Long Term Investors celebrate when the world stock markets tumble

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

Do you like to gain financial abundance? Join the “Truly Rich Club”. To join, please click on the following link: http://bosanchezmembers.com/amember/go.php?r=14027

What to expect in the next 3-5 years and what you should do?

After about a month of vacation from blogging, it feels great to be back to writing and sharing my investment ideas again. If you are following the news about the US debt crisis, Euro zone bailout of PIIGS (Portugal, Ireland, Italy, Greece and Spain), I am sure that you are anticipating a commentary from myself on how these economic giants would impact our economy, not to mention the Philippine Stock Market.

If you have holdings in the Philippine Stock Market or in one of the Mutual Funds and have been contemplating about selling your positions or doing some top slicing and if  you are going to ask me as to whether you will stick or bail out, my answer would be a big NO.

Below are the following reasons why the current crisis in US and in Europe should never dissuade us from investing in the Philippine Stock Market or in Mutual Funds:

1. On a YTD basis, the Philippine stock market is up by 7% and since the great rotation during the 1st quarter of this year, PSEi (Philippine Stock Exchange Index) is up by 21%.

2. Our GDP is supported by the ever increasing performance of OFW remittance now already accounting to 9.4% of our total GDP which amounts to almost $20 billion. A huge pile of money enough to keep our economy afloat and insulated from crisis such as debt problems is US and Europe and inflationary problems on commodities.

3. The PPP (Public-Private Partnership Program) of the Aquino administration which is expected to be rolled out in late 2011 and 2012 will amount to $2.8 billion worth of investments that will bolster the economy in terms of providing jobs and businesses to the local people, businesses and other institutions.  Upon completion, the aviation sector, property sector, oil-gas exploration, energy, mining and transportation will reap the full benefits of this scheme.

4. The credibility and leadership of PNOY and his administration which has not been plagued with scandal and their focus on curbing graft and corruption. After watching SONA 2 weeks ago, I became more convinced that I/we should remain and increase our investments in our country.

5. Foreign individual and institutional investors from DM (Developed Markets such as US, Canada, France, UK) are re-allocating their funds to EMs (Emerging Markets such as China, India, Malaysia, Thailand and Philippines) considering the reversal of trend which tells the big story of Asia as the "Factory of the World". Currently, 50% of global GDP is attributable to Asia. And I just read in the news this morning that at current trend, Asia will replace the Americas and Europe combined as the biggest economy by year 2050.

The above are just some of the reasons why the Philippine Stock Market despite the looming budget crisis in US and Euro zone has been reaching all time highs for 7 times this year. The above are the reasons why my stock market portfolio is up by 6% YTD and my mutual fund holdings by average 8%. But since I started investing in August 2010 which is exactly a year ago, my Consolidated Portfolio (stocks and mutual funds combined) is up by 13%.

According to Economic Experts, bull runs like what we are experiencing now which started last year usually would last for 5 years. So it is no brainer to say that if you are not yet invested, enter the market at once and if  you are already invested, keep on investing. My personal opinion is that 5 years is a conservative forecast that the bull run will last, my take is it will last for 10 or even more years since for example, the profitability of PPP projects will reach its fullest potential after 5 years, uptrend in the OFW remittances and BPO expansions. The Philippines like India and China is not only an export driven country, businesses here in the Philippines thrive and expand because of local consumption. So my conclusion is even without Uncle Sam, the Philippine economy will do better.

Before ending this blog, I would just like to share with you the FMIC-UA&P Markets Research on their analysis of the equities market followed by my letter to my family and friends who are also into investing.

• Equities Market

In the 3^rd year of the bull market, the PSEi reached another all-time high and finds itself in uncharted territory. The strong performance was a consequence of tailwinds coming from robust inflows from foreign investors amidst headwinds from the US and euro-zone. The development is consistent with our view that foreign fund managers will choose to rotate back to emerging market equities in the 2^nd half of 2011. Moving forward, we view continuation of the rally to depend heavily on earnings results and the acceleration in “hot money” flows rather than purely macroeconomic issues.

- Courtesy of FMIC-UA&P Markets Research

Letter to my family and friends.....

Dear All:

I have highlighted in red the outlook on equities done by FMIC-UA&P Team..

If you are already invested in the stock market or mutual funds, just continue with your peso cost averaging or investing each month buying only GREAT companies with good growth potential.

If you are not invested yet, enter the stock market at the soonest in order for you to capitalize on the bull run in the 2^nd half. This would be a good positioning in preparation for year 2012. Expect that the robustness will continue  for the next 3 to 5 years as the awarding of PPP contracts and completion of PPP projects in the Philippines will go full swing beginning next year. This year alone, 7 PPP projects will be awarded from airports, rail networks, oil exploration and land development to various companies mainly conglomerates in the form of Ayala Corporation, SM Investments, Metro Pacific, JG Summit etc.

