Thursday, August 22, 2013

It's Christmas Time in Stock Market!

Ber months are not yet officially here but I can feel the spirit of Christmas already. 

Actual+is+not+normal+%28a+tribute+to+Edward+Tufte%29
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The Philippine Stock Exchange Index (PSEi) plummeted by 6% today. After two days of non trading due to massive flooding around Metro Manila and a public holiday, the PSEi resumes trading in a bloodbath.
The fall of the PSEi is expected considering the region’s slide for the past few days. Philippine wasn’t spared from the onslaught.

Indonesia stock market (JCI) plunged by more than 8% last Monday and Tuesday. It technically hit the bear market as the fall from its highest peak is more than 20%. Thailand’s stock market (SET) dived by more than 6% for the past three days. Indian stocks (SENSEX) is down by 8% in four days.

The biggest drop we’ve seen in the PSEi recently was last Jun 13, 2013 when the market went down by 6.75%. Today’s drop has the same magnitude as it was back then. Basically, due to the three days of suspended trading, PSEi catch up with red numbers of the region’s stock market. We’re now at par with most of them.

Who in his right mind will jump in joy after seeing his net worth massively reduced through stock market? Nobody. However, if you are willing to ride out this slump and continue to invest every month of your salary while the prices are still down, then you’re likely earn a better return in the long-term.

My goal in stock market has always been long term. You know, I’m kind of establish this barat price to the stocks I’m following and believe me, this barat price I computed and calculated are now within the striking distance of getting hit.

Generally, I don’t care about the ups and downs of the market. At the very least, the period of holding should be ten years. However, there are instances when fate will favor you and the stock market will give you a chance to buy at low prices. Today is one of those days.
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So, while majority of the investors are scared to death on their reducing net worth and fund managers scrambling to find answers to the clients, we the long-term investors are relaxing in our home watching our favorite TV program or playing with our kids. The stock prices are at fire sale discount and life’s just getting better.

Happy days are ahead.

Saturday, August 10, 2013

Foreign Investments in the Philippines

During the last couple of months, we’ve seen an increased volatility in our stock market, the Philippine Stock Exchange (PSE). Our Philippine Stock Exchange (PSEi) went down from a high of 7,403.65 to a low of 5,678.73. That was a decrease of more than 20%!  Recently, the PSEi has recovered from its low and is now back to the 6.800 levels as of yesterday. Nevertheless, the correction had unnerved the investors and some have become doubtful on the recovery of the market.
 One of the major reasons of the sell-off in the stock market is the indiscriminate selling of the foreign investors. Day after day, week after week, the foreign investors are disposing their holdings from the Philippine stock market as if there is no tomorrow. The investors were spooked by the statement of the US FED chairman Ben Bernanke last May 22 who said “In the next few meetings, we could take a step down in our pace of purchases.” With just one sentence, investors immediately sold down their emerging markets portfolio which includes the Philippines.

Let’s take a look at chart below. Since May 22, the PSEi has fallen from 7,385 to 5,678 in a span of five weeks.


From May 20 to June 21, foreign investors have unloaded Php 11.8 billion worth of shares. As of July 26, foreign investors account for 51% of the market's traded value for the year to date. Since foreign investors make up the majority of the traded shares during this period, there is no wonder why the PSEi went down dramatically since May 22 when the foreigners exited from the market. 

Foreign investors' funds in the stock market are commonly referred to as Hot Money. They are called as such because of the short duration of their investments in the stock market. Stock market is just one of the financial instruments being targeted by the hot money. Bonds and other financial instruments whose favorable interest rates and exchange rates are subject to hot money inflow also.

The Philippines economic resurgence has been a widely circulated story. Investors are flocking to the country due to the improved fundamentals of the country. 

Take a look at the hot money table below. Except for 2008, foreign investors have been pumping money in our financial system.

Foreign Portfolio Investments (Hot Money)
Year
Amount
Y2013 1H
$1.55 Bn net inflow
Y2012
$3.90 Bn net inflow
Y2011
$4.10 Bn net inflow
Y2010
$4.6 Bn net inflow
Y2009
388 M net inflow
Y2008
$1.8 Bn net outflow
Y2007
$3.5 Bn net inflow
Source: BSP

The Quantitative Easing policy adopted by the central banks around the world have pushed interest rates lower. As such investors have looked at countries whose interest rates and exchange rates are better. Philippine's currency is strong and the investors are taking an advantage of it coupled with the rising economic growth of the country. 

