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how would Batman invest?

My favorite superhero would have to be Batman. Not only because he is amazingly wealthy as Bruce Wayne, he seems to be always 2 steps ahead of his opponents. I write this post because the year is about to end and we are about to enter a new year. A fresh start to evaluate your investments, to re-balance, to prune out and plant new ones too. Central to all of this would be a Batman - like ability to plan ahead, to be 2 steps ahead of potential problems even before they become obvious. For stock investments, this would mean reading their financial reports and looking for threats that may undermine the company's future performance. For real estate, this would mean looking for signs of a price bubble or simply checking your property's vicinity for potential problems. And for double your money schemes disguised as legitimate investments, well you know what to do - run away from them as fast as you can. Have a plan when your investments perform well and more importantly, have a plan…

Investing in agribusiness

Renowned investor Jim Rogers was quoted saying that farmers will soon be driving Lamborghinis and that high school students now should seriously consider a career in agriculture. I don't know about the Lamborghini part but he does have a point. With the global population tipped to grow a another 2 billion and rising Asian middle class wanting more meat in their diet, there seems to be a lot of upside to investing in agriculture. For an overseas Filipino such as myself, the easiest exposure to agriculture would be to invest in agribusiness stocks. This would include Agrinurture Inc., Universal Robina Corp. and Roxas Holdings. Second would be to buy an existing farm and be a passive owner of an agribusiness venture. As with all other investments, a careful study is required to manage risks. Agriculture in the Philippines is still largely underdeveloped and would require a massive injection of capital. For those who do it right, the returns may be worth it. Happy investing!

How wealthy are you compared to the rest of the world?

Ever wondered how you compare to the rest of the world in terms of wealth? Here it is in terms of net worth (that is total assets minus total liabilities):

1% have a net worth of US$710,000
10% have a net worth of US$71,000
50% have a  net worth of US$3,700

There you have it, if you have a net worth of US$71,000 you are wealthier than 90% of the seven billion people on this planet. If you ever have days where you feel like not having enough, think of the legions who have far less than you. Count your blessings and happy investing!

If MVP divests from the country, I will do the same

Last month, there was an interesting news article about MVP or Manuel V. Pangilinan venting his frustration on being dragged into certain controversies being played out by our "honourable" politicians. He must have been really pissed off to the point of saying that if this goes on, he may move his business operations to Hong Kong. I don't know if that would mean simply moving operations or a complete divestment of his Philippine holdings. Either way, it would be a very bad sign for the country. In many ways, I do understand his disappointment. If you don't, try opening a business in the country and you'll know what I mean. If one of the country's top investors moves his money elsewhere, we should take notice.

Interesting results from the Consumer finance Survey

Here are some interesting results from the recent Consumer Finance Survey by the Bangko Sentral (Philippine Central Bank):

The Philippines has a young population. The age distribution of household members showed that 21.5 percent were 5-14 years old, these figures also indicated that a significant increase in the country’s labor force could be expected over the next decade

 Only a very small percentage of households owned securities and investment accounts such as stocks, bonds, mutual funds and unit investment trust funds (0.4 percent).

 Most households that owned their house/house and lot acquired the property through cash payment  and inheritance/gift. Only 6.7 percent borrowed money for their housing.

 About 16.2 percent of households owned at least one other real property aside from their residence.

 Eight in ten households (78.5 percent) did not have a deposit account. Among those with no deposit accounts, the main reason cited by 92.8 percent of households for the absence…

Is there such a thing as overdiversification?

Most personal financial advice recommend that investors diversify. I agree; but come to think of it, is there a point where your investments become too diverse without any real benefits? For instance, there was a study that showed owning more than 20 shares in your stock market portfolio would provide very little risk reduction. Owning just one share is risky, when you own 2 shares, you have reduced the risk significantly. When you own 3 shares, the risk is reduced even further. But owning your 21st or 101st share only reduces your risk by a tiny amount. Limiting the number of shares you own would also force you to think hard on which companies to buy and get to know them better.

