Food for Thought

"What! No E-mail?"

An unemployed man goes to apply for a job with Microsoft as a janitor. The manager there arranges for him to take an aptitude test (Section: Floors, sweeping and cleaning).

After the test, the manager says, "You will be employed at minimum wage, $5.25 an hour. Let me have your e-mail address, so that I can send you a form to complete and tell you where to report for work on your first day."

Taken aback, the man protests that he has neither a computer nor an e-mail address. To this the MS manager replies, "Well, then, that means that you virtually don't exist and can therefore hardly expect to be employed."

Stunned, the man leaves. Not knowing where to turn and having only $10 in his wallet, he decides to buy a 25 lb. flat of tomatoes at the supermarket.

Within less than 2 hours, he sells all the tomatoes individually at 100% profit. Repeating the process several times more that day, he ends up with almost $100 before going to sleep that night. And thus it dawns on him that he could quite easily make a living selling tomatoes.

Getting up early every day and going to bed late, he multiplies his profits quickly. After a short time he acquires a cart to transport several dozen boxes of tomatoes, only to have to trade it in again so that he can buy a pick-up truck to support his expanding business.

By the end of the second year, he is the owner of a fleet of pick-up trucks and manages a staff of a hundred former unemployed people, all selling tomatoes.

Planning for the future of his wife and children, he decides to buy some life insurance. Consulting with an insurance adviser, he picks an insurance plan. At the end of the telephone conversation, the adviser asks him for his e-mail address in order to send the final documents electronically.

When the man replies that he has no e-mail, the adviser is stunned, "What, you don't have e-mail? How on earth have you managed to amass such wealth without the Internet, e-mail and e-commerce? Just imagine where you would be now, if you had been connected to the internet from the very start!"

After a moment of thought, the tomato millionaire replied, "Why, of course! I would be a floor cleaner at Microsoft!" Moral of this story:
1. The Internet, e-mail and e-commerce do not need to rule your life.
2. If you don't have e-mail, but work hard, you can still become a millionaire.
3. Seeing that you read this story via the internet, you're probably closer to becoming a janitor than you are to becoming a millionaire.
4. If you do have a computer and e-mail, you have already been taken to the cleaners by Microsoft.

Stock Update as of November 24, 2013

Wow…the PSE has been like a roller-coaster ride recently, and this has caused many of us to panic and want to sell. I don't blame you. After seeing your port go red and the image of that negative balance lingering in your head just won't go away.

My advice to you is to compartmentalize it, but its gonna be tough. You must make a conscious effort of not to think about it. Find a distraction or discipline your mind. Always remember that you are investing for the long-term. From the beginning of the PSE until today, if you had been invested, you would have had an annual growth of 12% even through the Asian Financial Crisis, and the global financial crisis in 2008.

Keep that in mind and stop looking at your portfolio everyday!

Last Friday we saw the PSE plunge from 6,165 to 6,085 at the close.

For the stocks that is on our list, see the table below:

As you can see, I've added the P/E ratio for your guidance. The lower P/E or Price-Earnings Ratio, the better, but this only applies if the company has a steady growth in sales, earnings per share, and has manageable debt.

From the list, we can see that now is a good time to buy MBT (with a P/E ratio of 6.5) and CPG (P/E of 7), but remember…the stocks highlighted in yellow should be the stocks you prioritize when doing your Peso Cost Averaging.

Let's see how this plays out and remember that we are investing for the long-term.

May God bless your investments,

~Crimson

How a man spent $3000 a month and retired at 30

source: Yahoo Finance

His name is Pete. He lives in Longmont, Colorado. And, eight years ago, he and his wife retired at age 30.

He now blogs about finance and lifestyle at Mr. Money Mustache for 400,000 unique visitors a month. Because he’s anonymous, he says that his blog is now popular enough — garnering 37 million page views since its founding in April 2011 — that people mention it in conversation with him without knowing he’s the author.

A few gems of his financial philosophy: Having debt is like being in “a rickety train speeding along the rails towards a broken bridge over the Grand Canyon. Buying anything beyond groceries and rent in this condition is like sitting in that train ordering yourself a fourth cup of tea on credit.”

He calls bikes the money-printing fountain of youth. He calls nature free entertainment. He says happiness does not come from indulging in luxury products, but from challenging yourself and growing personally. In fact, right now, he is in the process of downsizing his already frugal life to live in a house that is 1,000 square ft. smaller than his current one.

I asked him how he accomplished his early-retirement goal — one key was saving more than half of his salary – and how others can retire early too.


Out of all the many things you did to be able to retire early, what was the key to getting there?

The main technique to amassing lots of money is: Buy less stuff. As a specific tactic, the biggest single trick was probably choosing to live within biking distance of work, and drive less in general. Unnecessary driving burns up way more of most people’s incomes than they realise.

It helps to think of recurring expenses not on an individual basis, but over a 10-year period, taking into account how much they would earn if invested instead of spent. So a couple who each have a 20-mile commute is not spending “a few bucks on gas,” but rather about $150,000 in car-related costs every ten years, compared to living close to work and biking or walking instead of driving. And that is before taking into account the value of the time wasted in the car. With that in mind, a commute like that really burns at least $300,000 per decade. Car commuting alone really can make the difference between “broke” and “millionaire” within a single working career.

Similarly, a $100 per week restaurant habit is $75,000 every ten years with compounding, bringing your lunch to work alone is at least $30,000, and even the lowly old Starbucks latte habit adds up to more than the price of a luxury car every decade. For a quick shortcut to this: Multiply any weekly expense by 752 to get the cost to you every decade. You can calculate this stuff yourself by entering the series of expenses into a future value calculator.


How and why did retiring early become your goal? And was age 30 the target, or was an amount of money the target?

As my wife and I began to think about starting a family in our mid-20s, we realised that our careers were going to conflict with our desire to be good parents. We decided it would be ideal if we could quit our jobs before we had the first child. This kicked off a savings frenzy. We were already in the habit of not buying new cars, biking to work occasionally, and cooking food at home. But once we realised the power of these measures, we started doing them more. And we stopped the “Oh, that would look really nice in the living room” type of impulse shopping.


Can you give me the budget you lived by while working toward early retirement?

There was no formal budget, but we spent about $36,000 per year. The mortgage payment was about $1,200 per month at the time — mostly interest with just a bit of principal. We earned typical tech worker salaries, starting at around $40,000 after graduation and rising to $70,000-$125,000 depending on bonuses and other windfalls. For savings, we just maximised the 401(k) accounts, made extra mortgage payments, and put the rest into taxable Vanguard index funds.

We probably spent about $50 per week on groceries combined, although this was over 10 years ago. That’s about $70/week or $3,500 per year for a couple today. Our ‘secrets’ to lower grocery costs are eating less meat, buying whole ingredients instead of packaged meals, and stocking up at Costco where appropriate.