The Philippines has been one of the best performing stock market in recent years. Foreign investors have been flocking in our stock market as seen in the table below.

Net Foreign Transactions in Stock Market
Year
Amount in Php
Exchange Rate
Amount in USD
Y2013 1H
Php 53.44 Bn net buying
41.24
$1.30 Bn
Y2012
Php 109.98 Bn net buying
42.23
$2.56 Bn
Y2011
Php 56.52 Bn net buying
43.31
$1.37 Bn
Y2010
Php 35.62 Bn net buying
45.11
$0.87 Bn
Y2009
Php 14.92 Bn net buying
47.637
$0.37 Bn
Y2008
Php 22.16 Bn net selling
44.475
$0.54 Bn
Y2007
Php 55.57 Bn net buying
46.148
$1.36 Bn
Source: PSE, NSCB

Much has been said about the hot money coming into our country. While these hot money provides liquidity in our financial system, they are short term in nature and volatile.Hot money can create an asset bubble by investing huge amount of money and then pulling it quickly.

Foreign Direct Investments on the other hand provides stability and has a more direct impact in the economic activity of the country. According to Investopedia, FDI is An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.

Foreign Direct Investments (Real Investments)
Year
Amount
Y2013 4M
$1,505M
Y2012
$2,033M
Y2011
$1,852M
Y2010
$1,241M
Y2009
$1,948M
Y2008
$1,544M
Y2007
$2,916M
Source: BSP

FDI's provides capital, increased production level and employment opportunities. It is one of the major steps for developing economies like Philippines towards economic growth. It provides opportunities for increased trading of goods and services in the country.

Likewise, technological know-how and expertise is enhanced as companies with superior technology invest in the country.

I hope more FDI's will come into our country rather than hot money. 

Saturday, July 20, 2013

A Starter for Financial Analysis

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Have you ever wondered how an analyst comes up with a fair value of a stock? I don’t know either. That’s why I started to study Financial Statement analysis. Oh yes, I am an accountant by profession and I do analysis every single day of my life. However, the analysis I am doing is quite different from the analysis being performed in the stock market. Part of my routine each day is to analyze the accounts of the companies I am handling. The analysis is confine within the boundaries of the companies I am handling and rarely do I consider the macro perspective of a company. Thus it is imperative for me to sharpen my skills, broaden my knowledge and take the necessary actions to become successful in stock market investing.

Financial analysis is the process of examining a company’s performance in the context of its industry and economic environment in order to arrive at a decision or recommendation.

An investor who buys stocks in the stock market is called an equity investor. In the same way, if an investor buys a stock in a private company (not listed in the stock market), he is still called an equity investor. The common denominator in this type of investors is that they are buying stocks of a company. Before buying a stock, an investor engages the services of a financial analyst to determine the price he shall pay for the shares. The analyst shall look at the capability of the company to pay dividends and grow its operations profitably.

A debt investor on the other hand is someone who lent his money to a corporation with the intention of getting back the principal plus interest. He is concerned on the capability of the company to repay its principal and plus the interest.

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Whether you are a debt investor or an equity investor, you should make your due diligence before coming up with a decision. Part of the due diligence you are going to make is evaluating the financial statements of the company. The financial statements are composed of the following: Balance Sheet, Income Statement, Cashflow Statement, Statement of Changes in Equity and the notes to the financial statements. Every year, a company must submit the audited financial statements to the Philippine Stock Exchange (PSE). In the Philippines, a publicly listed company must submit the Audited Annual Financial Statements and Quarterly Financial Reports. In addition, a publicly listed company must submit Corporate Governance Report, Quarterly Public Ownership Report, Quarterly Top 100 Stockholders, Statement of Changes in Beneficial Ownership of Securities, Changes in Shareholdings of Director and other information required by PSE. These financial reports and other information can be found in PSE (www.pse.com.ph) or company’s website. This information will form as the foundation of your research and analysis of a company.

Outside information are as necessary as the basic data provided by the PSE in order to arrive at a recommendation or decision.  These include the economy, industry, and comparable peer companies. For Philippine stocks, it is very common to compare a company against its regional peers (Asia).  Economic statistics can be gathered from the websites of various government agencies while industry date can be taken from industry publications.


Thursday, July 18, 2013

A Correction or a Bear Market?

According to Investopedia, bear market is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in multiple broad market indexes, over at least a two-month period, is considered an entry into a bear market. 

