Gus Cosio says so

Ideas on the Philippine Stock Market

Young and foolish

9:15 am   Tuesday  28 December 2010

Today is traditionally the day of the “innocents” in the Philippines.  It is the counterpart of the West’s April Fool’s Day.  Well, it is no day to be a fool in the market.  An old English saying goes “A fool and his money are soon parted.”  A fool doesn’t invest his or her money wisely, that is why he loses it quickly.  Making impulse decisions and buying stocks on pure instinct is a fool-proof way of getting into portfolio trouble.  If one is to make a move today, make sure that your objective is clearly defined.  Do not buy a stock simply because you are afraid the market will leave you behind.  Nor should one panic because a share price is down.

I was doing a bit of reading over the long weekend.  One idea that struck me from  a book entitled Rule Makers and Rule Breakers is that if a stock goes down 40%, you should  start to question your investment.  Of course, the author was writing about long-term investing.  In our market, I think the threshold ought to be much shallower.  I would consider a 20% deterioration from an average price in a prescribed period should be a cause for serious re-evaluation if not a loss cutting exercise.  There are various norms for capital preservation by traders and investors.  For traders, a shallower cut-loss level is more useful.  I know a few whose level is 15% from entry which is a good way of swallowing your mistake as a trader.  A trader normally buys on momentum, so a 15% move to the opposite direction is a definite sign that momentum has waned.

For the investor who buys on value, I think 15% from entry is too soon to cut.  For the value investor, I usually recommend not to put all the cash into a stock at one single ticket or price.  I would put in an initial 30% of the allocation  and watch how the investment goes.  That way if the stock goes down, there is cash left to average down.  If the price moves up, buying again would put your average cost still below the market.  It is at the second entry point that I would evaluate my 20% or 30% cut loss possibility.

Anyway, today’s trading will likely be overshadowed by the interest rate story from China who raised rates during the holidays.  This was no Christmas present to the Shanghai Stock Exchange, but it did not seem to be too negative for the major developed markets.  Nevertheless. if the market dips today, it should be a good opportunity to accumulate.  Among the stocks that I would buy on dips would be the major banks – MBT and BPI – because I think consumer spending in the Philippines will further gather momentum in 2011.  Having said that, I would push the money envelope into SM and SMPH as well, not to mention URC and possibly the long shot – RFM.

Those are just a few ideas today.  I must mention also that mining remains to be a good theme since in the major markets, materials have picked up steam.  My shortlist for mining are NIKL, ORE, PX and AT.  While I see a bit of activity in LC/LCB, I am not brave enough to move in that direction.

Happy hunting.

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December 28, 2010 Posted by | Financial markets in Asia | 130 Comments

Greetings!

4;30pm  Friday  24 December 2010

In a few hours, my family and I will be off to Christmas Eve mass.  It is a wonderful time of the year when we get together and remember what life is all about.  Jesus said in the gospel according to John 10:10 “I came that they may have life and have it abundantly”(New American Bible).  That is what Christmas is about to me and my family, that God has given us a savior that we may have an abundant life.

I am involved in the markets because I believe that they are an expression of God’s gift of creation to us.  The markets are where finance people like me can express and follow my creativity.  It is not all about making money and that is why I try to tell people not to squeeze everything out of a trade.  It is about learning how to create wealth because after all “Remember then, it is the LORD, your God, who gives you the power to acquire wealth” (Deuteronomy 8:18).

I believe that during days like these, it is good to be philosophical in order put things in perspective.  The market gives us an opportunity to improve our lives by giving us multifarious situations that force us to think, gain insight and learn to make sound decisions.  In the end, it is really about finding value, just like realizing the true value of Christmas – that God loved us and He gave us a savior.  Hence, our market activities is not the end all of our lives, but our salvation is.  We should see trading and investment merely temporary things.  So we lose money occasionally or miss some big moves to gain profits.  These things should not determine our happiness or sadness.  Christmas reminds us that our happiness is really anchored on Him who gave us life and not merely our wealth.  When we can be detached from our investments yet manage them wisely, we can actually achieve more because wisdom comes from understanding that which is really valuable, God’s gift to us – Jesus Christ, our Lord and Savior.