This would also apply to mutual funds and UITFs. There are plenty to choose from but there is no need to divide your money into all of them. Perhaps choosing 3-4 would offer enough diversification. Real estate can also become overdiversified. Why not sell some of your less expensive properties and buy a few r…

do not invest in Philippine pre-selling condos

I would rather shoot myself in the head than invest in pre-selling condos in the Philippines. My brother and I were interested on getting a condo unit not really as an investment but as a vacation home. However, when I read a contract to sell from one of the Philippines' top developers, I was shocked at how skewed it is on the developer's favor. There is very little protection, if any, on the buyer's side. I think you would have to be either really stupid or overly trusting to sign one of those contracts. The first issue I had was that they require the full post dated checks even before providing the contract to sell. What the hell? They should give the CTS when the buyer has paid 10% downpayment. Next, if they failed to deliver the unit as scheduled, there is no compensation to the buyer. They can practically construct the condo as slow as they can. Then they are also free to alter the floorplan as they please. So if you expect 10 units per floor, you might be surprised t…

from little things, big things grow

Most of us know this is true with investing but it takes discipline and a lot of patience to see this through. From little things, big things grow.  As investors, we need to realize that small amounts do matter and nothing should go to waste. We see pocket change, but the real value of those coins is many times over if it were invested and given time to grow.Yes, a few coins would not buy you much now but if invested well, it can grow to such that it can actually buy more in the future than what it can today. So if you see a coin, pick it up. It may only buy a piece of candy now but if invested well, it could pay for a decent meal 30 years later. Happy investing!

sovereign bonds

An investor can earn some interest by lending money to individuals, corporations and even countries. The question would be, what is the probability of getting your money back. That is where ratings agencies come in who grade bonds from triple A all the way to junk status. Those with a high credit rating pay less interest but would have greater certainty of repaying the whole borrowed amount. The opposite is true for those that are considered more risky, they pay more interest. From an investors point of view, earning 30% from bonds may sound good but attached to that would be a very real possibility of default and thus losing all the investment.  Now here's an interesting exercise, the following shows two groups of countries by their public debt as percentage of GDP:

Group 1:
A. 103% 
B. 208%
C. 108%

Group 2:
D. 49%
E. 40%
F. 24%

If you can lend to one group without looking at their bond ratings, to whom would you lend? To group 1 whose debt is already greater than their GDP, or …

foresight or luck?

Sometimes its hard to tell whether an investor is just lucky or had good foresight. A very good thing just happened to one of our family's real estate property. We bought that farm land many years ago and its not even titled. Just recently, a department store was opened two km away and a subdivision development is ongoing just across the property. Its value has multiplied many times over, far more than our actively managed investments. When pondering this, it could have also dived in value if a landfill was built near it. In short, the return or loss from that real estate investment was entirely due to the actions of the surrounding landowners. Luck or foresight? Maybe a little bit of both.

CNN interview with Ayala brothers

CNN is currently airing feature programmes on the Philippines. What got my attention was Andrew Stevens' interview with brothers Jaime Augusto and Fernando Zobel de Ayala, the CEO and COO of Ayala Corporation respectively. I'm actually a great admirer of their company's projects and truly believe in the value that the company brings to the table. So much so that my stock investment in AC outweighs all other positions I have in the Philippine Stock Exchange. When I saw the 30 minute interview, I became even more convinced that this investment is definitely for the long run. Small share investors like us rarely have the privilege of picking the minds of the people who run the companies we own and this interview provided a good opportunity to do so. Yes, I may own a miniscule, insignificant portion of a giant corporation but I do put in the effort of knowing MY company. The thing I admire most about the brothers was captured in the last part of the interview. To quote:

STEVENS…

Of Europe, Scarborough and whatever else is on the news

Sometimes, its better to switch off the news. We have 24-hour news on the television and the internet and it can easily sway investors to act accordingly. Bad news - investors flock to gold and cash. Good news - stocks become favorable. Don't get me wrong, we need to be aware of what's happening in the world we live in. Such as governments cutting spending in Europe or that China is claiming the Scarborough shoal off the Philippines. But for investors, worrying about these events affecting our investments is useless. Worrying about anything and everything is unproductive, as the good book says so. Not to mention that worrying is bad for your mental health! Look at the bright side. Jitters in Europe cause money to flow to emerging economies like the Philippines, no wonder stocks are at all time highs. This standoff with China over some rocks in the middle of the sea may finally push the Philippines to modernize its armed forces. There is always a silver lining in seemingly gr…

Much ado about an IPO

GT Capital is having an initial public offering and what happened is, I wasn't invited. Just to be clear, I am not writing this post because of sour grapes. In fairness to my broker, COL, they did ask me to participate in Megawide and Puregold's IPO. I declined both occasions. It is my opinion that an investor is better off avoiding initial public offerings. There is just not enough information in the prospectus to make a decision. For example, you do not know a company's dividend history, which is a substantial factor in choosing which stocks to buy. Since a private company is not subject to the same level of scrutiny as publicly listed ones, there might be some issues that is not factored into its valuation. The share price of an IPO is set by the company and only when it starts trading on the exchange will its stock price be determined by the market, the collective decision of thousands of investors. So I would take comfort that the price I will pay has been set by the …

a framework for investing in the stock market

Warren Buffett famously said: "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework."