Given that you and your wife were software engineers, would you say that you two were able to retire at 30 mostly because you were making higher-than-average salaries? How would someone making the median income ($50,502 in 2011) manage it?


The good jobs were definitely a boost. If you average our salaries over the nine working years, we earned about $62,000 per person per year. Plus I renovated our first house over five years and eventually turned it into a rental, later selling it for a reasonable profit.

People with lower incomes will see even greater benefits from frugal living, but it will just take a bit longer (or a lower level of spending) to reach financial independence.

At the time that you were working toward retiring early, did you feel that you were scrimping or that sticking to your budget was hard? If so, did you give in to temptation or overcome it? If the latter, how did you stay so disciplined?

We’ve always felt like we live with embarrassing decadence, and still do. This country is one of the fanciest, most luxurious places on Earth, so even living slightly below what everyone else is spending is still a pretty fine place to be. The key is to remind yourself of how good you have it, rather than imagining that you are missing out on something because your car only has four cylinders instead of eight.

What were the things you were still able to do or buy with this budget that might surprise readers?

In the early years, we still lived in a great house, had two cars and a fancy motorcycle, and traveled plenty. Now we have even nicer material stuff including a 2,600-square-foot house, and we spend three months of the year traveling. We eat luxurious organic food of all types and buy whatever we want. We just happen to want a bit less so the family’s annual spending ends up around $25,000 each year these days.

How did you manage the social awkwardness of not wanting to do things that your friends would do because you didn’t want to spend the money? Did they consider you cheap? If so, did it create any rifts?

We generally did the same things as our friends — hosting parties, camping and mountain bike rides, snowboarding, and working a lot. The difference was mainly in hidden wastes — I would keep my older car instead of upgrading to a new one bought on credit. Maybe light up the fireplace at home on Friday night and pour some wine rather than going downtown for expensive drinks. Cut my own lawn instead of hiring a service company. Things like that can easily chop your spending in half.

You talk about how your initial savings of $4,000 a month became $7,000 a month in a few years. How does that math work?

As a young person gets the hang of living an efficient lifestyle, things improve each year: your income goes up, but your spending drops as you become better attuned to less materialistic living. On top of that, your investments grow. So if you save $50,000 in the first year and earn 5% annual returns on that, the next year that chunk is adding $2,500 to your annual income, and so on.

How did you know when you had amassed enough to retire?

We originally had a goal of “$600,000 plus a paid-off house.” Using the “4% rule” for retirement withdrawal [a rule of thumb used to determine how much of your nest egg can be withdrawn each year so that your funds last through your retirement], this would generate about $24,000 in passive income, which covers our family’s living expenses. Plus I figured there would be hobby income over time. But I wanted to ensure that we could easily live off the investments without working, if desired.

How did the great recession five years ago affect your plan? By then, you had already been retired for three years. Were you worried that you would have to go back to work?

A recession doesn’t affect a retiree living on a portfolio of index funds nearly as much as the newspaper headlines would have you believe. In 2008, the dividend yield of the S&P500 dropped much less than the ticker price, which kept some of the cashflow intact. On top of that, most retirees have a portion of their savings in bonds which also provide steady income and serve as a counterweight to fluctuating stocks. In my case, I also had a couple of rental houses at the time, and the rent payments remained uninterrupted.

And recessions are short: If you keep your spending in check for that year or two of lower stock prices and reinvest any spare money, you will often come out wealthier than when you went in.

What are the biggest mistakes you see among American consumers today?

The insane belief that if you’re in debt, than you are still allowed to go out and buy more stuff as long as you keep making the monthly payments. People are good at working hard and earning money, but not so good at scaling their consumption levels to match that income. You can’t be driving around in a $20,000 vehicle when you aren’t even able to put $20,000 into investments every year!

It’s not like I did anything complicated or difficult to retire early. Minimise your spending regardless of your income, and then good things will happen. People in other countries write to me and say, “Do you realise how silly this is? In Germany, you’re just a normal guy. This is what normal people do: They don’t spend all their money.” But in America, the first guy not to spend all his money gets into all the newspapers.

The problem is that the default assumption in the U.S. is that money is for spending. People say things like, “It’s not any use if you don’t spend it! It’s not like you can take it when you die!”

But when you save your money, you’re not depriving yourself of anything. You’re actually buying yourself the most valuable thing you can: your freedom. So if you change your paradigm and say, “I like spending my money — on my freedom,” it gets you excited about saving again, especially because freedom is such a cherished American value.

Whenever I run into some extra money, the first thing that occurs to me is, “Hey, I can make some more investments with this!”

Is there anything else I didn’t ask you that you’d like to say?

The one thing that nobody has asked me is why the blog exists and how I think it might accomplish the mission.

It’s really a way of re-teaching some of the greatest past wisdom of human civilisation — stuff that has been lost in the consumer rush of the latest decades. Sure, it’s lots of fun to become wealthy and quit your job and be free to do whatever you like. But if we can re-learn these lessons about what happiness really means, we will all be a lot richer and healthier for it.

However, this mission involves changing the culture of the whole rich world. So we need a financial superhero to function as the leader of the movement, and an unstoppable cult-like and ever-growing body of devotees to share it. So far, so good.

Value Investing Part 1: What is Value Investing?

Welcome to Lesson 1 of Value Investing. If you're wondering why I am now adopting this approach, please read my post about A Change In Strategy.

Value Investing is an investing method categorized under fundamental analysis and was derived from the ideas of Benjamin Graham (Warren Buffett's mentor) and David Dodd. This method involves buying stocks of companies that appear underpriced.

Under this method, I will be teaching you the following:

1. Identifying companies with a durable competitive advantage.
2. How to read the financial statements and why you need to learn how to read them.
3. How to determine if the stock price is attractive or not.

Now, why do I want to adapt to this method of investing? Because I grew weary of not knowing whether the stock I am buying is already expensive or not relative to the company's actual value and not because of the sentiment of the market, whether it be bull or bear.

Take a look at the picture below.

At what level do you think is the PSE index at? Take a look at the photo below.

Now, try to guess at what stage we are...

That is the chart of the PSE Index as of August 2013. Scary, right?

It looks like we are now approaching the COMPLACENCY stage. Once our market crashes, what we saw in the last week of June will be nothing in comparison.

At this point in time, we need to be prepared with cash to buy stocks once they are at their lowest point, between the ANGER and DEPRESSION stages. So start getting rid of stocks that you are unsure of, while keeping stocks that you are completely comfortable holding to even if their prices go very low.

But how do we know if a company will recover or not? By looking at companies with a durable competitive advantage and healthy finances.

I will post Part 2 shortly.

In the meantime, may God bless your investments.