Merry Christmas and may you all have a joyful season with your family and friends.

December 25, 2010 Posted by | Uncategorized | 32 Comments

Start of the blues

10:10 am  Monday 20 December 2010

This week is going to be slow for most market and tough for people who are nursing losses.  For most of us who have made good money during the year, it is a good time to be thankful.  As a mater of fact, anytime is a good time to be thankful because whether you win or lose at one point of the game, what matters is you learned something that will help you in your future investing activities.  The only losers are the stubborn and closed-minded people who trade on emotion and unfounded notions.

For me, there are two big stories that I anticipate to unfold.  One is CEB which by some expensive error traded as low as 82 last Friday.  I know of a lucky yet puzzled investor who posted a buy of CEB at 110 and was able to get some shares at 82.  CEB has gone very cheap due to anxieties over the entry of AirAsia into the Philippines.  Actually, two months ago, the president of Clark International Airport had already told me of AirAsia’s plan to make Clark one of its hubs in the region.  It is not as if this development comes as a surprise for Cebu Pacific management, so I am sure they are well prepared for it.  I would stick to my opinion that if CEB has a lower cost per passenger kilometer than AirAsia, the latter will have a more difficult time competing in the local market.  To be sure, AirAsia will not be able to encroach on the rich domestic routes such as Manila-Cebu and Manila-Davao although they will be able to fly to more destinations in the Philippines from their home country.  I think this will only bring higher tourist volume into the country which would help Cebu Pacific’s cause.

The other story is NIKL which reported five-fold increase in nine-month income to Php 1.34 billion.  Most forecasts were for full-year income of Php 1.4 billion.  This bodes well for 2011 earnings forecasts of around Php 2.2 billion which would put NIKL at around 9X earnings at 15.30 Friday close.  Since I am very constructive on base metals for 2011 because of better expectations on the global economy, I would keep mining shares of nickel and copper producers active in my portfolio.  In short, there will always be room for NIKL, PX, ORE and AT in my trading list although investors in mining share should be aware that gyrations will be wilder in this sector because of the many variables affecting natural resources stock.  The advantage of nickel producers in this country over other mining ventures is that nickel mining is just a step above quarrying; meaning it is as simple as shoveling the dirt and trucking it to the concentrating site.  It is as simple as a gravel and sand operations.

For the smart money that sought safety in strong blue chip stocks, the movement of TEL over the past few days have proven very rewarding.  Unfortunately, I was pretty greedy and bull-headed and was waiting for TEL to trade below 2400, so I missed the boat.  This is a great stock and will likely trade above 2600 in the next few days.  I think AC and BPI could make a similar move toward year-end which would attract money to other blue chips.  I think for the remaining days of the year, it will be the blues that will lead the music.

December 20, 2010 Posted by | Financial markets in Asia | 104 Comments

Ask Manny

6:40pm 16 December 2010

There is good reason for people to get nervous because so many people are dumping their positions.  If I were not looking at the aggregate fundamentals, I would be biting my nails too.  As I had shared with a reader who asked me if I had ever been wiped out in my lifetime, the good thing about having lost everything in the market, which happened to me in the year 2000, is that you learn how to money manage to control your losses.  Some have asked if I have cut-loss levels, and I can only say that I cut my losses when I need cash to buy a better position or I want to be defensive and I choose a stock which I think will not help my position.  Unlike momentum traders, I do not have a formula.  I simply choose a stock that ranks the lowest in my earlier choices and I sell it.   With me, if I like the market very much, then I go fully invested.  If I like it moderately, then I reduce my positions accordingly; and if I start disliking the market, then I reduce positions drastically.

