Stock Market and the Economy, Is There A Connection?

Is there a connection between the nation’s economy and the stock market?

Frida Len Palermo got us thinking with her article:

The Real Score Between Stock Market and A Nation’s Economy

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Deficit, Hard Landing in China, Benjamin Graham, Stock Thoughts: Stocks too high?

Deficit

Deficit at 2-2.3% of GDP:

http://www.bworldonline.com/content.php?section=TopStory&title=Deficit-at-2-2.3%-Of-GDP&id=65379

What does that mean? It means the government has more fiscal policy up his sleeve to push our country’s GDP higher.

 

Hard Landing in China

What is about China’s hard landing? Why is everybody worried about that?

China’s GDP growth is fuelled by heavy investments by its government and therefore not sustainable. When it stops, aggregate demand will fall and China’s GDP growth will plunge, a hard landing.

What industries will be much affected?

Companies deriving their revenues through sale of produce to China.

Can you think of a company?

 

Learn the basics of Macroeconomics here:

https://fundamentalenthusiast.wordpress.com/2012/08/08/macroeconomics-basics/

 

Benjamin Graham

I am hungry on anything Benjamin Graham and this video of WEB talking about him is a 5.46-minute well spent:

http://www.youtube.com/watch?v=HCZMs01W0KM

 

Stocks too high?

My boss and I were invited for talk about stocks in front of an MBA class. They threw a lot of good questions and one is:

Is the stock market already too high for us to enter?

The answer is simple:

Know the business that you are buying. Understand how it generates revenue and determine if it can still exhibit favorable growth in the future. Everybody has an edge or competitive advantage.

Open your eyes and be aware of what you already know, what you are capable of learning more, and who your connections are. That is your competitive advantage.

Stock Market, Stock Thoughts: GREEN, PRC

Stock Market

Yehey! Wohoo!:)

http://www.interaksyon.com/business/52107/psei-breaches-6000-mark

GREEN

I still believe that price action for GREEN will be in the 1H of this year. They have no choice; they have investment commitments to fulfil.  🙂

PRC

Anybody who is willing to bet for PHES because of the Ayala’s entering in a joint venture with them is better off buying PRC.

Aggressive buybacks and management has an incentive if they present higher earnings.

More here:

https://fundamentalenthusiast.wordpress.com/2012/08/08/case-study-prc/

 

Emotionless or Just Rational? Stock updates: LPZ, GREEN, APX

Check out how Roger Federer plays tennis:

http://www.youtube.com/watch?v=xNPaZj4yn00

He is considered the best tennis player of all time. Notice how calm his face was during the game? How do you describe him? Emotionless or rational?

I tried imitating Federer’s “emotionless” state in playing tennis but I always fail to do it. My emotions burst out of me every time I made an erroneous stroke or get frustrated on my serve. But in one practice game, I realized that by just focusing on the proper form I can manage to have the state that I am after. Emotions are signals that the body sent to the brain to signify something and therefore should not be suppressed but rather understood. I am not being emotionless in the game, I am being rational.

In investing, stock market gyrations do not affect me because the prices of my stocks will not affect the business of the company I own. If CHIB’s stock price decline by 20%, it does not mean that CHIB will stop doing business. Emotionless? Just rational.

I understand that others view the stock prices as signals. If CHIB declined 20% then there should be something bad. In order for you not to panic in times like that, you should do your own tons of due diligence.

 

LPZ

Finally! We can now be certain that GLO’s tender offer will be successful!

http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8848_GLO.pdf

The successful tender offer is only the first step of our speculation in LPZ. After GLO’s successfully purchase BTI’s debts we can sit back, relax, and wait for GLO’s future move.

So what if GLO buy LPZ’s BTI?

Then LPZ’s balance sheet will then be free of P8 billion debt or an increase in book value of P1.85 and earnings will increase by P.04.

More here.

APX

APX shows off their disaster preparedness:

http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8844_APX.pdf

It means that APX’s operation and assets are well protected from natural calamities. Good news! But I want the resource estimates. lol

 

GREEN

THEY HAVE A NEW CORPORATE WEBSITE!

http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8853_GREEN.pdf

And it does not mean anything for us speculators. lol

Wohoo! December 11 is next weeeeeeeek!!! 🙂

PSEi, Stock and Family, Speculative vs. Investment

PSEi

Index at all time high again and trading at high multiples.

When should one be worried? You should be worried if the company that you are investing does not have any promise of future earnings growth.

Is it time to buy?

I’m patiently waiting.

Stocks and Family

Last December 2011, Me and my client allocated plenty AAI. As some of you might have remembered it was very volatile at 25~35 range. During Christmas and New Year, we find our portfolio at negative 50%. I feel bad about it and have that unusual feeling in my stomach. I enjoyed the moment with my family but my mind just reverts back to my stock.

January 2012, I sold all my AAI stock for a 100% profit.

From that date on, I limit my speculative holdings to just 20% of my portfolio and I learned to disconnect my ego from my bank account. Never again an activity I passionately do distract me in my time for my family!

 

Speculative vs. Invesmtment

What exactly is a speculative and what is an investment?

A stock purchased for speculative and for investment purpose does not differ on the time frame but on the amount of information available prior to the purchase that can promise us safety and returns for our capital.

Stocks I consider an Investment

FGEN, AGI, PCOR, CHIB, and EDC are companies that allow us to project their earnings based on the readily available information that only requires number crunching.