~Crimson

A Change in Strategy

The recent slide of the stock market since June, 2013 has probably had made you nervous about your portfolios, and I don't blame you. From a high of 7,403.65, it is now at 6,044.15 or a 22% decline, which is very large.

I know I have been an advocate of Bro. Bo Sanchez's Truly Rich Club, but after having seen my previous gains of 40% drop to 8%, I began to have doubts about TRC's Strategic Averaging Method (SAM), and so I changed my subscription from Gold membership (approximately P500/month) to Silver membership (P247/month). I no longer have access to the mp3 downloads, but I am still earning commissions.

I am not discrediting TRC, in fact, I had learned a lot while I was a member. I learned about making sure to lock-in profits by setting a Buy Below Price (BBP) and that I should sell the stock once it reaches the Target Price (TP) set by Bo. This teaches discipline on setting a price point and when not to chase prices. This also teaches that after a substantial gain, you should already sell the stock and pocket your gains.

I relied on Bo's list of companies to tell me which companies to buy. For some of the stocks on the list, the TP was reached, but for other stocks such as Metrobank (MBT), the TP kept on being changed to higher values. MBT was initially given a TP of 120, then increased to 149. So, the BBP was also changed and increased from 104 (for the 120 TP) to 129.56 (for the 149 TP). I had began buying MBT while it was at the 87 price level, then the TP was increased to 149. So I kept buying while the price was BBP of 129.56.

Suddenly, the market slump of June 23, 2013 arrived and wiped out all my earnings. If I had sold at 120, I would've locked in a gain of 37.9%!

Also, recently, Citiseconline Financial (COL) changed their Investment Guide format. It now includes the Fair Value (thats the TP for us), and the buy below value (thats BBP for us). So the difference now between COL's investment guide and TRC is the list of stocks, right?

But wait, COL also has model portfolio. You can access this by going to the Research Tab -> Fundamentals -> Investment Guide.

Once on the Investment guide, look at the upper right section and click Modify Set-up, then a small window pops up. On the lowest portion of the window, you will see two choices:

1. Use Model Portfolio
2. Use Default Set-up

Click the Use Model Portfolio checkbox then click the Display Investment Guide button. The Investment guide should now be showing lesser stocks. This is the model portfolio of COL which you can follow instead of TRC's portfolio.

I was about to strictly adhere to this model when out of the blue, COL removed BDO and MBT from their list. I thought, "What?!?!? I just bought those 2 stocks a day ago!" They cited that MBT and BDO's long-term prices will be affected due to the recent volatility of the market. The recent majority of MBT and BDO's earnings came from trading gains, i.e. the gains they got from trading the stock market.

And so, I got fed up. I couldn't stand the constant changing.

Now, I still support TRC and I advise that you become a Silver member too. Why? Because of the earning potential. If you click on the link at my blog and become a member, I get a commission without added cost to you. In the same way, if you set up a blog or tell people to join with you as their referrer, you get a commission too. The commission is P99 per month if the person referred joins with a Gold membership. I don't know how much the commission will be for the Silver level.

The topic of this post is A Change in Strategy, and this is like refreshing my entire portfolio. I will shift from SAM/Peso Cost Averaging (PCA) to Value Investing. I'll be teaching you all about value investing in a different post since this is already getting quite long. The link for the value investing lessons is found below.

For you, my friend, if you want to exit from investing in the stock market, my suggestion would be to invest instead in mutual funds or Unit Investment Trust Funds (UITF). A UITF is just like a mutual fund except they are products from banks.

I have come to realize the advantage of using mutual funds or UITFs than investing by yourself through an online broker. They are as follows:

1. Investing through an online broker by yourself means having to monitor the stock prices daily. If the stock market goes down, we tend to panic after seeing all the red in our portfolio, and so we go into herd mentality mode and sell our stocks when it is declining. But when you invest in mutual funds or UITFs, we don't see the price action everyday and so, are immune from market fluctuations infecting our investing decisions.
2. Mutual Fund and UITF managers are under pressure to perform well in the short-term to attract more customers. 

If you have been investing by yourself through an online broker, you'd know what I mean about seeing all red in our portfolio and how we panic after seeing it, unless you have nerves of steel. A downside to investing with mutual funds is that you don't receive the cash dividends declared by listed companies, but if you look at the dividends given out by listed companies, the amounts are so minuscule as to be negligible.

The bulk of money received from the stock market is still through capital gains (you buy at P10, and the price goes up to P15, your capital gain is P5), and with fund managers under pressure to perform well, your portfolio will certainly grow.

The new strategy I am adopting is called Value Investing. The link for it is just below.

Value Investing Part 1: What is Value Investing?

Until then, may God bless your investments.

~Crimson

Stock Update as of September 3, 2013

Whew! It has been awhile and I apologize for that. The whole month of August was quite busy for me. Anyways,  on to the update.

The PSE opened today at 6,072 and ended at 6,083 for a 22.11 point gain or  0.36%. Not much...

We are finally nearing the end of August Ghost month, or as others call it, Aughost month. MBT declared a 30% stock dividend and the ex-date was last August 29, 2013. Thats why there is the sudden drop of price by 30% also.

If you see your MBT portfolio red by 25%, relax. The additional shares haven't been credited just yet and the new shares will be credited to your account on September 16, 2013.

Now on to the table...

As you can see, all prices have gone down if you compare it to my August 29 stock update. The Ber months are now approaching (september, october, nov, dec.) so we ought to be seeing these stocks go up, BUT DON'T BUY TOO MUCH.

You may be wondering why the BBP levels have gone down. I increased the gain rate from 15% to 25% so that we will not be chasing prices to higher levels.

I'd advise you to buy minimally or by board lots only. Why? We need to wait on America's decision on whether they'll go to war with Syria or not...and yes, our stock market will be affected if they do go to war with Syria.

So be cautious for now because to be honest with you, this is the WORST ghost month I have experienced.

Remember to set your cut loss prices. Mine is -20% for stocks I am confident in, and -8% for stocks that I am not so confident in, unless you have nerves of steel. If you do have nerves of steel, then continue on with the Peso Cost Averaging method of investing. Why? Because 10-15 years down the line, these dips will not matter.

As for me, I'm going to be adopting a change in strategy and you can read all about it here: A Change in Strategy.

Caveat Emptor! And May God bless your investments.

~Crimson

Food for Thought 2

A young man from Minnesota moves to Florida and goes to a big "everything under one roof" department store looking for a job.

The Manager says, "Do you have any sales experience?" The kid says "Yeah. I was a salesman back in Minnesota ."

Well, the boss liked the kid and gave him the job. "You start tomorrow. I'll come down after we close and see how you did."

His first day on the job was rough, but he got through it. After the store was locked up, the boss came down. "How many customers bought something from you today?"

The kid says "One".