I look at the total return on my portfolio rather than gains or losses in the individual stock.  Today, I am up around 45% on my portfolio for the year and I do not mind giving up some by taking losses on some stocks because my total return includes existing losing positions in my portfolio.  I mark to market everyday so in essence, I take my losses daily.  In this way, the individual stock matters less than the entire portfolio.  If I end the year giving some returns back such that I end 2010 at 40% or 35%, it still would not be that bad that I would bang my head on some wall.  Remember that if your marginal return on this asset class has been significantly higher than your other asset classes, you should not lose sleep over a few losses on some stocks here and there.

Do I think the market will hold at this level?  I will be candid and say I do not know.  If you ask me if I am prepared to see the market go lower, I would probably say I am.  What is important for me is to know what to do if it goes one way or the other.  Right now, I am looking into 2011 already, so I will be doing some adjustments as well as adding cash for new selections.  You just have to roll with the punches.

December 16, 2010 Posted by | Financial markets in Asia | 69 Comments

Feathers in my nickel

9:20am Thursday  16 December 2010

I continue to think that the trading range of the PSEi for the rest of 2010 will be between 4000 and 4250.  Again, there are causes for some worry although most of them appear to be external to the country such as continued concerns in Europe on account of Ireland and the lingering credit tightening in China which has heightened the jitters in the Hong Kong stock market.  I see these developments as good news for investors like myself since I was lucky enough to keep a comfortable cash balance since the middle of November.   I find myself in quite a fortunate place because I can see the sentiments of many investors.  I have always believed that it is cash available for investments which provide the fuel that drives the market.  Hence, I am quite relaxed to see the market ease up in this season particularly because many savvy investors have taken profits and have sufficient cash balances in their account.

There has been quite heavy profit taking in the large caps such as MBT, JGS, ALI, BPI, AGI, MEG, AC and SMPH as these issues accounted for 42 points of the 58 point decline yesterday.  Looking at these companies individually, all of them undoubtedly should perform better in the first quarter of 2011.  If you want to establish a core position for Q1 2011, I would choose among these big losers yesterday except for MEG.  I favor VLL or FLI among property counters because of their relative cheapness and better track record in delivering satisfactory finished units.  AC, ALI and BPI were not spectacular performers in 2010, but I think because they are in the MSCI Philippines Index, portfolios which would be building up in the first quarter will be taking these stocks in together with MBT, JGS and SMPH.

I would also be keeping an eye on MPI now that it is trading below 3.50.  While I will patiently wait for lower levels, I will probably take a position when I see the support getting stronger close to these levels.  In the mining sector, while I had taken some profit on PX, I will be looking to buy it back a little lower.  Since I pared down my position on ORE and taking some profits as well, I am looking to add to my positions since many have already taken their profits as well and will likely play the game again in this stock.  Essentially, I would like to keep myself involved in mining stocks for 2011 due to the slow but sure global recovery which will result to steady demand for commodities.  This means that I will continue to feather my NIKL nest and even consider taking trading positions in AT from time to time.

Again, I would like to express my sentiment that this market is setting itself up for a good year ahead that is why the recent declines do not make me nervous.  The data on OFW remittances for Jan. to Oct. 2010 which showed a 7.9% increase standing at US$15.5 billion only assures us that consumer spending in the coming months will remain robust.  Since consumption makes up 78% of our GDP, there is good reason to foresee that good economic growth will obtain at least in the current quarter.

So if things are moving north and the market recently going south, do we really think that this is the real direction?  I am looking up at the sky.

December 16, 2010 Posted by | Financial markets in Asia | 22 Comments

Tuition

5:30 pm  Tuesday  14 December 2010

It is good that the market was up again today since the three prior trading days were all down.  I do not really want to see people getting discouraged because our market looks fragile.  I think whether one is a holder of stocks for long periods or is a short run punter, the psychology of the market bodes well when declines are not too pronounced.  Unfortunately, the short-term view is not all that positive as far as I am concerned.  Fortunately, all who read this blog are long-term investors.  Let me explain.

I am of the opinion that short-term investors cannot really make money in this market because rewards normally accrue to those who follow the market over a long period of time.  So if you are a new comer to the market and think you can take the money and run, think again.

