Gus Cosio says so

Ideas on the Philippine Stock Market

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.

Advertisements

December 14, 2010 - Posted by | Financial markets in Asia

55 Comments »

  1. First!

    “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”

    I completely agree with this. Thanks for your insights gus.

    Comment by Dr. Mundo | December 14, 2010 | Reply

  2. hardway or experience and a lot of research gives you confidence on the stocks you hold.

    Comment by marketbeginner | December 14, 2010 | Reply

  3. I am very new to stocks but I think I have the fundamental understanding of long term investing. It pays to wait but we should also be vigilant on market movements.

    I just hope that online brokers here in PH have better facilities to manage our portfolio. Right now I’m still maintaining a separate google doc to record my transactions with more fields like % of Overall Portfolio, Sell When Above, Buy When Below, Cut Loss When Below, Growth Potential, Growth Target, etc.

    Comment by rdthedeveloper | December 14, 2010 | Reply

    • Rdthe developer… can you please share your google doc with us? Is it easy to use? Is it free? Thanks.

      Comment by newbie | December 14, 2010 | Reply

    • I actually use the Bloomberg.com portfolio functions. It’s for free although you have to do the inputs yourself.

      Comment by Gus Cosio | December 15, 2010 | Reply

      • wow, this is great! i think ill use this from now on instead of COL’s portfolio viewer or my google doc.

        it lacks some nice features like cut loss alert based on defined cut loss percentage, but its really nice. thanks master!

        Comment by rdthedeveloper | December 15, 2010

      • i used to use the bloomberg feature, which is free but i find it a little hard to use because it only uses:

        a) price per share
        b) number of shares and
        c) stock code

        if what you want is an estimate of how much your current positions have gained or lost, then the bloomberg portfolio tracker is good enough…

        some online TP’s provide the same portfolio tracker (mine has it), but what’s usually shown are just the current market value of your stock positions…but as trader, what we would like to know is how much exactly (ideally accurate up to the nearest centavo) our income/expense is going to be when we sell a stock that we hold…my TP does not provide that. and so I made my own Excel File to have that.

        Comment by ricky | December 16, 2010

      • @ricky,
        yes, those are features that i have also on my template. the bloomberg’s PT is just for monitoring but its hard to use for watching or simulation.

        i use excel to simulate performance of my watched stocks. can you share your tempate? 🙂 rdthedeveloperATgmail.com

        Comment by rdthedeveloper | December 17, 2010

  4. Every time I visit this site I learn something new. Thank you Sir Gus for sharing your investment wisdom.

    Comment by Seth | December 14, 2010 | Reply

  5. Sir Guss,

    I agree that each of us has to pay our own tuition fee to learn stock investing. It is always a learning process what went wrong if you sold the stock too early or cuts-loss your investment. You either say the fundamentals is intact (sold too early)even if the price has doubled or tripled. For cut loss, you will say I will not chase prices that I am not comfortable to enter.

    I agree with long term investing. The best part is you are able to sleep well at night.

    Advanced Merry Christmas!!!

    I hope to enter MER at 190-192 for a looooong term.

    Comment by alexis | December 14, 2010 | Reply

  6. I’m actually paying a high tuition fee on CEB and MER.

    No problem. Education has no price.

    Comment by Nik | December 14, 2010 | Reply

  7. nice blog sir, keep it up as you’re such a blessing to us your followers…
    “structure a portfolio such that some stocks are for marginal trading while others are to be held for core holdings over a longer period” — at what proportion should this be managed sir?

    Comment by blooddee | December 14, 2010 | Reply

  8. naku kung tuition fee lang eh siguro repeater na ako dito ilang beses na akong napaso sa 2006 to 2010 i could have already bought me a new montero huhuhu

    Comment by gerald | December 14, 2010 | Reply

    • Gerald,
      If you haven’t learned your lesson, you’re not giving things enough thought. You probably trade according to emotions rather than market sentiment. Emotion is spurred by greed and fear while sentiment is based on what market action is saying.

      Comment by Gus Cosio | December 15, 2010 | Reply

  9. Hi sir gus! What do you think on MBT’ sro? will you avail?

    thanks

    Comment by Jolly | December 14, 2010 | Reply

    • You should had bought it yesterday if you want to avail.

      Comment by donlyn | December 15, 2010 | Reply

  10. just curious sir gus..please dont get offended..

    if you have read the intelligent investor by ben graham, how come i canno’t find you using most of his principles for value investing anymore?

    you recommended buying the CEB ipo, and yet in the book ben graham boldly opposed investing in IPO’s..

    also ORE..this is a very speculative stock. yet first metro mutual funds have invested so much in it. value investors wouldn’t even come close to touching this stock.

    i know managing funds puts a lot of pressure on the managers that, in effect, they are forced to speculate because they need to make money every single day.

    no offense sir gus, its really just an innocent question. and i do want to learn from you.

    you have so much more experience than i do. but when i read graham’s book, the principles he stated seems so biblical to me, “buying stocks to be part of the business”..did the book have the same effect on u sir gus?

    i just want to know if you fully support graham’s principles, or if you have tried applying it before and saw that it doesn’t really work, that the stock price is really just a slave to the market and the business it represents has no say to its valuations..

    sorry for the bold question but i also want to know how much the market taught over the years..

    thank you sir gus..thank you also for the time you put in this blog, you have taught us a lot 🙂

    Comment by cliffhanger | December 14, 2010 | Reply

    • This could be an answer..