The boss says "Just One? Our sales people average 20 to 30 customers a day. How much was the sale for?"

The kid says "$101, 237.65".

The boss says "$101,237.65? What the heck did you sell?"

The kid says, "First, I sold him a small fish hook. Then I sold him a medium fishhook. Then I sold him a larger fishhook. Then I sold him a new fishing rod. Then I asked him where he was going fishing and he said down the coast, so I told him he was going to need a boat, so we went down to the boat department and I sold him a twin engine Chris Craft. Then he said he didn't think his Honda Civic would pull it, so I took him down to the automotive department and sold him that 4x4 Expedition."

The boss said, "A guy came in here to buy a fish hook and you sold him a BOAT and a TRUCK?"

The kid said "No, the guy came in here to buy Tampons for his wife, and I said, 'Dude, your weekend's shot, you should go fishing.' "

Food for Thought

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them.

The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.

In the absence of the man, the assistant told the villagers; "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."

The villagers rounded up with all their savings and bought all the monkeys.

They never saw the man nor his assistant, only monkeys everywhere!

Now you have a better understanding of how the stock market works.

Stock Update as of July 26, 2013

Hi Guys...been awhile, and I apologize for that. Been busy studying technical analysis to add to my arsenal.

Anyways, on to the guide. We can see now that the PSE's resistance points are at 6,800 level, and if that breaks, at 7,000-7100 levels. Keep this in mind when buying your stocks. Also, Ghost month (August 15 - September 15) is approaching. This usually means that stock prices will go down, so set aside some cash for buying opportunities.

The day started at the 6,815 levels, but the bulls failed to push past resistance, and so the bears took over and drove down PSE levels to 6,732 levels. As for our stock picks:

I've highlighted priority buys with yellow. BDO, MBT, and BPI are currently under review by Moody's on whether they will receive a credit rating or not. So far, Moodys has only given the PSE positive feedback which is good news.

You might have noticed MER's volatile price action due to SMC selling a lot of its shares. If you were able to buy during the dips, then congratulations. 

As I mentioned before, the Ghost month is approaching, so we will be experiencing little price movement towards our target prices. Remember to control your emotions and instill discipline. 

My Technical analysis is still a bit rough, but here a few charts to consider:

BDO seems to be in a short-term downtrend, but DMI doesn't confirm this. The candle touched the lower part of the bollinger band which is usually the support line. I added a few shares at this level.

LRI broke through support today, and the downtrend is confirmed by DMI (but DMI has been that way for awhile now). Anyways, Stochastics is headed towards the oversold levels. Watch out for a doji before buying.

MEG trend lines are showing an uptrend but isn't confirmed yet by DMI, but stochastics is in the overbought level. If this trend continues, we will see MEG at 3.65. Watch for a break in resistance levels before buying.

I encourage you to start studying technical analysis. Your investing plan should consist a mix of Fundamental analysis and Technical analysis. Fundamental analysis is for picking which stocks to buy. Technical analysis is for when to buy and when to sell.

Remember to always protect your capital.

Also, take my technical analysis with a grain of salt since I'm still quite new at it.

And as always, Caveat Emptor!

God bless,

Crimson

SWITCH Alert for MPI and MWC

Guys, if you are holding MPI or MWC, switch it to another stock from our list due to uncertainty in the water business caused by policies from government regulators.

Stock Update as of June 24, 2013

The situation we are in right now is scary and I don't blame you when you see the value of your investments and money shrink away. The day started with PSE at the 6,150 level, only to drop all the way to 5,950 levels.

Take a deep breath and calm your mind.

Will the PSE go up anytime soon?

No...we are now in the downward trend.

Should I sell and cut my losses? It depends on what stocks you have. If you hold FPH and SMPH, cut loss on these 2 stocks now. Otherwise, if you followed the list I have been publishing, then you will be alright if you just hold. But, if you wish to cut-loss, that is okay.

I entered investing with a time frame of 20 years from now. Which means I will be 50 by the time I plan to use the funds in my portfolio...

that's a long time from now.

Either way, here the journey for maybe some of you ends. Will this drop scare you from investing in  stocks forever? Or do you see this as a buying opportunity?

Ask yourself that. If you wish to continue, then we will see each other again as I will keep on giving out stock updates.

If not, then may God bless you in all your endeavors for this is where we will part.

I know it may seem useless now, but I'll write anyway.

If you hold FPH and SMPH, cut loss these stocks. As for MPI and MWC, the government is stepping in to regulate water utilities. Since MPI partly owns Maynilad (a water supply company) their profits might also be affected, so if you plan to continue investing, HOLD from buying these stocks.

The Stock Market is likely to continue going down. My advice would be to buy slowly, if not hold your cash until the market reaches bottom.

Caveat and may God bless your investments.

~Crimson

HOLD Alert for MPI and MWC

If you have MWC and MPI shares, HOLD from buying. I will be posting a stock update tonight as to why.

A Positive Outlook by Gus Cosio

by Gus Cosio:


I think the sell off yesterday was overdone. Of course, the prevailing notion is that the Philippine market has become expensive and valuations are stretched. My thinking is that the earnings momentum may have just started. We haven't seen GDP growth this strong in a lifetime - at least in my lifetime. If you breakdown what the growth drivers were, they were construction and manufacturing. Construction was up 33% YoY, from 4Q12’s 30%. Private construction grew 31% while public construction surged 46%due to infrastructure spending by government without the any public-private partnership (PPP) projects yet coming on stream. Manufacturing was a bright spot growing 9.7% YoY.

These are the badly needed growth sectors that have lagged the growth of consumer spending. These sectors are catching up which tells me that economic activity is gaining breadth. If that is happening, corporate earnings growth normally behaves in a more leveraged manner, meaning that it can grow at a multiple of GDP. The way I see it, P/E compression is underway and stock prices are pretty fairly valued where they are today. I think the risk we face today is not so much that we could lose money, but that we could miss the upside opportunity.

Good day to all!

Stock Update as of May 30, 2013

Today must have been a very bad day for investors that just started to put their money into the stock market.

I would like to talk about 3 topics on this update. They are the following:
1.) Stock Update
2.) New PSE products
3.) What happened today?

1.) Stock Update

The day started with the PSE index at 7,200 and slowly started to slide down to the 7,100 level. Then the news of the Philippine GDP was released. PH GDP was at 7.8% at the 1st quarter, beating estimates of 6.1%

Congratulations to AGI holders who sold on May 15 when TP was hit. FPH is currently on hold status because its subsidiary, FGEN, 500 MW plant had to shutdown due to fire and this affected the stock along with the slump we have seen.