In my long years of experience, I have seen that everybody – without exception – pays tuition to be able to earn rewards from this market.  You may be a punter who stags the market from time to time.  Bear in mind, however, that absolutely no one makes money in any market in an instant.  Even punters have to study and observe a stock’s price and volume behavior  before he or she makes any money.  Most punters or short-term traders lose money first before they even start reaping rewards.  Like I said, it is called tuition fee.  As a result, however, they learn the nuances of trading.  Punters or tsupiteros, as we call them locally, have short term trading horizons; nevertheless, they are long-term investors.  Like it or not, they need to have a long-term commitment to trade the market; and that is what long-term really means – a prolonged commitment to a market.  It is just that they turnover their portfolio very quickly compared to others.  The long-term investor spectrum ranges from the day trader who trades momentum to the investment manager who has years of waiting embedded in his time horizon before turning over a stock.

The point I am making here is that the temperament of the investor who has a long time horizon may be poles apart to that of a day trader.  The former will not get nervous if his stocks decline in price three months after he buys it.  The tsupitero also does not get nervous if a stock does not run after he buys it because he merely cuts his position at minimal loss.  What I am saying is that in order to be deliberate in one’s trading or investing activity, one must align oneself to the appropriate behavior in his chosen trading horizon. In short, if you are a day trader or a punter, be prepared to cut your losses and ride your profits.  Likewise, be sure to employ prudent trading techniques such as trailing stops and cut-loss limits.  It is counter-productive to be nervous about the market all the time.  A day trader does not get nervous; he simply cuts his losses and trades again the next day.

Alternatively, one can also structure a portfolio such that some stocks are for marginal trading while others are to be held for core holdings over a longer period.  The allocation for marginal trading should be managed like that of a day-trader while the core should be managed like that of a fund manager.  That way you would develop the temperament of a real investor.  I remember something I read from Benjamin Graham about the traits of an investor.  He says a true investor is one who 1) seeks  to buy assets at reasonable prices, and 2) manages assets with a  temperament of prudence and boldness.  That is what we seek to be and the best training comes from trading in the market itself; just be prepared to pay your dues because there are no exceptions to this rule.

P.S. I learned fro WORDPRESS that if you want to receive an email every time I update this blog, just click subscribe on the site.

December 14, 2010 Posted by | Financial markets in Asia | 55 Comments

The power of doornails

5:30 pm  Monday 13 December 2010

Among the biggest losers of the day were three of my recent favorites – JGS, ORE and SLI.  Essentially, the broad market was down today and these stocks got hit hard for various reasons.  JGS apparently is issuing new shares, so dilution is the message.  For ORE, people may have grown impatient considering that NIKL is almost in the tank.  SLI may have also fallen victim to the angst of punters.  Anyway, that’s the way the ball bounces, and taking a fall at this point does not necessarily translate to losses down the road.  I think that we are merely in a correction, and some corrections run deeper than others.  Fortunately, I still have some cash to average down on ORE and SLI.  I must warn you though that both these stocks are not for the faint-hearted.

What impressed me today was the strength of DMC.  You can’t put a good stock down.  I was hoping that it would come down to 33.50 or so in order for me to accumulate some more.  I was at a wedding reception last Saturday seated next to the guy who builds condos for the group and things sound like great guns for that particular business.  Undoubtedly, the energy and power businesses are also going great and people are just convinced that 2011 will go better for DMC.  These guys are also in water utilities and infrastructure which appears to be the dominant market theme for 2011.  It is for the same reason that I am not too worried for MPI even if it trades below 3.50 again.  I am prepared to see it as low as 3.20, although it may be wise to start accumulating soon.

My attention was drawn to PWR, a stock that I thought was deader than a doornail.  To my knowledge, this company is virtually inoperative because every time I drive by the road leading to Mactan Shangrila, I catch a glimpse of their power plant which does not appear to be generating any electricity.  I think that there is speculation going on in the stock because FDC disclosed that Jess Alcordo who was president of East Asia Power way back in the nineties has now joined FDC to be the CEO of their power generating business.  Given that the breadth of the market is consolidating, punters are scouring the board for special situations and this might just be one.  I must warn everybody that getting into PWR without adequate disclosure is extremely risky and only those who have money to lose should gamble on this stock.