Let’s have FGEN, FGEN derives 90% of their earnings from sale of electricity to MER. Electricity demand is almost certain not to decline dramatically so we can easily project FGEN’s earnings in the coming years.

Stocks I consider Speculative

LPZ, APX, GREEN are speculative.

APX is speculative since the mineral reserve estimates are not yet disclosed and that we are not sure if the increase in APX’s capacity can be met by APX’s reserve. Current APX reserve can only last for 5 years should the capacity be tripled.

LPZ is speculative since GLO buying LPZ’s BTI is in the mind of GLO’s decision maker.

GREEN is speculative since we have no comparable operating years to project earnings.

Why did I buy these shares?

Because, IMHO, the odds are very much skewed to the speculator’s favor. 🙂

APX to announce a substantial mineral resource is very likely.

LPZ’s BTI to be eventually purchased by GLO is very likely.

GREEN’s management declaring property dividends to increase shareholder value is very likely.

Selected Stock Updates: CEB, FGEN, and LPZ

CEB

CEB reached its conservative valuation of 63.

My projection for CEB’s 2012 earnings is at 6.27 which translates to 62.70 should it be valued at 10x PE ratio. PAL is the only comparable publicly listed airline company in PSE so we could not determine on what multiple should CEB trade. Conservative investors may stick to 10x PE ratio while risk takers can gamble for a 15x PE ratio.

FGEN

I like FGEN. This is a stock that I consider to be the most conservative. Conservative because buying this stock is like seeing the future. Earnings are very predictable and immune to economic recession. A stock I can comfortably buy even at 23.50.:)

I failed to add this in my own portfolio though. The reason is that I was in CHIB when FGEN’s major business developments happened. Although FGEN’s earnings are predictable, CHIB’s short term capital gains are much more predictable (at that time).

On hindsight I should have bought FGEN!lol

Read about FGEN here.

LPZ

A stock I bought for speculation.:)

Recent hint on what GLO would do is disclosed here:

http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8566_GLO.pdf

Part of the news that alarmed me was the portion where the debt is convertible to equity! If that would be true then LPZ valuation will fall at the lowest end of our valuation model (6.51).

Of course, I’ve done my due diligence and the financial obligations that GLO are buying are NOT* convertible to equity!

*I hope I did not miss such an important fact!

The Basics a Newbie Should Know

What are STOCKS?

Stocks are shares of ownership in a company. When you buy stocks of a publicly listed company, you become a stockholder or shareholder of a company. In other words, you become a part-owner of that company.

As a part-owner, you participate in the company’s growth and future profits. Conversely, you may also lose if the company suffers a loss or performs below market expectations.

The number of stocks you acquire will determine how big or small your ownership is. As you acquire more stocks, your ownership stake in the company becomes greater.

How Do You Make Your Money Grow in Stocks?

There are two ways to make your money grow in the stock market:

1. Through an increase in stock price or capital appreciation

Capital appreciation is an increase in the market price of your stock.  It is the difference between the amount you paid when buying shares and the current market price of the stock. However, if the company does not perform as expected, the stock price may go down below your purchase price.

You cannot really earn from stock price appreciation unless you sell your shares. Otherwise it is only a book value gain, which means it is not yet converted to cash, and current price may change depending on market forces.

For example, if you buy a share of stock at Php100.00, and it rises to Php110.00, your capital appreciation or gain is Php10.00.  Keep in mind that you only realize your gain of Php10.00 minus applicable charges, if you sell at Php110.00.  If you choose to hold it and it further increases to Php150.00, your capital gain would be Php50.00. However, if your stock decreases to Php100.00, and you decide to sell it at that price, then your capital gain is zero.

2. Through dividends declared by the company

Dividends are paid out to shareholders, representing earnings of the company that are not going to be reinvested in their business.  There are two types of dividends: cash and stock dividends.

A cash dividend represents earnings declared by the company for every share of stock. So, if the company declares a dividend of 25 centavos per share, a stockholder with 10,000 shares will receive a cash dividend of (Php2,500.00 minus tax of 10% for individual Filipino investors)(Php0.25 x 10,000) in cash.

Stock dividends are additional shares given to shareholders at no cost. If the company declares a 25 percent stock dividend, a stockholder with 10,000 shares will be entitled to an additional 2,500 shares of stock.  These shares can be sold anytime after the shares have been issued.

The Trading Schedule

In the Philippines, the only operating stock exchange is the PSE.

The PSE has two (2) trading floors in Ayala Center, Makati City and Ortigas Center, Pasig City—where trading participants trade daily from 9:30 a.m. to 1:00 p.m. except Saturdays, Sundays, legal holidays and days when the Central Bank Clearing Office is closed.

Effective January 02, 2012, trading hours are from 9:30 a.m. to 3:30 p.m., the morning session is from 9:30 a.m. to noon, while the afternoon session starts at 1:30 p.m. until 3:30 p.m. Note that you can start placing your orders 30 minutes before the market opens or at 9:00 a.m.

The PSE has extended the trading hours beginning this October, in a bid to attract more investors and prepare for cross-border trading with neighboring Southeast Asian nations.

Investors may post a buy or sell order even after the trading period. However, this order will only be entered and matched through the PSE’s new trading system known as the PSEtrade, the next trading day.

More on: http://www.pseacademy.com.ph/LM/p0/investors~reading/l-beg/k-all/Beginner.html