2.) I attended a seminar given by PSE last May 23 at the Marriott hotel and learned that the PSE is developing some very interesting new products. They are the following:

Exchange Traded Funds (ETF) - These act like mutual funds, except you can buy and sell them using your online brokers. Basically, when you buy an ETF, you are buying the enitre PSE index. Instead of buying stocks for every one of the 30 companies in the index, you just need to buy ETF. Warren Buffet always said to buy index-based funds, and this is the one he is talking about. ETF will be available on June 2013.

Short selling - soon, the PSE will allow short selling. One of the ways to make money in the stock market right now is when stock prices go up. The other is through dividends. With short selling, investors can now gain money when a stock goes down. How does this work? Lets take for example stock ABC which has a current price of P10. You did your due diligence and think that stock ABC will go down to P2. Short selling is "borrowing" the stock from PSE. So, you borrow stock ABC from PSE, sell it at P10. After some time (I dont have the figures yet), you will need to pay PSE for the stock. If ABC goes down to P2 by the time you need to pay for it, you only need to pay P2 and pocket the P8.

Exciting stuff.

3.) What happened today was this: The US stock market went down by 10%. Big foreign institution buyers quickly sold their stocks here and transferred their funds to take the opportunity in buying cheap stocks in the US. It is as simple as that. Also, our stock market has been growing so fast, that it needed to consolidate.

Now, what should we do? I also don't like seeing red in my portfolio, but is better to establish a cut-loss and save your money than to continue risking it. Is the stock market overheated? Yes, I honestly think it is. Will it still move up some more? Yes, but it will be slower than how it did in 2012.

Rule of thumb: make your stop loss at 8% no matter what stock it is. Be aggressive in cutting losses.

For newer investors, let me introduce you to the saying: "Sell in May, then go away." I don't really know who was the first person to say this but I keep reading it a lot about investors who, when May comes, sell everything and lie low. 

Now, why does this happen in May? From what I know, it is the time of year that alot of investment people in Wall Street take their vacations which leads to inactivity in the market. Whether this is true or not, I cannot prove.

As I said above, I think our stock market is now overheated and is reaching its resistance level at 7000++. What to do? Our options are

1.) Go into the bonds market. Bonds are fixed income based and is risk free, but at a lower interest rate(1.5% per annum vs savings account of 0.275% per annum).  The downside to this is that current inflation rate is at 3.7%, so your bond earnings is not enough to beat inflation.

2.) Put your money back into your savings account.

The choice is yours. Yes, our market now is quite risky. As for me, I'll wait for a few more months. Then I will shift 50% of my capital to bonds.

Be more cautious and May God bless your investments.

~Crimson

Hold from buying FPH

For now, stop buygin FPH.

The fire to their subsidiary's, FGEN,  San Lorenzo plant will decrease earnings this year.

Since this is an internal problem, I dont recommend buying more of the stock even if it is cheaper now.

We buy when the price decrease is caused by external factors, and not internal ones.

Positive Outlook by Gus Cosio

from Gus Cosio:


The market came back from intra-day lows to close up 15.71 points. It did not surprise me that as the market opened, most institutional investors were buyers albeit at lower levels. Even as foreign sellers were aplenty, local funds were more than willing to take on whatever stocks were on the block. At the end of the day, the market's position saw net foreign selling of Php 1.74 billion. Adding that to the Php 1.24 billion net foreign selling yesterday and the Php 1.2 billion net foreign selling the previous whole week, we are seeing a case where domestic investors are buying stocks cheap.

I like situations such as this because it shows that the breadth of the local market is growing. Hopefully, trading liquidity will be further developed as the PSE sees wider participation from domestic investors, be they individuals or institutions.

I greatly appreciate that local investors are becoming more forthcoming in taking market risks. This is textbook situation when relatively better returns can be gained from the equity market given the low levels of interest rates. Some stocks are still showing very good dividend yields. TEL should be at the top of that list, and MER should not be far behind. If we scour the list of large cap stocks, there will be a few that would be worthwhile buying for dividend yield. Nonetheless, even if we see another decline in prices before Thursday, I do not think it would be enough to reverse the present trend. I think the GDP number coming out on Thursday can assure us that the way to find returns this year will still be the equities market.

The recent top up for MWIDE certainly showed the resilience of this stock. I noticed that when MWIDE hit the top up price of 20, it strongly bounced back to close at 20.90. I am also quite impressed at TEL's resilience above 3150, as well as SM's good support at 1150. That shows the formidable following of these stocks. What was stellar today was URC which gained 4.64%. What it tells me is that the consumer story in the Philippines is not yet over. The bounce of DNL and JFC somewhat supports this view.

Anyway, I will hold on to my positive outlook on the market in spite of the recent downturn. To some people, bloody situations may seem grim; but if one puts it into perspective, it remains to be opportunity.

Stocks on Sale!

Time to go shopping!

Moments like these, you must find the discipline not to panic. No, this isn't the market crash...yet.

This is just a major correction. The market was at overbought levels and needed to cool off. This is okay. This is necessary to sustain the growth of our market. How can you tell? Because the world markets are down as well. Japan's stock market is down by 10%.

So control your mind and dont panic. See the opportunity in this situation. The opportunity to buy more stocks!

Also a few words by Gus Cosio:


So the market tanked the last few days; big deal. In perspective, we started the year at 5,812 and rallied to 6,870 in March; corrected to 6,419 within two weeks of that peak. We haven't looked back since. It was only last week until yesterday that we are seeing a meaningful correction. 

I am no fortune teller, nor am I a speculator. I try to responsibly manage investors portfolio to try to get meaningful returns while mitigating the attendant risks. That is why I welcome this correction. Why am I confident that this is merely a correction even if the market slips past 7,000? Well, I think because we are not facing any financial bottleneck both locally and internationally. 

This foreign and local selling that we are seeing follow risk management rules of thumb for fund managers. Most funds would like to bank in 20 to 25 percent gains, and that is precisely where a lot of the funds are. I must admit, they are the most influential in the market right now. Nevertheless, I would not underestimate the power of local investors. Objectively, I can see very little bottlenecks in the domestic economy. I was discussing with my favorite economist yesterday, and the only bottleneck visible was if infrastructure spending by government stops. Otherwise, the economy's momentum is rather strong.

People will position for the GDP numbers which will come out on Thursday. I think it may be worthwhile making a sound bet.


May God Bless your investments.

~Crimson

Suze Orman on PH Money Culture

source: Rappler

MANILA, Philippines - If Filipinos want to save and become financially sustainable in the future, they should start changing their culture of spending beyond their means, world-renowned personal finance guru Suze Orman said.

"Don't spend money you don't have to impress people you don't know or even like," she said in a media briefing in Makati City on Thursday, May 16.

The finance icon is back in the Philippines for the second time to give advice on how to manage personal finances, something which heavy-spending Filipinos need.

The personal finance guru lauded the Filipinos' love for their family and the innate nature of making everyone at home and comfortable but said that they should also be true to themselves in terms of spending money.

