$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.

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.



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[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.
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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.

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).

Answer:

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.

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.