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Showing posts from 2011

taking risk, when?

It has always been said that in order to achieve higher returns on your investments, you need to take bigger risks. But a better question would be, when should I take risks? and the answer is: when you can afford to. Its ironic how poor people spend a significant part of their income on buying lottery tickets or gambling when they have so much to lose. If someone steals 500 pesos from your wallet and you can't sleep at night because of it, then you are in a financial position where you cannot afford to lose such an amount. So why would you spend 500 on lotto or gambling or on a risky business. On the other hand, if someone runs away with 100,000 of your money and it doesn't affect you emotionally, then you are in a financial position to spend 100,000 on risky investment because you can afford to lose the money. If you start from zero, then have an emergency fund first, about 6 months worth of income stashed safely in a savings account. This money is relatively safe since thiev…

time to load up on san miguel corporation (SMC) shares

Finally, the ideal price for SMC has come. At P110 per share, this would be a fair buy for a blue chip like San Miguel. I can just imagine the anxiety of those who bought it at its peak price of P180 not so long ago. Herein lies the wisdom of buying stocks that are fairly priced and refusing to buy stocks that are overpriced. If you can't find a stock that meets this criteria, then do nothing and park your cash in bank account and when the time is right, pounce and load up on its shares. Generally, I try to buy shares that are selling at a discount to its fair price but that rarely happens with large companies like san miguel so I'm happy to pay the fair price for its stock. I believe SMC's fundamentals are good. It has good cash flow and is diversifying into other industries for growth. Now I can relate to Warren Buffett's statement when he said he felt like an oversexed guy in a whorehouse when the market offers quality companies at a discount. So for those with cash…

the permanent portfolio

I came across a very good article on Harry Browne's permanent portfolio. He recommends a 25% allocation on cash, stocks, bonds and gold respectively and all you have to do is to rebalance your portfolio once a year to maintain the said allocation. What draws me to his strategy is that it makes a lot of sense. According to him, the future economic environment is always uncertain and impossible to predict accurately, so a prudent investor need to have investments that will do well in each situation. In times of prosperity, stocks do well; in times of inflation, gold performs very well; when interest rates fall, bonds are the winners and in times of recession, cash is king. So regardless of the economic condition, the investor with the permanent portfolio will not lose all of his investment and he is guaranteed that one of it will yield very good returns that will compensate for the poor performance of the other three. The added bonus is that you only need to spend a few hours each y…

my stock picks for 2011

My approach to buying stocks is the same as buying most other things: Buy quality ones that are on sale. Otherwise known as value investing, this involves buying stocks that are currently priced below its fair value. I have 3 criteria when buying stocks:

1. priced at 10% discount to its fair value
2. company has been in business for a considerable amount of time
3. it sells an important product or service

As to coming up with its fair value, I use Graham's number which involves multiplying (earnings per share) x (book value per share) x (22.5), then getting the square root of the result. So far I have only examined stocks in the PSEi which lists 30 stocks. Among those listed, only 3 meet my criteria:

1. JGS - ideal price at P24.5
2. RLC - ideal price at P13.5
3. URC - ideal price at P37.5

It is interesting to note that these companies are Gokongwei led and as of today, they sell for P24.1, P13.08 and P37.0 respectively. As long as these stocks remain below my ideal price, I will buy them.…

Kiyosaki's new rules of money

I stumbled upon Robert Kiyosaki's new rules of money presentation and would like to share it with you. Here's a summary:
1. Academic and professional education isn't enough anymore, get financial education.
2. Work on getting more of your income from business and investments rather than from employment.
3. Hedge against inflation by buying gold, silver and oil.
4. Asset is defined as something that puts money in your pocket while liability gets money out of your pocket. Accumulate more assets than liabilities.
5. Accumulate good debt such as getting a loan for a rental property while the tenant pays for it. Avoid bad debt or consumer debt.
6. Have something to sell.
7. Don't park money for the long term. Move it around.
8. Focus. Don't diversify. He doesn't invest in mutual funds.

notes about investing

1. pay off debts and have an emergency fund before investing
2. higher returns would involve more risk, but risk can be minimized by studying the investment before putting your money
3. don't lose money, if the investment is falling, opt out at the early stages and lose a little. don't be hopeful that it will bounce back. this is very true for stocks.
4. don't be greedy. don't pool all your investments into the best performing asset
5. be vigilant. monitor the performance of each investment. if it doesn't perform, stay with cash
6. invest in educating yourself. you never lose with this one
7. make sure you understand the difference between investing and speculating
8. if you don't understand it, don't place your money in it until you do
9. don't be emotional about your investment. be prepared to sell if necessary
10. again, don't lose money

don't swallow the "average returns" published by your fund

It's always nice to look at the annual reports of various investment funds. They are always printed in glossy paper and a lot of effort went into its publication, think graphics, etc. If you ask me, I'd rather have an ordinary looking report printed on ordinary paper, if that would mean considerable savings for the fund that will be translated to reduced account fees; ergo, more returns for us. Yes, we are paying fees and this eats into our returns, my friend. Anyway, the point of this blog entry is to tell you that numbers aren't always what they seem. Let's say the fund gained (+50%) in year 1 and lost (-30%) in year two. You invested 100 into the fund. How much do you have after 2 years. 110? Nope, you have exactly 105 after 2 years. Most people, in fact most funds will average the returns (50%+(-30%))/2years equals 10% average return. But that is not accurate. After year one, your investment is now worth 150 after a 50% return. After year 2, your 150 is now worth 1…

the little thing called inflation

Inflation is an important factor in evaluating the performance of your investments from time to time. But what is inflation. Let's say you work for 30 minutes and get paid $10 for it. You then spend the money to buy a piece of hamburger since you're hungry, that's consumption. You decide to work for another 30 minutes and get paid another $10. Since you don't need to spend it, you decide to save it for you to spend after, let's say 5 years. If you decide to put the $10 in a jar and get it back after 5 years, it would still be the same $10. But alas, because of inflation, the hamburger this time costs $11.50, so you can't even afford to buy one now. Let's say you were a little bit wiser and deposited the money in a savings account earning 3% pa. You then withdraw the money after 5 years and got $11.50. Well and good, you can still afford to buy the same hamburger now. Let's say you were somewhat aggressive and used the $10 to buy one share of stock in a …

using your head when evaluating business proposals from friends

Recently, friends and relatives have pitched ideas for financing certain business ventures or investments. It ranged from the ubiquitous internet cafes to residential real estate. Although there is a good chance of making money in such ventures. I have issues with a few things. First is trust. Money is quite a temptation and you can never be 100% sure of the people who will handle yours. I don't want to be sleep deprived thinking if the money is still there. This is made worse by the fact that the proposals I got offered very little control, especially that I reside overseas. They are basically asking me to trust them with capital and it will grow. That's not my style as I want to be involved in any business or investment I'm in. Second problem is, close relationships often get in the way of business and it's hard not to let emotions get involved. Surely, I love my friends and relatives but at the same time, I would want decent returns on the capital. If I were a stock…