She cited, as an example, the kind of extravagance that Filipinos put in terms of celebrating events. Filipinos try to accommodate everyone to the point of spending money beyond their means, which in turn puts them in debt.

"I understand the Philippine culture. But if you continue to do something that you don't have the money to do then you end up poor, you end up being dependent on others," she said.

The goal of money, Orman said, is not for people to be slaves of it but to make them feel safe and secure, not only in the present, but especially in the future.

Learning to say no

Another notable thing about Filipinos according to Orman is their inability to say no, especially to family members.

In a country kept afloat by consumer spending and remittances, Filipinos need to learn how to better manage their finances, according to Orman.

In 2012, Bangko Sentral ng Pilipinas (BSP) said personal remittances from Overseas Filipino Workers (OFWs) reached a record high $23.8 billion.

Consumer spending has been on an upward trend yet only 2 out of 10 Filipino families have bank accounts - an alarming figure, said the personal finance expert.

Orman narrated the generic story of how most OFWs tend to send all their money to their families in the Philippines while they suffer in poverty in the foreign country they are working in.

Instances when relatives tend to ask a lot of demands to things not really necessary in everyday life as well as OFWs being bound to the duty of bringing home a lot of souvenirs and throwing a grand party everytime they come home.

This, she said, makes family members of OFWs heavily dependent on the remittances they send without actually trying to find work and stretch their muscles to earn money to help.

"Here is the truth. I understand the Philippine culture, but it needs to be rethought. It is not to disgrace the culture. You are not turning your back on your culture, but you should not turn back on the truth of yourself and your situation. Live within your means," Orman said.

"When your relatives ask you money for clothes or vacation expenses, learn how to say no. Give them money for their needs but not luxuries. It is not hurting them because you denied what they wanted. You are actually helping them to become better managers of their finances."

Teaching people how to say no to these things, according to the personal finance guru, is her goal in visiting the Philippines.

"I just want to be clear. I don't want to come to the Philippines to change your culture. I don't want to come to the Philippines to change your culture and change the love you have with your families and with each other. I want to come here and give a voice to those who don't have the voice, to people who tell me what they wish to tell their families but don't have the courage to do so," she said.

Orman is a New York Times best-selling author 9 times over and is considered one of Forbes 100 most powerful women in the world in 2010. - Rappler.com

Buying Opportunity for MEG, and PGOLD

from Business Section - Philippine Inquirer:

MANILA, Philippines—Infrastructure holding firm Metro Pacific Investments has joined the closely tracked MSCI Philippines index, replacing conglomerate San Miguel Corp. effective May 31 this year.
MSCI also realigned the MSCI Global Small Cap Indices, with five new companies joining the index, all of which are not part of the main-share Philippine Stock Exchange index: D&L Industries, EEI Corp., Pepsi-Cola Products Philippines Corp., RFM Corp. and San Miguel Purefoods.

Deleted from the small cap index were GT Capital Holdings, Megaworld Corp., Puregold Price Club, Robinsons Land Corp. and Security Bank Corp.

Any adjustment in a country’s weight could be attributed to the dynamics of prices, number of shares, movement in prices and free float factor of component companies. A cap of foreign ownership also has an impact of reducing maximum amount of shares that investors can buy.

As such, whenever the level of foreign ownership gets too close to the threshhold such that it’s impossible to buy new shares, MCSI mitigates the effect by cutting the weight of that company in the index.

What does this mean?

MSCI is an index fund. Think of it as a mutual fund being whose stocks are composed of Philippine stocks. As stated above, MPI will be replacing SMC effective May 31. We might see an increase in MPI price in the short-term. Also joining the index are EEI, DNL, PIP, RFM and PF. These also might increase in the short-term. Let us wait and see if our target prices will be hit.

As for those removed from the index like GTCAP, MEG, PGOLD, RLC, and SECB, these stocks will likely go down in the short-term and that would be a great buying opportunity.

Of these stocks, MEG and PGOLD are on our list. PGOLD is a retail company, and MEG is in real estate. If you haven't already bought you're 3 focus stocks, I would suggest MEG.

Good luck, God bless, and as always, caveat!

~Crimson

Continue Buying

Hi Guys. Sorry I forgot to update on the HOLD Status.

PSE has breached the 7,300 resistance level and is currently at 7,373.77 as of 1:53 pm today (May 15, 2013) as seen below.

So continue buying stocks that are still below the Buy Below Price.

Caveat!

Stock Update as of May 8, 2013

I gave out a HOLD signal from buying anything earlier. Please see this link for the full details:

http://pse-investing.blogspot.com/2013/05/hold-from-buying.html

What this means is that, if you added capital, refrain from buying for now. Why? Because prices might become cheaper in the next few days.

For those that do not know the term "support", this is the price level wherein if a price goes down in price, it is the level where people/buyers "feel" that the stock is cheap and will buy that stock once more. This rush in buying stops the stock price from going down further and is termed as the "support level".

Moving on to the update, congrats to MER holders for hitting the target price. I will soon remove MER from our next stock update.

As you can see from the above photo of PSE's price movement today, it started going up to the 7,185 level, and dropped back down to the 7,175 level until lunch break. Continue to observe the movement until this afternoon and tomorrow.

So based off the update above, we can see that EEI and COG have the largest upside. MPI is nearing TP, so I would set a GTC (for COL users) order to sell at P6.55 already by now. COL changed GTC order duration from 7 days to 60 days.

For non-COL users, try and see if there is a sell order that makes your order valid for 7-days or more.


As always, caveat emptor and may God bless your investments.

~Crimson

Hold from Buying

PSEi

Recommendation: HOLD

Support: 7,006 – 6,851

Resistance: 7,250 – 7,300

• The PSEi lost 24-pts after some profit taking continued to press prices off Friday’s gap – also giving prices time to ease its disparity (overbought) to its short term averages

• As its trend still points up, a Hold is maintained but a careful watch over its support stop is necessary

• Some careful attention should also be placed over its weekly MACD readings as it seems to be quite vulnerable to a wider corrective potential... similar to what it demonstrated last year (in April to May 2012)

• Support is placed first between 7,006 the followed by 6,851

If you added capital, hold from buying. If support breaks, we need to watch where the new support will be.

Stock Update as of April 23, 2013

The word for the day is----- RELAX!

 Yesterday the PSE breached the 7,000 level and reached 7,100.

Today, at 10:25 am, it began to dip to the 7,000 level, but went back up to the 7,050 level by lunchtime.

The market is always moving and some of my friends were asking me what to do? Should I sell? I want to sell! What else should I buy? Should I buy? I want to buy!

Take a deep breathe and relax. The market will always be there and will always move like this. Discipline yourself to follow the simple rules we have set:

1.) As long as the price is below the buy below price, we keep buying.
2.) Once it reaches target price, we sell.
3.) Maintain 3 stocks from different sectors.

