August a.k.a "Ghost Month" is coming [What to expect]

We've all heard of it at least one point in our life, but what is Ghost Month really and what does it entail?

I've heard about it since I was a child; my mother owned a business and she always associated August as "Patay na Buwan" (Dead Month), or I guess it's the same thing as "Ghost Month". It is when business growth (not just profits) usually slows down. It is only recently that I knew it originated from a Chinese belief about spirits roaming the earth at this period.

The 7th month in the Lunar calendar (not Gregorian) is generally referred to as the Ghost month. If we were to base it in lunar calendar, it means it doesn't always start in the month of August. It's probably for simplicity that August became the Ghost month and for that reason, this articles assumes the same thing.

The 15th day of the 7th month in the Lunar calendar is the Chinese Ghost Festival. This year, 2013, it's on the 20th of August. This is the time when it's believed that our realm + heaven and hell open, and spirits wander the earth.

During this month, it's most likely that many businesses, including non-Chinese ones, who believe in this do not sign new contracts or conduct any major decisions because it may be considered bad luck. In a business culture highly influenced by the Chinese, this is something to be considered because it will most likely affect your business whether you like it or not.

But not only does August fall on the Chinese Ghost Month belief, there are other seasonal events that happen to fall in the same period: Frequent rains / storms, parents just finished paying the tuition fees of their children, and preparation for Christmas season when people really spend money. All of these combined affect consumer spending and businesses.

So what happens to investments during August a.k.a. the ghost month? Bond market is not that much affected since debts are paid continuously. The only thing I can think of right now that may affect the bond market is that there may be less businesses who will offer new bonds during this period.

For the stock market, expect a temporary downward trend during this month. People who believe in this may stop buying or selling stocks. Combined with other people who are fearful during this month, we may see lower volume of trades during this period.

For those invested in Mutual Funds or UITF's, it's the same thing, since your fund is invested in the same Bond or Stock market.

If you want to know if you should take your profits and sell your stocks prior to this period, then I believe the answer is No. It's tricky to time the market, and Ghost month is not a crisis. In fact, this month may be an opportunity to buy more shares in the company you believe in when the share price goes down. Just like the saying goes, "Buy when people are fearful".

I asked my Chinese friend if he stops buying and selling shares during the Ghost month period and he said "No, in fact, my first big gain, I bought them during the ghost month."

[Dividend Investing] Why I bought Aboitiz Power shares below P35

Recently, I withdrew a portion of my bond fund which already profited from the bond fund boost this year. FAMI is already at 18% in its first half of the year.

I am following this 75%-25% guide, where you shift your investments from Stocks to Bonds or vice versa depending on the market. We are currently at record low interest rates, and I feel that BSP will increase its interest rates eventually (probably next year). When this happens, long term bond funds will be less profitable. I'm looking for an alternative for the money I had withdrawn and I chose to do a dividend investing. Dividend investing is a strategy to buy stocks that gives consistent and relatively bigger cash dividends (>2%).

An alternative to bonds are preferred stocks. Preferred stocks give fixed and usually the highest cash dividends in the stock market e.g. SMC2A with an annual dividend rate of 7.5% (and a step-up rate after 5 years). Preferred stock prices are relatively stable, you can check their charts that the range they are traded isn't large (but any stock is still volatile under certain market conditions). But I personally didn't go for preferred stocks. I chose a common stock, AP, just because my risk appetite is bigger, I guess. I want the opportunity not only of a good dividend yield, but also the possibility of a good yield from a share price increase if I think that the stock is undervalued.

That's why it comes to this. I chose among the blue chips which gives a good (>2%) cash dividend. There are several index stocks that meets this criteria: PLDT (TEL), Globe (GLO), Aboitiz Power (AP) and Meralco (MER). TEL has the highest cash dividends among them (5%-6%+ I think).

Among the choices, I picked AP to be my cash dividend strategy. It gives a lower (4%-5%) dividend than TEL but there are other factors I considered in choosing AP over the others. I've said this before, and I'll say it again, I find Aboitiz companies to have good management and good value (low P/E ratio). A low P/E ratio would indicate relative stability and an opportunity for share price increase. Also, AP is in power generation business, so it should be relatively stable unless we all go off the grid and use solar cells to power our homes.

In summary, I chose Aboitiz Power (AP) as my cash div strategy because of 1) consistent and bigger than average cash div returns 2) It's part of the index a.k.a. blue chip companies. 3) Good management. 4) It's a bargain (low P/E ratio).

My buy range is 31-35 and it will most likely fall on the range again, even below 34, since the Ghost month (Aug) is coming; this is when I'll add more shares. Above is my personal opinion only, it's based on my research and I do not suggest you just follow what is written here, I urge you to do your own research using the methodology above and come up with your own list and your own choice. Of course it would be great if we have the same choice.