As I mentioned in my earlier post, this market will be stuck in a range between 4000 and 4250, and we are somewhere in the middle.  Traders and investors must be able to visualize their effective trading thresholds in order to make some money when market conditions are the way they are nowadays.

December 13, 2010 Posted by | Financial markets in Asia | 27 Comments

Square and Balanced

9:20 am  Monday 13 December 2010

I am sure that many are biting their nails again after seeing the market plunge as much as 83.1 points last Friday.  Fortunately, it partially recovered near the close to end the day at minus 73.67 points.  Nevertheless, this kind of plunge is a cause for worry.  Technically speaking, we would have had a head and shoulders on the PSEi had it not closed up on Dec. 1 and followed through very strongly on Dec.2.  If we go by purely technical developments, i.e. from the sentiment gleaned from the behavior of the index, we should be out of the woods already because the index traded above the right shoulder of the head and shoulders formation.  Nevertheless, we will not really be confidently sure until we see a convincing support above 3953 of the index.

There will really be some risk reward propositions showing up in the coming days and the potential dampener would be the thinness of the market as we approach the Christmas holidays and the year-end.  I would suggest that people be swayed less by sentiment or momentum.  Rather, one should look at reasonable prices given sound forecasts.  For example, the large cap stocks which have very stable markets should be seen as carrying out their core revenue guidance.  The classic example is TEL whose revenue base is surely to be within the 40 to 45 billion range.  A company of this size tend to maintain its critical mass unless strong economic forces go against it.  Arguably, MER should be in the same boat being the power distributor to the region that produces 49% of the country’s GDP.

Other examples are the big banks, namely, MBT, BPI and BDO.  They have very stable balance sheets so core revenues will likely be preserved.  The same can be said for smaller but well-managed banks like SECB and UBP.  It can get tricky when it comes to property shares since the market is very much dependent on how well the economy goes.  So far, the expectation is for the economy to stay on its growth course going into 2011.  It is even likely to pick up steam when more infrastructure projects come into stream in the second half of 2011.  We can say then that property should not do so badly and will be a function of how well they market and deliver their projects.  For that reason, I am not positive on a stock like MEG because of many dissatisfied home-buyers.  I also heard that their strong OFW sales of the past has started to fizzle out.  I would, therefore, try to focus more  on developers with very strong domestic networks such as FLI, VLL and even SLI.  Of course, if it were not relatively expensive, I will even go for ALI.

Since I have a positive view on infrastructure, I will also be happy to buy DMC, MPI and even AEV if it goes on an extended correction.  On a technical note, I think these stocks will tend to trend downwards over the next few days.  While I like the fundamentals on MPI, it looks to me that this stock will trade closer to 3.20 over the succeeding days.  Similarly, DMC and AEV could ease up a shade more although I reckon lower prices on these stocks could meet some conviction buying.

My thoughts on the market for the coming days is heavily influenced by seasonal behavior of portfolio managers.  They will tend to be squaring their books which means taking profits and re-balancing portfolio weights.  As a market call. I would venture to speculate that we will trade in a range between 4000 and 4250.  It is probably a good time to put on a counter-intuitive thinking.  It will also be a time to train your nerves for trading conviction.

December 13, 2010 Posted by | Financial markets in Asia | 28 Comments

Keep on trucking

6:45pm  Tuesday 7 December 2010

By now, everybody reading this blog should be convinced that stock prices do not go up in one straight line.  I observed from many of the comments when the market was falling that many were nervous about their losses.  Today, after 4 trading days of the market rising, we see another down day today.  While I am constructive in the market, I think the market is always vulnerable to profit taking. The market may drift lower again tomorrow, but I hope traders put any decline in perspective – something I always harp on.

What recent the price movements tell us is that we should have conviction in what we buy or sell.  I cannot but always stress that investors should enter the market at prices where they feel comfortable.  By that I mean, a buyer of stock should not think that a stock will go up immediately after he or she takes a position.  The more important consideration should always be the relative value of a stock at its current price.