Here's the stock update

I added CPG and MEG. Here's why:

Century Properties Group, Inc. from COL's research

• Net income reaches Php1.86Bil. Century properties reported a net income of Php1.86Bil for 2012, more than double from the previous year of Php866Mil. This is in line with our estimate as it accounts for 100% of COL forecast but only 93.7% of consensus forecast. Growth in income was driven by a 104% growth in revenues for the year as the company booked revenues from its launched projects.

• Pre-sales reached Php21.40Bil. CPG reported that full year 2012 pre-sales has reached Php21.4Bil, up by 16.6% from the previous year. Strong pre-sales figure came from the back of continued successful launch of existing projects. According to CPG, total units opened for sale as of 2012 were 92% sold. The company added that pre-sales as a percentage of inventories has now accelerated to 127%. The strong take-up brought unbooked revenues to Php27.9Bil, which is good for 24 months. Meanwhile, customer split leaned further to non-Filipinos, with international clients accounted for 74%, up from 69% reported in 3Q12.

Megaworld Corporation

• We reiterate our BUY rating on MEG and raise our FV estimate from Php4.00 to Php4.90 as we increased our NAV estimate from Php5.30 to Php6.53 to reflect the favorable impact of higher property prices on its landbank. Asset price appreciation is one of the key drivers for property companies. Higher land prices and the anticipation of further increases in the future resulting from low interest rates, strong economic growth and infrastructure developments have already benefitted the share price of companies like Ayala Land and Vista Land. However, this has yet to be reflected in share price of Megaworld, notwithstanding its huge landbank found in attractive locations in McKinely and Cebu.

• Asset price appreciation has been one of the themes for property developers since last year. Investors continue to buy shares of ALI despite its expensive valuation relative to earnings largely due to the increasing value of its landbank in Nuvali, Makati, Fort Bonifacio, and most recently FTI. As ALI continues to develop these properties, prices are expected to keep rising over the long term. VLL has also benefited from the increasing value of its land in Daang Hari property. As stated in our VLL report, the Daang Hari-SLEX link project has fueled a significant increase in lot prices in VLLs project in Daang Hari.

• We believe MEG will also benefit from the ongoing appreciation in property prices given the attractive location and size of its landbank. MEG has around 45 hectares of raw land in McKinley Hill, Uptown Bonifacio, and McKinley West combined. These properties are in close proximity to Fort Bonifacio and FTI, both of which have shown a significant increase in property prices recently. According to Jones Lang LaSalle, the price of commercial lots in Fort Bonifacio have climbed to more than Php400,000/sqm from Php250,000/sqm in 2011, while commercial lots in ALI’s recently-acquired FTI property were sold at a high of Php180,000/sqm. In line with the increase in prices of the said properties, we are raising our fair value estimate for MEG’s McKinley landbank from Php70,000/sqm to Php120,000/sqm.

• We also increased our estimate for MEG’s Mactan landbank to Php25,000/sqm. We previously valued the Mactan landbank a very conservative value of only Php4,800/sqm which is based on the company’s acquisition prices. Note that commercial lots in Cebu IT Park and Cebu Business Park are already being sold at Php50,000/sqm.

• We are positive on MEG’s prospects in Cebu given the rapid growth of in the region. In 2010 and 2011, the GPD of Central Visayas, which Cebu is part of, grew faster than the national GDP. Central Visayas grew 12.5% and 7.9% in 2010 and 2011 compared with the country’s 7.6% and 3.9% respectively. In line with its strong economic growth, the island of Ceub offers much promise in hosting the next-generation CBDs. It is also very appealing to the tourism market as it is frequented by not only locals but foreigners like the Japanese and Koreans. In fact, according to MEG, a lot of Koreans and Japanese have acquired residential units in their Mactan Newtown project. Property prices should increase further once the new Mactan-Cebu International Airport is constructed as it would expand the airport’s capacity from 4.5 Mil to 8 Mil passengers annually, facilitating the growth of tourist arrivals.

So CPG and MEG are from the Real Estate Sector. For SMPH holders, switch from it to another of these 2.

As stated above, relax! The more you move in and out of stocks, the more commissions you must pay and eat away from your profits! As Warren Buffett said: Don't dance in and out of stocks. Only your brokers will be happy.

May God bless your investments...

~Crimson

Philippines is now Investment Grade

from: Rappler.com


MANILA, Philippines - The Philippines won its first ever investment grade debt rating from global credit rating firm Fitch.

By upgrading the Philippines' sovereign credit rating to BBB- from BB+, Fitch gives the Philippines a vote of confidence and marks the first time the Philippines, once a basket case in Asia, joins the A-lister countries considered safe to invest in.

In a statement on Wednesday, March 27, Fitch added a stable outlook and cited a robust economy and improved fiscal management.

"The Philippine economy has been resilient, expanding 6.6% in 2012 amid a weak global economic backdrop. Strong domestic demand drove this outturn," Fitch said.

Fitch was the first among the other international credit rating firms -- Standard & Poor's (S&P) and Moody's Investors Service, which still rates the country one notch below investment grade. S&P currently rates the Philippines a BB+ market, while Moody's gave it a Ba1.

What a credit rating means

An investment grade is a seal of good housekeeping. It tells investors it is safe to do business in the country, and encourages them to put huge capital here.

An investment grade means the Philippines, as a borrowing country, has a strong ability to pay its debt. This lowers its borrowing costs, generating savings, which may be spent for social services. For Filipinos, it means better education and health care, and affordable loans for major purchases.

link to source: http://www.rappler.com/business/economy-watch/24936-a-first-investment-grade-rating-for-ph

Stock Update as of March 26, 2013

SM is planning to merge SMDC with SMPH. As you may have observed, the stock price for SMPH dropped. Now, SMDC's current price is  8.48. Think about it this way, if we get the average of the 2 stock prices, what happens? 18.46 (SMPH) + 8.48 (SMDC) / 2 = 13.47. Thats what market psychology is thinking and that is actually what's going to happen.

For now, I advise you to put SMPH on hold. This is a good thing! If SMPH and SMDC merge, they will become the largest land developer in the country (SM Land). Just hold on and don't add for now.

A few weeks ago, I was very fortunate to have been invited to talk to new friends about investing in the stock market. Thank you for the invite and I hope your investments are doing well.

This brought to mind my state of thinking when I was just beginning to invest. I remember being all excited thinking "I'm gonna be rich!". Yes...in-time.

I remember checking out stock prices everyday, and resented the fact that I didn't have additional money to add whenever the market went down.

I recall when I made my first P500 I was so happy, I bought a magnum ice-cream bar to celebrate.