If your net worth is 100% cash, it would be prudent to have a variety by re-allocating 20% of it by investing in the stock market or mutual funds. If you are aggressive, you can follow the 100 minus your age rule which simply means that if you are 30 years old, 70% should be invested in paper assets (stocks, mutual funds, bonds, treasury bills, gold certificates, etc). Personally, I keep 40% of cash and the rest I invest. This strategy works fine with me enabling me to sleep at night without worrying should the market collapses the following day. In your case, you would have to assess your risk appetite taking into account your future needs and comfort factors by asking yourself “would it be ok with me if the market goes down tomorrow by 50%?”. If your reaction is to sell when the market goes down by 10% the next day, better put your cash in banks where it will only earn a measly 1-2% interest per annum minus withholding tax. At the end of the day, it is all up to you.

Wish you luck.

Regards,

Anselm

I cancelled my membership with Fitness First gym

A month ago, I cancelled my membership with Fitness First gym as I have realized that most of the essential exercises that I have been doing were all possible at home and at the park. Running around the park, doing jumping rope, swimming in the beach and performing aerobic exercises at home can be done without actually splashing a few hundred bucks a month for gym membership, transportation going to the gym and those post workout meals. In monetary value, I am saving about 5,000 pesos per month or 60,000 pesos per year. But do you want to know the long term impact of this initiative? I am sure the answer is a big yes.

I can do 2 things with my 5,000 pesos. I can either invest it in mutual funds or I can invest it in the Philippine stock market.

Let us say, conservatively, if I invest it in mutual funds the average annual growth will be 12%.  The numbers below demonstrates how my money will grow over a period of 10,20 or 30 years.

After 10 years = 1 million

After 20 years = 4.3 million

After 30 years = 14.4 million

I don’t know about you, but with 4.3 million pesos and with the kind of lifestyle that myself and my wife have, I can secure my ideal retirement fund after 20 years as a result of this initiative only. Of course, I can continue saving until the 30^th year if I want more.

On the other hand, should I decide to do stock market investing for the next 10, 20 or 30 years and the average growth rate per year as per the Philippine Stock Exchange is at 15%, the numbers will be as follows:

After 10 years = 2 million

After 20 years = 8.4 million

After 30 years = 28.4 million 

After doing a simulation of the above numbers in my spreadsheet, it felt better knowing that my decision made a lot of financial sense to me. But not only that, the best thing about it is that I can spend more time with my wife because I can get to do my daily exercise with her. That for me is the greatest investment.

To your financial success,

Anselm Reyes

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http://bosanchezmembers.com/amember/go.php?r=14027

The Secrets of the Rich People 2

This is part 2 of the Secrets of the Rich People series that I am going to write about for you here. About 4 weeks ago, I discussed the 1^st secret of the Rich People which is investing in mutual funds. I myself invest in mutual funds for about a year now particularly in a type of mutual fund called equity fund. Now there are bond funds, money market funds, dollar denominated bond funds etcetera but personally I have chosen the equity fund because of the high rate of return that it can generate if you will remain invested at least for 5 years.

Just this morning (June 2, 2011) I received a statement of account from Philequity Management Incorporated (one of the mutual fund companies that I invest in) and according to the statement of account (SOA) my investment grew by 7.6% in just 7 months. Now that is what I call “beating the inflation” which at the moment is running at 4-5% per year in the Philippines. This means that if you put your money in a time deposit earning 2-3% per year, be concerned because inflation is just eroding the value of your money and in the years to come, if you continue putting your money in a time deposit account, your money will be devaluated or worst, it will be worthless.

Further, the 7.6% return that I am enjoying is something that I earned at the start of the market rebound from the so called “Great Rotation” wherein the stock market plunged by almost 15% as a result of the shifting of foreign funds from emerging markets (i.e. Philippines, Indonesia, Thailand) to developed markets (i.e. US, Europe) that started in November 2010 and ended in March 2011. Meaning, the Philippine Stock Market has just rebounded from a major downfall in the history of global stock market and with 7.6% return just 3 months after the rebound, it would be conservative for me to expect an investment growth of 15% at the end of the year. Imagine, my money growing at 15% annually without any effort from my end.

There are many great mutual fund companies out there, so I am encouraging you to find them, research and study the investment products that they are offering. Personally, I invest in First Asset Management Incorporated (FAMI), Philam Asset Management and as mentioned in the above, Philequity Management Inc.

