheduled to be paid.

a.    In our example above, the payment date is Dec 6, 2011. Dito sa araw na ito, babayaran ang cash dividends. Tulad ko, ngayong araw ako binayaran ng cash dividends dahil yun ang nakasaad sa kanilang cash dividends declaration.

Cash dividends are one form of generating income from the stock market as a stock investor. The other one is through capital appreciation. If you like to have a layman’s perspective on cash dividends and capital appreciation, I am recommending that you read How The Stock market Works!. In that article, I laid down the principles of cash dividend and capital appreciation in its simplest form.

Dividends are also important in picking stocks. The higher the dividend yield your chosen stock is, the better for you.