A big reason why I blog is to preserve the framework I use. Reading past entries allow me to revisit the ideas from various sources that have influenced my investing style. When it comes to putting money in the stock market, here are some guidelines:

1. assess the management - If you manage your own business, you know for a fact that no one could possibly do it better than you. But when it comes to companies whose stock you would like to buy, how do you know that management is doing their best. Check if they have achieved previously stated objectives, check measurements like earnings per share growth and revenue growth, check surveys that publish the most admired and well managed Phili…

living rich vs being wealthy

They may sound similar at first, but there is a big difference between living rich and being wealthy. Living rich is what most people aspire to. Live in a big house, drive a fancy car, go on expensive holidays and have all the trappings of life money can buy. Unfortunately, however, someone has to pay for it. Most likely by slaving away in the corporate world and sacrificing a big portion of your time to earn cash which you spend freely. Therefore you need to exert more effort as years go by since money flows out as fast as it comes in. You live in fear of losing your source of income because you are so used to living the high life.

Being wealthy means living below your means. This means driving a used car, living in a mid size home, staying at a 3 star hotel, buying things when they are on sale. This allows you to save your excess earnings and invest them in assets that appreciate in value. Over time, these assets will grow and eventually provide you with income. You then don't ha…

defensive investing advice from Dr. Doom

I would like to share a reading from one financial newspaper who interviewed Dr. Marc Faber a.k.a Dr. Doom. He often appears in the media with a very bearish outlook, hence the nickname. But I for one liked what he had to say about investing during these volatile times. Basically, his advice is very similar to Browne's permanent portfolio, which I have shared previously. Dr. Faber is advising investors to spread their investments into:

25% stocks
25% cash and bonds
25% precious metals
25% real estate

Not a bad asset allocation strategy. Its simple to follow and you only need to rebalance your investments from time to time to compensate for those that have increased or decreased in value. Particularly this time when Philippine stocks are at a record high and gold is still above $1600 an ounce. Perhaps the next several investments you can make would go to cash or real estate. Happy investing!

angel in the marble

Many speakers often use this story and it can be applied to different situations. I for one find it very relevant to investing. The story is about how Michelangelo created the statue of an angel in the Basilica of San Domenico in Bologna. He said, "I saw the angel in the marble and carved until I set him free." While everyone else sees a block of marble, Michelangelo has the vision of a beautiful artwork and he made it a reality. This mindset is what separates great artists such as him from mediocre ones. I believe this is what separates successful investors from those who lose as well.

Good investors "see the angel in the marble". They see the future potential of their investments, even if most people don't and they have the patience to wait for that potential to be realized. It could be a stock whose price is driven down by temporary setbacks, or a block of land in the middle of nowhere with tourism prospects, or a business idea that others dismiss as ridiculo…

things to consider before investing in a condo

A search on google regarding real estate is flooded with results pointing to condominiums. They are being built left, right and centre in the major urban areas of the Philippines. From an investor's point of view, one should consider the merits and disadvantages of investing in a condo unit. I guess the first consideration would have to be the most obvious, why do you want one? Do you plan to live in it? or rent it out and derive income from it, or just use it as a store of value.

Planning to earn from it requires careful research on the prospect of rental income. It would be ideal if the tenant ends up paying for most of the mortgage plus maintenance cost. But again, this scenario requires careful planning and not many condo projects can offer this. As a store of value, I am biased against condos because of two things. First is that buildings depreciate as years go by and secondly, the supply of condo units can increase anytime thereby decreasing its price. Land would be a better…

the Philippines is on its way to be the 16th largest economy

In 40 years that is, according to HSBC's "The World in 2050" report. When I wrote in 2009 my reasons for keeping invested in the country, I was never as optimistic as this report. Who would have thought that the Philippines would be attending the G20 meetings. The report says:

"The country is projected to be the 16th largest economy by 2050, a striking rise of 27 places from its current ranking."

“There are some truly remarkable hot spots in Asia... The star performer, however, is the Philippines where the combination of strong fundamentals and powerful demographics gives rise to an average growth rate of 7% for the coming 40 years.”

