Friday, August 16, 2013

$SUN shareprice skyrockets! [Why? A Newbie Guide]

In my previous post, there is a speculation about the strategy of AGI companies, specifically, when Suntrust Home Developers (SUN) was left as a shell company, theoretically for a greater purpose. These speculations have come to life, and are continuing to do so when SUN has just announced that it's allowing existing shareholders to subscribe to 2.5x more  shares.

If you are a shell company, a company without asset, why would you want your shareholders to subscribe more? It means the owner is eyeing for a profitable venture and a backdoor is in place. Backdoor is a way for non-listed companies to be listed in the Philippine Stock Exchange. This is done because listing from scratch or Initial Public Offering (IPO) is quite expensive to do compared to just acquiring a shell company that is already listed in the exchange.

Before the disclosure was announced, SUN was trading around 0.57-0.60. No one knew then when a backdoor will be in place, or if it will ever occur, so the share price of SUN went down. When the disclosure was announced that additional shares will cost P1.00 each, that's the signal that a backdoor will occur soon! SUN's share price skyrocketed.. immediately you will think that a SUN's stock price will be valued at least P1.00 so those who bought below P1.00 were fortunate. SUN's share price reached ceiling price immediately. The next day it also reached ceiling, and today it's still up but no one knows for sure how high it will go.

The disclosure states that only existing shareholders can buy additional 2.5 shares. This means if you own 10,000 SUN shares, you can buy 25,000 more shares at P1.00 on SRO. The fact only existing shareholders can buy more shares adds to the buying pressure, that's why SUN's price is going beyond P1.00. There's an increased demand to have shares of the company (EVEN IF WE DON'T KNOW WHAT ANDREW TAN IS PLANNING). We're just trading in good faith that Andrew Tan won't let us down, that it might be Emperador that will backdoor SUN. Some are just trading for the play of instant money, well I think most are.

I don't know how high SUN will go up. Today, it's kinda shaky: it's reaching ceiling but sometimes the price goes down also. If big players are playing SUN, or maybe there's just a big demand for it, then it can still go up beyond P1.90 (Today's ceiling is P1.90).

So who will the backdoor company be? My gut tells me it's Emperador. The SUN is up and everyone seems happy, but for how long? When SRO has an Ex-Date, the share price will probably go down the day before ex-date, similar to dividends' ex-date case.

Thursday, August 8, 2013

Market Watch: August 2013, QE Fears Anew

[August 28, 2013 Update] Aside from the reasons below,  the conflict in Syria has dampened investor sentiments when U.S. announced it is considering the use of military force in Syria after the Syrian government "crossed the line" by using chemical weapons against the rebels. More than 1,300 people died, including women and children in the said attack. This indicates a new war is brewing.

Isn't War good for the economy?
Well, yes and no, but generally no. Some corporations may benefit from it directly or indirectly, i.e. U.S. buying supplies needed for the war, higher oil prices, etc., but the general economic impact is negative, like what is learned from the war in Iraq. Economic uncertainties, less investors, higher government debt, money spent on military is better spent on health care, education, etc.

Other factors causing the downtrend market
U.S. will reach debt ceiling in October.


[August 22, 2013 Update] FED has announced support for tapering QE (see more information below). Philippine stock market is down more than 6% in the first hour of trading this morning. Below is an entry posted two weeks ago for the downtrend we are seeing right now. The downtrend may not be over but it may be an opportunity to buy your favorite stocks below 6100 PSEi points.

Asian stocks fell this week as U.S. Fed officials failed to clarify when will it start cutting down its quantitative easing (QE). Not to mention August is the ghost month so we might really expect a downtrend in this period because of the market uncertainties.

Why are we affected?

We live in a global economy. If U.S.' quantitative easing is tapered, there will be an outflow of hot money from emerging economies, including here in the Philippines. It will trigger a major sell off to liquidate the funds and this will affect our stock market. A chain reaction may likely occur to sell more stocks if the stock market goes down because investors want to protect their assets by liquidating. If it's overly done, there might be a panic and the effect will be catastrophic because stock market will continue to fall. This is what happened in the Asian financial crisis of 1997. We hope we do not experience it again. 

What to do?

This is a period where you need to be vigilant. Watch out for news relating to QE. U.S. Fed hints that it will start cutting down its QE at the end of this year (2013). Depending on how and exactly when they taper it will affect our market (positive or negative, probably leaning on the negative side).

Investment in stocks and funds that are in equity will be most likely affected. What I will do is cut back in my monthly investment in these vehicles until the uncertainties become manageable. In other words, I will NOT yet sell or liquidate and continue to hold my positions unless a financial crisis is triggered. I'm not saying you follow the same strategy, but this is just to inform you to watch out for the upcoming events that will unfold that may significantly affect our market.

Market Watch is a free market assessment from Pesobility. It tries to explain why the stock market or the bond market is up or down, the factors affecting the trend, and a recommended plan of action.

Thursday, August 1, 2013

Q&A: I have 100K to invest, what now?

Time for some Q&A segment, I'm loving this. Special thanks to Mr. Romy for this article.