 There is no doubt that the prices are falling although recently the PSEi has climbed back to 6,500.  I read in one article that said that the market is bearish. On the other hand my stockbrokers call the current downtrend a correction.

 Based on the prevailing sentiment that I have read through various articles, the common theme is that the current downtrend is just a correction but one must stay on the sidelines until the tide is over. I believe there is no widespread pessimism among the investors right now but rather opportunities to start accumulating for the long term. 

Here are some of the statements made after the biggest sell-off occurred last Jun 13, 2013:

 BSP Governor Amando Tetangco Jr. expected the pullout of foreign funds to be short-lived, saying the country’s macroeconomic fundamentals remained strong and attractive to investors. 

“What we saw was just a healthy correction in the equities market. People were thinking that the price-earnings ratio was becoming high, although there are fundamental bases supporting the expensive equities given the strength of the Philippine economy,” BSP Deputy Governor Diwa Guinigundo.

“I know it looks really bad. I’ve never seen it that bad (in terms of single-day decline in index points), but in terms of percentage, we’ve seen worse. Neither should we be entirely concerned because there’s no change in the country’s macroeconomic fundamentals, with a 7.8-percent growth rate still the best in the region and we have record-high GIR (gross international reserves) level,” Jose Mari Lacson, head of research at the local stock brokerage Campos Lanuza & Co. 

 "The market is not crashing. It is normalizing," said Jose Vistan of AB Capital Securities Inc.

 "Nothing has changed fundamentally. We know where investors are attributing the selloff: concerns that the Fed will scale back its bond buying. It's externally driven in that respect so what we're seeing today is an opportunity to buy," Before we end the bull cycle, we'll see higher highs.  It's still difficult to say if we'll return this year to record levels, but we think the bull cycle is still intact. said April Lee-Tan, head of research at COL Financial Group Inc.
 
See below chart. From the peak of 7,403.65 to the recent low of 5,678.73, the PSEi (Philippine Stock Exchange Index) lost 23%. Technically, we already hit the bear market because the PSEi breached the 20% downturn.

 However the 20% downturn must at least stay for two months in order to conclude that we are in the bear market.  The low of 5,678.73 occurred last June 25, 2013 and it must stay down until Aug 24, 2013.

 Fortunately, the PSEi is already back in the 6,500 level, above the 20% level. From hereon, analysts expect the market to consolidate in the short term before making its next big move.   That big move can either be up or down. According to Prof. Benjamin Diokno the worst is yet to come. “It would be a mistake to assume that the equity markets and currency markets will be sailing smoothly from hereon. I see the present situation as more of a lull before the storm. I expect more volatility in the next few months.

When the Fed starts to tighten, and the tightening will surely come, the tapering process will be sustained for a few months. When that happens, the risk of major corrections will increase.”

 Perhaps, the worst is yet to come. The recent sell-off maybe a correction only but keep in mind that a correction can be a precursor to bear market or a recession. 

Amid the bearish tone of some market pundits or cautious optimism of the others, in stock market nothing is set in stone. The PSEi may break the previous high of 7,403.65 registered last May 15 if the foreign investors will come back again in the market or it may go lower than the 5,678.73 registered last Jun 25. The market will dictate what course the PSEi will do in the next few months and a big part of this market are the foreign investors.
 

I am of the opinion that the current market action is consolidating and is waiting for a lead to make its next move. I’m staying with some cash just in case the market finds a way to complete its five year cycle. Based on the graph posted below, we are in the return to normal phase. We are still a long way from the bottom of the market. 

Wednesday, July 10, 2013

Sources of Knowledge

Have you ever read the book Think and Grow Rich by Napoleon Hill? If you did, then I am sure you have been astounded by the classic insights presented by the author. It represents the distilled wisdom of distinguished men of great wealth and achievement of America. I highly recommend that you buy a copy of it because it will help you immensely in your pursuit of success.

According to Napoleon Hill, there are three sources of knowledge, the Infinite Intelligence, the Accumulated Experience, the Experiment and Research.

Infinite Intelligence

From the word itself Infinite means endless, unlimited, vast, immeasurable and eternal. Intelligence means acumen, aptitude, wisdom, knowledge, and insights. If you combine the two, we have an endless source of knowledge (walang hanggang kaalaman o katalinuhan). Is it really possible to have all the answers in man’s quests for “hidden” knowledge which he “needs” to further man’s thirst for progress? Most of man’s inventions sprang not from the five senses that a man has but because of the Infinite Intelligence. Man’s knowledge is limited to the five senses he is using and yet most of America’s wealthiest persons and greatest inventors used the Infinite Intelligence in order to create their own fortunes and mark in the history of mankind.