That should give some encouragement to those who maintain a positive outlook for the country. If we are on the way to becoming a large, developed economy, then it should take the value of our investments along for the ride. Again, the Philippines has so much potential and we are only beginning to make use of it. If we are to fully dev…

investing with the water dragon

Well, there's really nothing that will change with my investment decisions now that we've entered a new lunar year, and you should not either. Its funny how some people associate the arrival of a new animal sign with predictions of where or how we should invest. Rational thinking should prevail my fellow investors. For instance, would Manila Water (PSE: MWC) be a good stock to buy because it is involved with water or would a beachside property be excellent because it also has to do with water? Not that either of these two are bad, MWC has solid earnings and people would always pay their bills, it also has the backing of Ayala Corp., a large conglomerate with good management record. And who wouldn't want to relax in your own private beach house. The fact is that these two would be good investments whether it be the year of the pig, dog or dragon as long as you do your research before investing.

A second point I would like to highlight is the propensity of the Chinese to suc…

cash maybe king but it doesn't reign forever

I was going through my coin and banknote collection the other day and realized something: Cash maybe king but it doesn't reign forever. Proof of that was the collection itself. It had 2-peso, 5-peso and 10-peso banknotes. So at some point in the past, these denominations actually had sufficient value for them to be printed as banknotes instead of being minted as coins, which is what we have now. So what happened? Since governments or central banks are able to print currencies out of nothing, hence the term fiat currencies, the ever increasing supply of it causes its value to diminish. That is why our grandmothers always complain about how expensive things are these days because they were able to buy so much more with the same money in their younger days.

What does this mean for investors like us. If you have a bundle of cash now and would not need it in a year or two, please don't hide it under your bed. In three years, inflation would have reduced its purchasing power by 9-12%…

ASEAN trading link

The Association of Southeast Asian Nations (ASEAN) is promoting more cross-border collaboration by promoting the ASEAN Exchanges, made up of seven stock exchanges from Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam(2). I am particularly excited with the upcoming ASEAN trading link connecting the bourses and offering Filipino investors easier access to opportunities in our neighboring countries.

An excerpt from a press release from www.aseanexchanges.org says:

The CEOs also announced the awaited roll-out plan of the ASEAN Trading Link which will see the participation of member exchanges taking place progressively in stages. The first stage will see the connectivity of Singapore Exchange and Bursa Malaysia in June 2012 and the Stock Exchange of Thailand added in August 2012 after its new trading engine goes live. The participation dates of the other ASEAN Exchanges collaboration members, namely, Hanoi Stock Exchange, HoChiMinh Stock Exchange, Indonesia Stock Exch…

Philippine stocks at record high, time to stay away

If you adhere to an investment allocation principle, then its time to evaluate your portfolio. Because stock prices have gone up, you maybe overexposed to stocks. Let's say you follow an allocation of 40% stocks, 40% cash and 20% bonds. Two years ago, you invested 50,000 accordingly: 20k in stocks, 20k in cash and 10k in bonds. Now that Philippine stocks are near record highs, the value of your stock investment is taking up more than 40% of your portfolio. If you have additional funds to invest this year, its time to stay away from stocks. Otherwise you will miss your allocation target.

This is easier said than done since the tendency for investors is to buy high and sell low, very much the opposite of what a prudent investor does. In good times like what we have now, when we see the value of our stock investments go up substantially, it is very tempting to pour more money into such investments thinking it would go up even more. Restrain your emotions, fellow investor. Stick to you…

Chinabank's investment products

Chinabank offers several investment products to its clients, aside from the usual deposit and loans. For peso-denominated investments, they have treasury bills, retail treasury bonds, fixed-rate treasury notes and prime corporate (peso) bonds. For dollar investments, they offer Republic of the Philippines (ROP) dollar bonds, Banko Sentral ng Pilipinas (BSP) dollar bonds and prime corporate (dollar) bonds. For euros, they have ROP euro bonds.


These bonds are, to put it simply, a promise to pay the bond holder the full amount after a certain period of time and also paying an agreed interest for allowing them to borrow your money. This interest is usually paid quarterly and subject to 20% witholding tax. Also note that these products are not insured with PDIC. Like all debt, its security its relative to the financial stability of the borrower, so if you think the government will honor its promise to pay, then its pretty safe. These investments are also liquid and you can sell them to the …

I owe, I owe, so off to work I go...