Okay let us go now to our main topic, what is the number 2 secret of the rich? It is investing in the Stock Market for the long term. I have been buying companies such as Jollibee, DMCI, SM, Ayala Land, Nickel Asia, AGI and other great companies consistently every month for almost a year now. That is buying small shares every month without fail, whether the market is up or down, I will still buy. The moment I receive my salary, I would simply follow this allocation after deducting my expenses, 50% cash, 25% stocks and 25% mutual funds. Now this strategy works for me but it may not be favourable to you. It is up to you to determine your allocation strategy based on your appetite for risk and reward. More on this later. And don’t be surprised by this, since I started investing the performance has been really rewarding. My Jollibee posted a growth of 30% in just 10 months, DMCI 35% in just 4 months, Ayala Land 19% in 9 months, Philex Mining 20% not to mention the dividends that I recently received from these companies, it has been really phenomenal not only in terms of monetary rewards but most importantly, in terms of learning and in teaching what you know.

A week ago, I had encouraged my brothers and sisters in law to invest and very soon, they will be buying their own businesses. My brother Andrew is a Mechanical Engineer so he prefers real estate and utility companies such as SM Prime Holdings, Ayala, PLDT and Meralco. While my sisters in law love eating at MC Donalds so I told them we will buy Mc Donalds shares through its parent company Alliance Global Group Incorporated (AGI).  And all of us will follow the same strategy. Buy little amount of shares of good companies consistently every month for the next 15-20 years.

When I reach the age of 51, because of my stock investments, work will become an option and not a necessity. When my brother Andrew reaches his 45^th year, he will be a multi-millionaire and when my twin sisters in law are in their 30’s, the two of them will join the group of young millionaires. But mind you, what we are doing is not only for ourselves. We want to be rich because we are aiming to bless more people. True, even if you are not rich, you can still bless people but we would like to become richer so that we can bless more people, not only our families, relatives and friends but other people as well. Again, this is a personal choice.

A friend of mine let us call him by the name of Jess told me that telling people about my experiences in the realm of investing is good but he recommended I also provide a step by step process on how to open a stock market account. So below I am summarizing in 4 simple steps to open a stock market account as requested by my good friend.

1.    My online stock broker is Citiseconline.com so I am recommending it. Personally, I am satisfied with the services that they provide. You may go to their office at Philippine Stock Exchange in Ortigas, Pasig. They are open from Monday to Friday. They have customer relations officers who would be glad to assist you. Their website is www.citiseconline.com. So go and check their website and find out their office timing or call them if you have any inquiry.

2.      Open an account with them, fill up the required documents, don’t forget to bring atleast 2 valid IDs. You don’t need to bring a picture. Upon their approval of your account, you have to deposit an initial amount (minimum of 5,000 pesos). Do not forget to remember your account number as this will serve as your user ID when you log in the following day as you trade in the stock market.

3.      When you log in using your account number as user ID, create your own password then off you go, buy your first company.

4.      To replenish your account, go to any accredited bank i.e. Metrobank, BDO and deposit any amount in your account through citiseconline.com. The following day, the money will be credited then you can buy shares of stock again.

A lot of you might question me why am I talking about putting your money in paper assets such as investing in mutual funds and stock market rather than starting a business. My simple answer is this. In a day or two, you can buy a business or businesses through the stock market or mutual funds. If you are going to start your own business, it would take you more time to build and profit from it. This is especially true for Expatriates like me. So while I am here in Dubai, I invest some of my money in the stock market and mutual funds and just leave it there to allow it to work for me.

But do not get me wrong, having a business is great and that is also one of my goals. In fact, while investing in the stock market and mutual funds, I am  studying the business that I am passionate about and learning other ventures such as real estate and online marketing. I just want to take a proactive approach so that I am taking advantage of the fact that I am still young and about to start my own family.

Yes, I will be starting my own family as my partner in life – the love of my life is 6 week pregnant. This is the main reason why it took me almost a month to write again. The moment I realized that my wife was pregnant I totally ignored what was happening in the market at that time and in the subsequent weeks. My life revolved 360 degrees and all that I could think of was how to be a good provider to my Wife and our Baby. Truly, it was an amazing experience. Now that I am back to normalcy, still I will be the greatest provider my Wife and My Baby will ever have but this time I can write objectively.

When I heard the great news that my wife was pregnant, we immediately proceeded to the hospital for a checkup. I wanted to jump the moment I saw my wife entered the hospital with my Father in law, Mother in law and Twin Sisters in law behind her. Until dinner the two of us were surrounded by great people, my family and inlaws again. They were there all throughout the day, yes, we were surrounded by not only great people but people who love us unconditionally. I didn’t feel a single regret ignoring what was happening in the market during that week. Because at the end of the day, even if I am the richest man alive, the stock market will never love me back. Yes, I may feel happy during the bullish period but such joy is fleeting or temporary. I personally believe that it is in our relationships, in our family most especially that we will find the most genuine and life-long happiness.