How about you? Are you considering a dividend investing strategy? Share your insights in the comment section below.

Note that for dividends there is a 10% tax. The aforementioned returns do not deduct the tax.

List of Preferred Stocks and other stocks by Sector

This is a feature request from a Pesobility visitor.

Rudyard said:

Can you please post on your blog the updated or latest list of PSE prefered stocks shares, e.g. Petron prefered or Ayala prefered shares or stocks. It will be highly appreciated.

Thank you for the email Rudyard, it was actually a feature that was planned to be incorporated to Pesobility website, I just didn't have the time to do it. But now, I'm pleased to inform you and the rest of Pesobility visitors that it is now available here: http://www.pesobility.com/stock/preferred

Not only that but you can also select and group then according to different sectors as well:
Bank | Casino and Gaming | Chemical and Industrial | Construction | Consumer | Education | Holding Company | Hotel and Leisure | Information Technology | Media | Mining and Oil | Power and Water | Preferred | Property | Retail | Other Financial Institution | Other Services

You can also now search this and all of the content through the search box found on the upper left portion of Pesobility website.

I hope you and other people find this useful, because I myself do.

Q&A: What's the "catch" behind dividends (Stock or Cash)

Thank you, Claris, for the email and allowing me to post it. I hope other people find this informative :)

Question from Claris:

I'd like to ask sana about the concept of dividends. So I saw yung FFI disclosed na magbibigay sila ng 110.37% stock dividends. Nagulat ako kasi commonly mga 20% stock dividends lang nakikita ko at mataas na un. So bale pag nagbuy ako ng stocks from FFI, pag narelease nila ung dividend ay madodoble (and more) yung number ng stocks ko? What's the catch sa mga ganto?

Answer: 

Tama ka sa concept mo ng stock dividends. Kung meron kang 1000 shares ng isang stock tapos nagbigay ito ng 20% stock div, magkakaroon ka ng additional na 200 shares. Isama ko narin yung concept ng Ex Dividend Date (or Ex-Date) para ma-explain ko ng maayos ano yung "catch". Bale ang Ex-Date, ito yung araw na magsisimula na kapag bumili ka ng shares, hindi ka na entitled sa previously announced na dividends at ito ung araw na usually bababa ang presyo ng stock.

For example:
Security Bank (SECB) declares 20% stock div.
Ex-Date: Aug 5, 2013

Sa August 4, 2013 (isang araw bago ang ex-date), ito ang last day na makakabili ka ng shares ng SECB na entitled magkaron ng dividends. Bale sa ex-date (Aug 5), pag bumili ka ng shares, wala ka ng matatanggap na dividends sa Date Payable. Applicable ito sa lahat ng dividends, like Cash Div and Stock Div.

Para sa stock dividends, ang "catch" nito ay kung efficient ang market, yung value ng stock mo ay bababa based sa adjustment factor na ang formula ay 1/(1+x) - 1 where x = (stock div percent / 100). For example, kung nag declare ang 20% stock div ang Security Bank (SECB) at nag close sya ng P200 per share the day before Ex-Date. Sa araw ng Ex-Date bababa ang share price ng SECB (assuming efficient ang market) by -16.66667% ((1/(1+0.20) - 1) x 100) or magiging P166.67 nalang ang price ng SECB sa Ex-Date.

Bakit nangyayari ito? Simple lang ang idea. Ang stock ay binubuo ng shares, at kada share ay may value. Example ang isang stock ay may 100,000,000 shares at ang presyo ng kada share ay P2.00, so meron kang P200M sa kabubuan (100M shares x P2.00). Kung ang kabubuang bilang ng shares ay umangat ng 20%, magiging 120,000,000 shares na ang kabubuan, ngunit wala itong idinagdag na value sa bawat share dahil hindi naman nadagdagan ang kita ng kumpanya. So sa parehong value na P200M, dadami ang shares na maghahati hati (from 100M to 120M shares). Ang value na ng kada share ngayon ay 200M/120M = P1.66667 per share, bumaba ito ng -16.66667% (adjustment factor na na mention sa taas).

Medyo similar ang konsepto ng "catch" sa cash dividends pero mas madali na syang isipin, kung magkano yung cash dividends, yun yung ibababa ng presyo ng isang stock pag dumating ang ex-date. Example, nag declare ng P100 cash div ang PLDT at nag sarado sya sa P3000 sa araw bago mag ex-date. Sa araw ng ex-date ang share price nya ay magiging P2900 (kung efficient ang market). Ito naman ay dahil nawalan ng pera ang kumpanya ng binigay nya ito sa may mga hawak ng shares. So kung nagbigay ng P100 pesos cash-div ang PLDT kada share, it follows na bababa ang value ng kada share ng P100 pesos din dahil napunta ito sa bulsa ng mga may hawak ng PLDT shares.