The Five Senses

The five senses are hearing, sight, touch, smell, and taste. From these senses we are able to process information about our surroundings and the objects around us. We can perceive what an event, thing or situation is all about.

Beach+grass+free+creative+commons
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Without the sense of hearing, a deaf person will never be able to decipher the sounds of the chirping birds, the honking of horns in the middle of the traffic, the flapping of the leaves and most importantly the sounds of I love you from his loved ones. He needs to use his sight sense in order to distinguish what is happening in his surroundings. In our advance society, we already have experts in sign language who teaches our brothers/sisters on how to communicate with others. There are various available devices in the market created for deaf people.1 In fact, an inventor already created a device that allows deaf people to “feel” the music by using their finger tips.2 Obviously, without the aid of these devices and of other persons, knowledge coming from sounds is limited and restricted to deaf people.

In the same way, without the sense of sight, how does a blind person going to distinguish the different colors of the flowers? How is he going to differentiate the buildings in the city? How is he going to identify the cars around the streets, and the jeepneys that populate the roads? Scientists said the some blind people can see through their ears. 3 In fact, they can even “see” visual images when they dream. 4 However, a blind person from birth never saw anything. He cannot see black because he did not know what black is. He see abyss.

Infinite Intelligence is abstract and intangible. I had a difficulty understanding its concepts by just reading a couple of chapters. I had to reread the entire book and I promised myself that I will never stop until I fully understand the very detailed nature of this phrase.  
There are factors or stimulants to which our minds can reach the state of creative imagination. These are:

a.    Desire for sex expression
b.    Love
c.    Burning desire for fame, power, financial gain, money.
d.    Music
e.    Friendship
f.     A Mastermind alliance between two or more people in pursuit of a common objective
g.    Mutual suffering
h.    Autosuggestion
i.      Fear
j.      Narcotics/Alcohol

Based on the above stimulants, a man can find himself in an above average plane of thought where the five senses do seem of no use.

When you have that burning desire to get rich and get out of poverty, you will burn all the bridges in order to achieve your goal.

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There was this great warrior who succeeded by removing all options to retreat. It’s a win or die situation. He ordered his soldiers to load all the equipments and armaments that they will use in battling their enemy into their boats. Once they reached the shore of their enemy, he ordered his soldiers to unload all of their equipments and armors. After the soldiers have finished unloading their stuffs from their boats, he instructed the soldiers to burn their boats. He then shouted to them “You see the boats going up in smoke. We cannot leave these shores alive unless we win! We have no choice, we win or we perish!” Their enemy is powerful and vastly outnumbered his soldiers. They won.

It’s the same thing in life, you need to burn your boats and will your mind that it is either you win or you remain broke for the rest of your life. There is no retreat, no comfort zone, and no looking back to the naysayers, to the negative people, to the unhelpful “culture”, and to your nagging past of failures. It is a difficult task and yet when you willed yourself into the realm of prosperity, nobody can stop you. Yes, nobody can stop you.

Obviously, Infinite Intelligence as a source of knowledge is too general to apply its principles in stock market investing. However, it is a very useful tool in discerning on what path you should take as far as getting rich is concern. Maybe the road to success for you is not even stock market but rather other forms of investment vehicles like real estate or business or anything that the Infinite Intelligence may share with you. One thing is for sure though, if you use Infinite Intelligence as a source of knowledge, it can lead to drastic changes in your financial life so long as you apply its known principles.

Accumulated Experience

If you are wise, you will learn from the mistakes of others. You will apply what the learned has accumulated in their own lifetimes, by their own experiences. Indeed, more gold has been mined from the thoughts of men than has ever been taken from the earth.

...
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Remember the old cliché, “Experience is the best teacher”? Experience has taught us to respond better if a familiar situation appears before us. For example, you’ve always been asked to speak or give some comments on special occasions. Being a shy guy/gal, you always stutter when you speak. And then as you go along, your mind becomes blank. This experience will help you become prepared the next time you are asked again to speak. You visualize yourself delivering an excellent speech in front of an appreciative and animated crowd. You began to prepare and avoid the same mistakes again. You turn an experience into a lesson and you become a better speaker.

