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It is a fact that 85% of people who are investing in the stock market do not succeed. Why? Because they are all Traders. Traders are people who time the market to do their buying and selling on an hourly or daily basis. There are Traders who buy on impulse without doing the due diligence of analysing whether a company is earning and has a great outlook. There are Traders who buy when the market is up and sell when the market goes tumbling down. This strategy breaks one of our cardinal rules as Long Term Investors because we Long Term Investors observe a minimum holding period of 10 years.
I have been contemplating about giving you a review of the fundamentals of investing, I guess now is the perfect time. The reason is that the world markets again tumbled this morning, actually it began in the US yesterday. Below is a snapshot of the numbers:
World Stock Market Indices as of 19 August 2011
| Stock Market Index | Location | Points Drop | %age Drop |
| Dow Jones Industrial | United States | -419.63 | -3.68% |
| S&P 500 | United States | -53.24 | -4.46% |
| Brazil Bovespa | Brazil | -1,938.92 | -3.52% |
| Canada S&P/TSX 60 | Canada | -23.62 | -3.28% |
| Santiago Index IPSA | Chile | -79.96 | -1.89% |
| IPC | Mexico | -802.95 | -2.36% |
| FTSE 100 | England | -127.41 | -2.50% |
| CAC 40 | France | -84.95 | -2.76% |
| DAX | Germany | -199.51 | -3.56% |
| Swiss Market Index | Switzerland | -137.29 | -2.64% |
| Australia ASX | Australia | -147.50 | -3.41% |
| Shanghai SE Composite | China | -25.11 | -0.98% |
| Hang Seng | Hong Kong | -616.35 | -3.08% |
| Mumbai Sensex | India | -328.12 | -1.99% |
| Nikei 225 | Japan | -224.52 | -2.51% |
| Taiwan TSEC 50 | Taiwan | -272.01 | -3.57% |
| PSEi | Philippines | -63.64 | -1.45% |
| FTSE Bursa KLCI | Malaysia | -23.93 | -1.59% |
| Jakarta Composite | Indonesia | -184.39 | -4.59% |
| KOSPI Index | South Korea | -115.70 | -6.22% |
| SGX | Singapore | -29.58 | -4.59% |
Source: CNN Money
If you are a Trader, the numbers above will compel you to do two things: One, sell at a loss to secure some cash, two, sell at a loss to invest in gold. I am not surprised why gold has posted again a record high of $1,855/ounce. I am not surprised why everyone is running away from equities and finding refuge in bonds and other fixed income instruments.
However, if you are a Long Term Investor, you must be celebrating like me. Because you and I know that the best time to buy is when there is a crisis. The key is to spot companies with great fundamentals, earnings and positive outlook.
You may be thinking that my portfolio is immune to crisis but the answer is NO. Below is a summary of my portfolio including my consolidated mutual fund accounts with First Metro, Philequity and Philam Asset Management:
My Portfolio as of 19 August 2011
| Investment | %age of Gain-Loss | Remark |
| Citiseconline account | +1.55% | From +7% YTD, down by 5.45% since US downgrade (02-Aug-11) |
| First Metro Securities account | -2.88% | Since US downgrade (02-Aug-11) |
| Mutual Fund Accounts | +2% | From +5% YTD, down by 3% since US downgrade (02-Aug-11) |
On average, my portfolio sank by 3% to 4% and it will remain that way for the next 3 to 6 months. Nonetheless, I am taking bold steps to buy when there is a crisis for I believe that companies with good valuations will self-correct when the dust settles.
To prove this, let us take a look at the “self-correction” of the following stocks after the great crisis of 2008. I have done a comparative analysis between the lowest price of a stock during that time and its price today. This is to illustrate the power of the so called “Value Buy” which is buying shares of companies where the intrinsic value is a lot cheaper than the current market price. In layman’s term, buying GREAT Companies at discounted prices and in stock market investing, huge discounting usually happens when there is a crisis.
| Stock Code | Company | Lowest price during the 2008 recession (Price per share) | Price per share as of 18 August 2011 | % Growth |
| MBT | Metrobank | 20.00 | 73.80 | 269.00% |
| ALI | Ayala Land | 6.00 | 15.92 | 165.33% |
| FPH | First Philippine Holdings | 18.00 | 57.60 | 220.00% |
| AP | Aboitiz Power | 3.90 | 29.40 | 653.85% |
| EDC | Energy Development Corp. | 1.50 | 5.80 | 286.67% |
| DMC | DMCI Holdings Inc. | 3.95 | 41.20 | 943.04% |
| SM | SM Investments | 180.00 | 540.00 | 200.00% |
| SMC | San Miguel Corporation | 40.00 | 124.60 | 211.50% |
| TEL | PLDT | 2,000.00 | 2,332.00 | 16.60% |
| JFC | Jollibee Foods Corp. | 35.00 | 86.95 | 148.43% |
| MPI | Metro Pacific Investments | 2.25 | 3.31 | 47.11% |
| AC | Ayala Corporation | 155.00 | 315.00 | 103.23% |
| BDO | Banco de Oro | 22.00 | 59.00 | 168.18% |
| BPI | Bank of the Philippine Islands | 34.25 | 58.55 | 70.94% |
| MED | Megaworld | 0.70 | 1.90 | 171.43% |
| AGI | Alliance Global Inc. | 1.98 | 10.80 | 445.45% |
| FLI | Filinvest Inc. | 0.40 | 1.17 | 192.50% |
| RLC | Robinsons Land | 4.30 | 12.26 | 185.11% |
| SCC | Semirara Mining Corp. | 35.00 | 210.40 | 501.14% |
| PX | Philex Mining | 4.95 | 27.90 | 463.64% |
Using the average method, the above companies in the span of 3 years posted an aggregate growth of 273.16% or 91.00% per annum. Meaning, if you have 1 million pesos to invest in 2008 and you took advantage of the crisis by buying these companies, the total value of your investment today will be 6.9 million pesos. However, you can argue that we cannot really predict when the market will reach its lowest point. That is also correct and that is also the reason why I have always been recommending that one should apply the “peso cost averaging” method by investing equal amount each month. For example, if you have an annual income of 120,000 pesos and you decide to invest it in the stock market, you basically divide it by 12 months and invest each unit every month. By doing so, you can buy more shares when the market is on a downtrend specifically when there is a crisis like what we are experiencing now.
I would like to remind you though that before you put your money in the stock market or any other investment vehicles, you should always maintain a cash cushion amounting to 3-6 months salary for emergencies. Ofcourse, bigger cash is always better. Do not make the mistake of investing without securing your emergency fund first. Crisis will always come, hence, your emergency fund will allow you to weather the crisis without touching your investments.
The world markets may be crumbling as a result of the US and Eurozone downgrade by some rating agencies. But as Long Term Investors, we do not react on news, we do not react when the stock market plunges. Infact, we should be buying in a crashing market. For as long as the companies that we buy are fundamentally good and we are convinced that these companies will be there for the next 100 years, then continue to invest in these companies every month for the next 10 to 20 years.
To your financial success,
Anselm Reyes
For your questions about investing, you may email me at anselmreyes@yahoo.com
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