[Update August 22, 2013] The above statements seems too disadvantageous for the shareholders. There is a reason why companies declare stock dividends. There are SEC rules that disallow corporations from hoarding excessive profits i.e. retained earnings exceeding paid up capital. Companies issue more stocks to increase paid up capital so that they can retain the earnings.

This is actually positive since it means the company is expanding rapidly and earning so much more that it has to issue stock dividends. This indicates that the company is doing good in business, in turn, this also benefits the shareholders at least theoretically. This is true most of the time, take note that growth is not the only factor driving share price up.

For your financial questions, feel free to email me at manny@pesobility.com and I will try to answer them as soon as I can.

My Stock Picks for July 2013 [Philippines]

The Philippine stock market was lashed by multiple crises outside the country: U.S. Fed's QE madness, China's slowing economy, Japan's overheating but inspite all these, our country remains fundamentally sound; our GDP is high (7.8%), inflation is low (2%-3%), interest rates remains stably low. My opinion is, generally, the market is in an upward trend (unless we encounter another crisis).

Though I worry that Fed's QE is the biggest bubble to burst yet, that's for another time and for another blog entry. Now, markets are generally at ease, so until the next crisis, here are my stock recommendations:


CPG (Stock information)

CPG's share price went down big time. Based from my analysis, this stock is highly undervalued (7.5 P/E at P1.42). The upside is great. If it reaches P2.00, the profit is already 40%. If it goes back to its 52 week high, that 71% profit.

I call this my Warren Buffet stock because usually when you invest in a stock, at times it haunts you and you can't put your eyes off the market. This one makes me sleep at night. It's a personal opinion; do your research and find your "Warren Buffet" stock.

My buy price is 1.25-1.45.


MER (Stock information)

When the rumor that San Miguel (SMC) company was in trouble, this stock was also affected somehow because SMC has 30% stake in Meralco. Today (July 19), San Miguel's officially announced the sale of shares in Manila Electric Company at P270 a piece. This made the MER's stock price tumble to 275-280 range.

However, Meralco hasn't change, its fundamentals are the same, and it remains a strong company. Meralco shouldn't be affected even if SMC goes bankrupt (knock on wood). There's no real fundamental analysis here, its P/E is still a bit high (17) but it was high ever since. The only analysis is if it bounces back, the upside is big. 52 week high = P397 which is a 43% upside from P277.

My buy range is 270-280.


MWC (Stock information)

Manila Water share price dropped when its deal with Indonesia failed. It was a big opportunity that was lost, however, Manila Water's P/E is at 12 (relatively low) and the snag seems to be forgotten since its price is now increasing.

My buy price is 32-34


MBT (Stock information)

I owned MBT shares before I sold it at 117 then its shareprice skyrocketed to 139.5. Compared to other stocks, the upside is not that great but I recommend this stock because it's one of the stocks that rebounds quickly.

Buy range: 105-109




Obligatory disclaimer: Follow above recommendations at your own risk. The above guide does not tell when you will sell, it's really up to you.

Computing Your Mutual Fund / UITF investment manually (E.g. FAMI)

For this entry, I will be using FAMI (First Metro) SALFIF (Save and Learn Fixed Income Fund) for my sample computation.

It is very easy to compute your profit/loss. Just get the number of shares you got (it should be in the receipt sent to you) and multiply it by the current NAVPS.

For FAMI, the NAVPS is listed in the FAMI Website.

Example:

Last October, 2012, you placed 5,000 Pesos in your FAMI SALFIF Account. After you got the receipt, take note of the details in the receipt and note it somewhere, like in your journal or in an excel / Google docs spreadsheet.

Amount: P5000
Number of Shares: 2771
NAVPS: 1.7683

So last October, 2012 the value of my investment was 2771 x 1.7683 = P4899.9593, it means I immediately incurred a loss of ~P100 or 2% because FAMI has a sales load of 2% (more on this in another blog entry).

Now, let's compute how much it is today. Go to FAMI website and get the NAVPS of SALFIF, which is currently 2.2073. So I multiply the number of shares 2771 by the current NAVPS 2.2073. 2771 x 2.2073 = P6116.4283. So in 9 months, my P5000 last October 2012 is now worth P6116, which is a 22% gain. (Not bad!)

Take note of the terms and conditions in your mutual fund/UITF though. For example, FAMI has an exit fee of 1.5% if you withdraw your funds within 6 months.

For convenience, I shared a sample computation sheet using Google spreadsheets. You may access it here.


Want to start investing in a mutual fund? I can help you with that, email me.