Most of the struggles, problems, difficulties and worries that you have encountered are already experienced by other people. You are not the only person who has that kind of problem. It was experienced by others already. These experiences have been mostly recorded in the books. Read them, read the solution and act on them. Now, sometimes, the problem has been encountered by your parents or your neighbors or your friends or your classmates. You can ask them, their response and the results that have followed so that you can make at least a perspective on what you are going to do to your situation. 

Research and Experiment

Sometimes, you will encounter a situation you are not familiar with. The circumstance dictates that you must respond into it by doing an experiment or research. In science, when they want to test if a certain mix of chemicals is useful in curing a disease, scientists do research and experiment. Since they do not know yet the formula for curing a disease, they keep on experimenting until the right mix of chemicals produce a positive result in curing a disease.

In life, it also the same. You must research and experiment when knowledge is not available through accumulated experience. You must use your creative imagination in certain situations.


Friday, December 21, 2012

Merry Christmas Everyone!


I’m just dropping by to say Merry Christmas to all of you. It’s been a while since my last post. A couple of weeks ago I received an e-mail regarding my CFA scholarship I applied way back in the first week of September. Oh man, it was approved! Indeed, it was an early gift for my birthday and this Christmas.

When I opened the first chapter about the Volume 1, Level 1, it emphasizes the importance of ethics in the investment industry. This ethics is applicable to CFA members and candidates alike. Thus, as a CFA candidate, I will be more prudent and mindful of the things I write; hence there were no posts for almost three weeks from me.
Anyhow, I will still be posting here from time to time whenever I have the time. I am juggling my time with office work, reviewing CFA materials, taking care of my daughter, and family time. Most likely, I will sneak in one or two posts from time to time especially if I am inspired write something about investing.

 If you guys would like to ask questions about stock market, please feel free to do so. I prefer specific questions about investing so that I can respond with a direct answer.

Christmas has always been a season of giving and a time to celebrate the birth of our Lord. Let us enjoy the spirit of Christmas. May the heart of each and every one of you be filled with love, peace and joy. 

Monday, December 3, 2012

Investing 101: What is Investing?

Angelie emailed me that she wants to learn about investing. She is still a college student who will graduate next year. She wants her money to be profitable and not stagnant. I thought about writing a series of 'basic' investing from which Angelie can learn. So below is my first article about it. Mind you that the articles posted are not all inclusive of the theories and concepts of investing but rather just a mere reflection of my opinions about investing as a whole.

What is Investing?
According to Investopedia, investing is the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.

In investing, we expect a profit or income to the money we invested. If you invest 10% of your salary and then you expect a profit. The goal of investing has always been to earn a profit and protect the value of your money so that it will grow exponentially.

Your employment doesn't count as an investment because as an employee you are putting your time, skills, expertise and knowledge in return for your salary. You are “investing” your time in employment whereas in the real sense of investing, you are putting your money in order to earn a profit.

If you put a small part of your salary into the different investment vehicles, then that can be considered investing.

Investment Vehicles
JEEP+Dispatcher+assembly+line
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So what are the different types of investment vehicles? These vehicles are the ways and means to invest. When you are planning your vacation to Boracay, you choose which vehicle you are going to use in order to get there. Do you want to use an airplane, a car, a bus, or your personal jet? You choose which one you think will serve you most. Most people will choose an airplane because they will be transported to Boracay faster and with less hassle. In short, it is the most convenient way to travel.

Others will choose their own car because they know their automobile very well. Perhaps it is Japanese made and they count on its reliability. Instead of riding a bus where they need to mingle with other passengers whom they totally don’t know, they choose to bring their own car. Maybe upon unloading their car from the (RORO) ship, they might find interesting places to stop for a while and take some rest or snap a couple of striking pictures.

Others choose a bus with the main goal of having the cheapest way to go to Boracay. Mingling with other people, waiting for the bus and port terminal, smelling the odors of other people, hearing the snore of your seatmate are all fine with others. These annoyances are already expected if you choose to ride a bus going to Boracay.

In the same way, when you want your money to “travel” to “Boracay”, you can choose among the different investment vehicles available in the market. You can choose stock market, bonds, real estate, mutual funds, forex, gold, options, futures, etc as your vehicle. Among these investment vehicles, you can choose which one will take you to “Boracay”, a peaceful and relaxing place. You can choose all of the investment vehicles enumerated above if you have the money and resources to do so but for the sake of your sanity, we will focus on one investment vehicle only which is the main topic of this blog, the stock market investment.