I, for one, used the downturn in November to evaluate what I should be buying.  When I felt comfortable that the prices were at levels that were of good value, I began to buy what I felt were strong buys.  These were DMC, JGS and VLL.  I have strong conviction on these stocks for a very fundamental reason – their earnings prospects.  One thing to remember is that the stock market is always forward-looking, so prospects are usually more important than historical earnings.  Of course, one should not ignore track record because the value of a company is surely determined by its ability to deliver earnings.

At this juncture, I believe that if one is to buy stocks, he or she should be buying for values to be achieved in the first quarter of 2011 already.  I do not think quick trades will be easy in the coming days as the market thins out.  Nevertheless, I think the next few days should present buying opportunities on stocks with very good prospects as well as some old favorites.  For example, BPI and AC are in very decent price levels.  These are not high growth stocks; but because they lagged the market a lot in the past 3 months, they could do a catch up.  SMPH is another stock which is conservative but could deliver good price appreciation together with SM and SMDC.

Among the power producers, I believe EDC will continue to head higher while AP may be coming to some exhaustion in tandem with AEV.  That does not mean that AP and AEV will start a reversal.  I think that they will not move as fast anymore.  The stock that I think has a lot more kick in it would be SCC because of the prospect of higher oil and coal prices.  A strong SCC translates to good performance of DMC as well.

One should also start looking at some of the laggards like FLI and ALI because they could be good trading prospects over the next few days.  In the property sector, my best recommendation is VLL as a value stock while I would look at SLI due to its follow on offering.  There were rumors earlier that this will not pull though, but recent information tells me otherwise.  SLI raised money from debt to fund some projects, but the offering will go ahead as announced.

I will wrap up by suggesting a review of trading action over the past year.  It was a good year for many who have been persistent followers of the market and good opportunity seekers.  I think persistence is key to finding these opportunities, so keep on trucking.

December 7, 2010 Posted by | Financial markets in Asia | 95 Comments

I will survive

9:30 am 3 December 2010

When the market goes up close to 200 points in two days after a horrifying period of decline, there is only one thing that can be said – the previous up trend is still intact.  Of course there will be selective buying and selling because of the nervousness that came with the consolidation.  The down move gave people time to think about their risk thresholds.  That is the usual way it happens, investors whose perspectives are short and narrow get very relieved that their losses have been recovered, and they sell as soon as they break even or at small losses or gains.  It runs smack of Darwinian Theory of survival of the fittest – those with the strength of conviction are left to make gains on the back of the weak of heart and mind.

For an investor to maximize gains now that the correction seems to have run its course, one has to cherry pick among those headline stocks whose prices have not fully recovered.  I am referring to stocks like DMC, AP, AEV, CHIB,MPI, MER, MBT, JGS, RLC, SM, SMPH, SMDC,URC, UBP and even TEL.  Right now, there is so much to choose from.

For the conservative investor, I think entering the market with TEL as a core holding will be very good at this point.  I think we’ve seen the downside of this stock and it is not much deeper from where it is now.  For those who got squeezed out of SMPH, it may be a good time as well to re-establish the position.  You can even make a selection of SM, SMPH and SMDC because these are conservative stocks.  The same thing can be said for MER, DMC and possibly EDC.  Yield players, ironically, can look again at SCC, which may be a natural resource stock and a commodity play, but because its coal is used directly by the Calaca Power, it has a steady and captive user at stable prices.  One can look forward to steady dividend yields.

What I am trying to convey is that in the next few months, this market will continue to move forward in spite of the headwinds.  Things like the Ireland dilemma, the Korean nuclear stand-off, even the bank credit controls in China, these are mere distractions.  We must not fail to appreciate the domestic economy’s fundamental conditions and put more weight on this because at the end of the day, we steer our own destiny.  All else are simply hurdles and road-blocks.  The way to progress remains, and we have no choice but to stay in the path.

December 3, 2010 Posted by | Financial markets in Asia | 60 Comments