Romy said:

I have read your pesobility blog regarding mutual funds handling by FAMI. Since, I'm interested to try for investments, by the way I am one of the OFW working in the Middle East and planning soon to go for good and stay in Philippines with my family. Please help me or give me guidance that my decision to invest  my earnings with FAMI is a right decision.

My plan is l will invest an amount of 100,000 pesos and apply for (Balanced Fund) and decided to keep it shall we say about 15 years then after that, this is the time I will start withdrawing the interest every month as this will serve as my pension benefit. Some of my colleagues and friends trying to convince not to go for it, as they said I will loss 100% and nothing will happen to your earned which you have work for how many years in the middle east. Despite of that discouragement, I want to pursue with your guidance that I am making a right decision and I'm ready for the risk (in case).


Thank you for reading pesobility blog and taking time to email.

There are several questions on top of my head right now: Do you plan to have other investments after investing 100K in a balanced fund? Like business, stocks, etc. Another is, what will be your source(s) of income when you're here in the Philippines? Like do you have or plan to start a business, or will you go back to employment?

This will make me better understand your situtation, but let me have a general, unsolocited advice first from the current information.

The One Time Investment

It's okay to invest 100K and leave it for 15 years. I actually commend you for having a very long horizon (15 years), and it's almost certain that your investment will profit. Take note, though, that 100K is relatively a small amount. After 15 years, it will probably become 500K (rough estimate). The question now is will it be enough for you? I think the answer is, No. All the more, the interest you will be withdrawing from it won't be that great; for shopping money maybe, but I'm guessing you will use this for your retirement? If I'm correct, then 500K is a very small amount for retirement.

I would not suggest a one-time investment. I believe that investment is a discipline, and not a one time thing. It's also a risk, and loss of money is certainly possible and you want to equip yourself with the circumstances that go along with investing and not just blindly put money and hope that it grows. In the process, you learn from your mistakes, you will learn from it and make you a better investor who makes better decisions with your finances.

100% Loss in Investment

Do not easily be discouraged with people saying you'll just lose 100% of your investment, because it's likely that they have done it the wrong way, and it might not have been "investing" at all. There are many people who invests in Pre-Need plans, insurances, or college plans, or even Pyramiding and multi-level marketing. I'm not saying this is wrong, but when putting your money in any institution, you should carefully check how they conduct their business. Do a due diligence, how they make money from your money. Example, some businesses, by its very nature, will go bankrupt. This is true, especially when the way they profit is just getting more money from people without actual products/services or when the products/services are just a front. This is an entire topic in itself, so research research research.

Bond Market, Stock Market, Mutual funds, Bank investments have been here for many, many years because their foundation is in our industry and economy. Before these institutions/investment vehicles go down, our economy must collapse first. The chances are very slim but not impossible (Look at Greece, Spain, etc).

The Investor Mindset

Investment should be continuous. In general, making 10% per year is already considered a good investment, whether it is from stocks, from mutual funds, UITF or mixed. If 10% per annum is already considered good, your 100K will not really grow into millions if you do it one time. Another thing, investing in something means you really believe in that business, so for example you will invest in FAMI Mutual fund, do your research, is the management of FAMI ok? Does FAMI has a proven track record as a business? Because note that investing is you're owning a part of that company, so it's like you are the part owner of FAMI when you invest in it. And like any part owner, you should regularly do your due diligence, like check if the business is still doing well (not just from rumors or people, but from their financial statements), if there are official news regarding the business, do you believe in the people that run it?

Being a serious investor takes a lot of market analysis and learning investment options, for example what will you do when there's a significant change in inflation, what will you do when interest rates go up, what will you do when China's economy slows down, or when U.S. Fed decides to stop its quantitative easing. These will make your head hurt, and it's certainly not for everybody. Many of us wants the easy route, what's the easiest way to invest.

The Easier Way to Start Investing

If the above is not for you, there's another way; a much simpler way to invest. This is not fool-proof thing, and there are still risks involved but for me this is the easiest way to start and make the right attitude in investing: It's called the Peso-Cost averaging.

The idea is very simple, choose an investment vehicle (like Balanced Fund) or a stock that you're really convinced in. Let's say you are decided that it's balanced fund. Place a fixed amount of money at fixed intervals and do it for long term. Example: Place P10,000 pesos in balanced fund every month, no matter what the market situation is. Or maybe P20,000 per quarter (every 3 months), whichever is the most convenient to you, as long as you can place a fixed amount at a fixed interval.

Study shows that in the long term, there's a high probability that you will profit. The profit may not be as large compared to analyzing the markets, but it's certainly easier, less stressful, and you'll learn a lot from it too.  This is not realized in short term, it should be long term like more than 3 years. Look at it like paying your monthly bills, you should be disciplined to invest consistently.

Final Words

In the end, if you have 100K, I would suggest you split it like invest 10K per month consistently then even after the 100K is used up, continue investing 10K per month. After 15 years, you would have saved a lot and profited from your investment. That would be roughly 1.8M + profit from investment if done continuously, as compared to 500K if you do a one time 100K investment after 15 years.

The above is just an example, there are other factors as I said that may affect this. Please do not follow what is written above word per word, but digest the ideas and make your own strategy and plan in investing. I salute OFW's, more power and God bless.