But after awhile, I got so busy with work that I forgot about monitoring the stock market everyday. I also lost some excitement because of the market's slow movement. I would check the newspaper during lunch and check prices really quick. I even missed selling 2 stocks when it hit TP!

And you know whats so funny? It was at that time that my portfolio grew the most. Why? because I wasn't meddling. I wasn't stressing myself over stock prices everyday. I somewhat didn't care how my stocks were doing. I didn't move in and out of different stocks. I just let my portfolio be...

I just knew that the stocks I had at the time made me content. That those companies were solid companies and that my fretting over prices everyday actually didn't make a difference whatsoever!

Right now, I know you are feeling all those things. Checking the market everyday... wanting to add more capital when the market is down so you can buy more shares...

But forget it. Let your portfolio be. Just follow your pledge of adding capital everymonth/quarter/year and leave your stocks to grow. Whats better is you don't even need to water them!

May God bless your investments!

Playing the market

By Gus Cosio

A lot of market players are likely asking themselves if we are still in a bull market. For people who play the market by way of scalping or stagging individual stocks, price movement of the last few days can be very daunting. Anyone would be very lucky if he went long and made money. The difficulty about short term traders is they tend to chase prices both on the rise and then on the fall. The only ones who are successful doing this strategy most of the time are broker-dealers in the exchange simply because they are immersed in the stocks they trade the whole time. Also, they have no friction cost on their trade.

For the average individual, one has to be more circumspect. Investment horizons should be longer which really means one should not expect a quick profit on every trade, but be thankful for every opportunity when it happens. Today, in spite of the recent weakness in share prices, it may not be too risky to do some cherry picking provided that your investment horizon is not too short. Of course, the adage is that one should not try to catch a falling knife. Nevertheless, after this decline starts to show signs of stabilizing which to my mind it has, it would be good to be long in positions.

Yesterday's price movements were very encouraging; my view is that after a number of days of declines, the market is starting to turn. I would stick to strong rather than speculative stocks because that is where the money is going. I've always believed in following the money flow particularly in bullish trends such as what we have.

Stock Update as of March 11, 2013

The PSEI has breached the 6.800 mark.  As of this writing, PSEi is at 6,849. Here's the intraday chart.

Here's the current standing of our stocks

For those holding PNX, ex-date for the dividends is on April 5, 2013. Remain vigilant and keep monitoring this stock. Our TP for PNX is P14.9. For those who do not have PNX, DO NOT BUY anymore.

As always, Caveat Emptor!

May God bless your investments.

Stock Update as of Feb. 21, 2013

The market started to climb in the morning, reaching the 6680 level, but tapered down and reached 6620. This could be a minor correction day or it could continue throughout the week. Keep some cash ready to buy on dips.

I added 3 new stocks into our list:EEI, SMPH, and DNL. Also, COL released their new FV. Below are the new estimates and BBPs.

EEI has the largest upside of all because of the PPP Projects to be implemented this year.

As always, Caveat!

No Major Correction Yet

by Gus Cosio


Many PSE investors have been waiting for a correction, myself included, for a few weeks now. It hasn't happened in a big way yet. What we have been seeing are intra-day corrections or shallow end of day ones. The market looks expensive from an aggregate point of view, but do not mistake the forest for the trees.
I think the reason why the index has been resilient is because a good number of individual stock still offer good value.

Take 2 very expensive stocks -- ALI & BPI. Both of them were very expensive when they were 20% lower. Why does it defy pricing logic that both stock have gone higher? Well, I think it is because different investors have different investor parameters. One thing common with both ALI & BPI is they both have very stable earnings and high returns on equity. I think the way these 2 stocks are priced reveals one dynamic of the market and that is when institutional investors want an exposure to a particular market, they choose stocks that have both financial soundness and heft.

I think the same thing can be said of SM & SMPH. And as this logic proceeds, we can understand why AC and GTCAP are pushing towards what usual analyst logic would see as expensive.

What we are forgetting is the idea that a game changer has been unfolding in our market which is the idea of a credit ratings upgrade. The forward looking rationale is that money wants to be in the game before it is played. If we believe indeed that the country is up for an upgrade, then the idea of being expensive should not deter us from remaining constructive on local stocks even if analysts see it as expensive. After all, many analysts have been proven wrong many times.

As a matter of strategy then, I think it is still wise to be exposed even to some of these expensive stocks. More importantly, because we expect the economy to do better, we should even be more confident in stocks with cheap valuations and sound financial conditions. This, I think, would be the best way to derive returns in the Philippine market.

Stock Update as of Feb. 8, 2013

As you can see from the chart above, the PSE started high then declined in the afternoon. Among our stock picks, we can now only choose 2: MBT and PSE (the stock). Another choice would be to just stay on cash and not invest on your picks. I strongly believe that a correction or a consolidation will occur soon.

What is a correction/consolidation? It's best if I use an example. Let's say random investor Mr. X bought FPH at P70.00, and he set his target price at P108. As you can see, FPH's current price is already P108, so Mr. X sells his FPH stocks. Let's say there are quite a few people just like Mr. X whose TP is also P108. Conservative investors  like us are no longer buying because the price is now above our BBP. If: Supply > Demand = Stock Price declines. Basic economics. This event is called a correction/consolidation.

One strategy that we can employ is to buy stocks when this happens. Even if the stock is already above our BBP, but still has 10% upside, then I personally would still buy that stock. For example: MPI, PGOLD, BDO, and FPH.

The stock price will continue a decline until investors feel that it is already cheap enough to get into, so they will begin buying the stock again. But what happens if no one wants to buy? Then that will be the start of a market crash...when no one wants to buy.

So if that is how easily market crashes happen, then why should I continue to invest? I might lose all my money! Yes, it can happen, but look at the Philippine economy right now. It is booming. For 2013, analysts project the PSEi to reach 7,000, and that is still excluding the expected upgrade of our market to Investment Grade which is foreseen to happen this year.

A second strategy would be to adopt the buy-and-hold method of investing. I'm still a very risk averse person. And if you're like me, then what stocks should we be picking now? Every stock seems so expensive. I would advise you to choose defensive stocks or companies that sell products that everyone will buy.

Like what? Like Aboitiz Power(AP), Meralco (MER), Manila Water Company (MWC). People will always buy electricity and water. You can also pick MPI who have investments in water, electricity, tollways, and hospitals. Consumers will always need these products, and that's why they are considered defensive.

I've removed PNX and IPO from the list because PNX was a dividend play. If you have PNX, TP is P14.9. I'll be making an update about PNX once I know when the dividends will be released. As for IPO, it is growing too slow for my taste. If you are currently holding IPO, you can sell now at a loss of P20, but you can reinvest the cash into another stock. Or, you can just hold onto it. IPO gives consistent dividends every year and is also considered a defensive stock because its main investments are in schools like the Mapua Institute of Technology.

God bless your investments, and as always, Caveat!