Sounds like the song of the modern city worker. Mortgage, car loans, credit card bills, the list is long but the message is clear: we need to manage our debt. Managing your debt is an important part of investing. In fact, do not even bother to invest your money if you have bad debts floating around. There is no sense in earning 7% from an investment if you are paying 20% interest on a loan. Start paying those with the highest interest and work towards keeping your debt at a comfortable level relative to your income; and stop taking on new ones.



Remember the saying:

Gold is the money of kings,
silver is the money of noblemen,
barter is the money of peasants,
debt is the money of slaves.

This is the best investment ever created

Let us examine this investment: it is 100% safe, risk free, offers infinite returns and you don't even need money, only your time, to invest. What is it? It's investing in yourself. It is investing in your knowledge, your skills, your personal development. No other investment can come close to this one. First, it is safe and risk free. Even if financial armageddon comes with banks closing, stock markets crashing and entire nations defaulting on their obligations, you will survive.


It offers infinite returns and you can never tell how it would help you. I love the story of how the late Steve Jobs took a calligraphy course in college and ten years later, it helped him design the typography in Mac and basically influenced the typography in computers we have today. All the neat space in between letters, the fonts, the subtle art form that we seldom appreciate when we read words on the screen wouldn't have been here without that calligraphy course. Investing in your knowledge ca…

My bold predictions for 2012

The title is misleading, of course, as I have zero ability to see the future. If I can, then I'd buy tomorrow's winning lottery ticket. For investors, you don't base your decisions on predicting the future. You don't buy stocks because of an insider tip that it will go up. Remember Lehman Bros., the first casualty of the 2008 financial crisis, they were given triple AAA credit rating. So I guess the ratings agencies cannot see the future either. No one can predict the future and anyone who claims so is daydreaming, and if you follow that person, you're being stupid. Yes, Europe may trigger a second round of global financial crisis, stocks may lose 50% of its value, real estate prices could go down, oil prices could go through the roof if Iran continues causing trouble. On the other hand, clean energy technology could usher a new wave of investments, Asia would continue its growth and the Philippines could leapfrog into the ranks of the industrialized countries.


As …

What happened to Philippine REITs?

I was anticipating the offering of real estate investment trusts (REIT) but leave it to the government to ruin its growth. Why would SM, Ayala or any major developer give up a huge 67% ownership (the public float demanded by this government) of its income generating properties. Comparatively, most of our neighboring countries only require a float of 10-25%. I don't know what the "bright minds" of Pres. Aquino's economic team are thinking but if the major developers are not availing of the investment vehicle, then something is wrong with the rules you have laid out.


They should revise the guidelines for it to be palatable for Philippine developers to make use of REIT. It helps them by offering a cheaper avenue to raise capital and it offers Filipinos the chance to own a share in income generating properties.


This is discouraging, and quite frankly, I sometimes ask myself why bother investing in the Philippines when I have access to first world investment products here. …

returns on stock investments

I would like to share the 12-month returns on my stock investments with citiseconline:

Percentage of portfolio STOCK 12-month return

25% AC 9.81%

4% AEV 3.47%

4% CHIB 3.95%

2.7% GMA7 -2.15%

3.7% JFC 11.25%

0.2% LPZ -23.96%

2.1% PNX -3.93%

4% PX -14.4%

2.7% SM 13.6%

12.4% SMC 2.95%

19.8% TEL 15.69%

10.1% URC 17.63%

8.61% VLL -9.44%

100% Total 6.36%

A 6.36% return (excluding dividends) is quite good compared to the PSEi which yielded 4.07%. The returns on Sunlife's Equity fund perfromed slightly better than the index, returning 4.1%.
Wouldn't it be nice if I had just invested everything with URC and got 17.63% in a year, but then again, that is in hindsight. Going forward I could have just easily investe…

A new year, a good time to examine your wealth

As a new year begins, it is a good time to reflect on where we are on our journey to wealth. Let us start with what I consider the most important indicator of wealth, your health. That's right, health is indeed wealth. How's your blood pressure? your cholesterol levels? your liver, kidneys, bones? Whether you are a young adult or a senior citizen, being healthy is of utmost importance and investing towards it is truly worthwhile. The good news is that it is not expensive to make sure your healthy, but it requires discipline to exercise regularly, eat a balanced meal and learn to manage stress properly.


The second component we can examine is the quality of your relationships. How is your relationship with your other half, your children, your parents, friends, co-workers, customers, business contacts, facebook buddies. It is said that your network determines your net worth. This is true since it is impossible to become rich by oneself, we need the right people to grow with us.


Nex…