      Let me describe an analogy and a little question – have you started any sort of business enterprise? If you did then you must know what it feels like. If you see a great opportunity you strongly believe will earn, you do a business plan and try to capitalize. But even if you did plan right – you don’t know KNOW yet at the start of the business right?

      Is it speculation then? But if you have sufficient information and everything seems ok, then you need not fear.

      And so it might be with ORE. You must remember that Gus.. he’s big time. Has lots of analyst friends. Access to information we don’t have. If he read sufficient information indicating that shipment is all but foretold… then is it still speculative?

      For me it is. Cause I don’t even know if those ORE pictures are true. But if I too had an analyst friend, one who I deeply trust, went to Palawan and told me that he saw tons of ore, and saw a notarized contract with all the lawyerly stamp on it, then I’ll be inclined to believe him too. Then perhaps I’ll have tons of ORE now too..

      — Thats just a guess though.. hehe :/

      btw: I think the central concept of “Margin of safety” has lots of applications. It does not necessarily mean that low pe/below book provides you with a sufficient safety net. As Warren learned. google: Berkshire Hathaway.. factory.

      Comment by jasper | December 14, 2010 | Reply

      • i dont want to listen to gus just because he has “friends”.. i wasnt to listen to him because he has his own opinions..if hes just investing based on other peoples opinion… 😐

        Comment by cliffhanger | December 19, 2010

      • Cliff,
        I have my way of pursuing my opinion about stocks, but I am not so arrogant that I do not consider other people’s opinions. It is just that I try to formulate mine pragmatically because just like everybody in this game, I am in it to make money.

        Comment by Gus Cosio | December 20, 2010

    • @Cliffhanger

      I believe sir Gus supports Graham principle, but does not mean he can’t build his own. Personally, I think some of the suggestion in Graham’s book does not apply to Phisix (ex: PE ratio, historical PE ration of Phisix is not the same as with Graam’ suggestion).

      Re: ORE (and other security for which some broker seems to have “important” info)…

      Notice that you can count the number of families/conglomerate that makes up the Philippine economy? Chances are…they also owns bank. Most corporation do have relationship to big banks (in the form of loans, investment, or sometimes ownership) they have access to information which we, sadly, as retail investor dont have.

      Comment by Raymond | December 15, 2010 | Reply

    • Cliff,
      Ben Graham has very sound principles. It is 100% useful for developed markets where the stock selection runs to the thousands. In the Philippines until 2007, only 65 stocks traded on average daily turnover of 1 million and above. The number dropped in 2008 but came back to 65 in 2009. In the last 6 months, because of bullishness, this number has increased to 95.
      When your universe is huge, then you can be quite dogmatic in your portfolio approach. Unfortunately, in an emerging market such as ours, part of the landscape is the developmental aspect of particular equity issues. You have to make some unique judgments in this market because the books cannot be entirely relied on. There are nuances which have to be considered and risk adjusted moves which are inevitable for portfolio performance.

      Comment by Gus Cosio | December 15, 2010 | Reply

      • sir gus,

        since we are trading businesses here, no matter how small the market, i think graham’s principles are still very much applicable. at least for screening those with good and bad track records. and diversify to those with good track records, blacklist those with bad.

        like ORE…….ORE should have been labeled as speculative..

        it doesn’t take too much for an investor to raise questions about ORE’s profitability, even worse when they just extended the delivery of their first shipment to the first quarter next year just because of heavy rains..i mean common..its not like its been continuously raining for 3 months.. and can’t they at least make a partial delivery considering this one shipment is supposed to finally make a profit for them? kahit pang break even lang for this year..

        honestly sir gus, i know what you are saying in making some unique judgements, but i just refuse to be on the extremely speculative side of things.

        i notice you use the word “cheap” a lot..but i just want to know YOUR acid test..thanks sir gus..im sorry for the boldness..but im sure ur used to it already hehehe

        Comment by cliffhanger | December 15, 2010

    • very good question, you forgot sli pa

      Comment by mike | December 16, 2010 | Reply

      • Mike, Cliff,
        I never said that ORE nor SLI was not speculative and I had always mentioned that these stocks were not for the faint of heart. Are they worth the punt or the wait? Honestly, I think they are and I have some of my own money behind it. A few fund managers I know think likewise. Even blue chip stocks are subject to the same volatility. SMPH had a 30% drop in one month not to mention a one day drop of 10% on the last trading day of November. Recently, JGS had a 23% drop in around two weeks time. So ORE was down 26% and SLI 23% in the same two weeks. Is there much of a difference. SLI has been on a down-trend after a head and shoulders pattern showed up in its chart. But these things happen when you trade stocks whether they are speculative or not. What is important is that you do your homework.
        I think I have made it clear in this blog that I am not a purist. I read Graham, just as I read Buffet and Bollinger. I like their principles and ideas but I do not think they would perform as well if they had the narrowness of the Philippine market. One should follow other people’s ideas and still keep an open mind just as people who follow this blog should not follow it blindly.

        Comment by Gus Cosio | December 16, 2010

      • hi sir gus,

        im just sorry if ticked u off..

        but its also not fair to your followers when you compare stocks like ORE and SLI to SMPH and JGS, at least SMPH and JGS have real numbers behind their fundamentals..

        anyway sir gus, what i really want to know is your acid test, if you have one..

        just a healthy discussion on methods sir gus, no harm intended…

        Comment by cliffhanger | December 16, 2010

      • Cliff,
        no harm felt , don’t worry.
        Of course, I do not compare ORE to SMPH or JGS, but surely SLI can be comparable although it is a smaller player. What I was pointing out is that prices on speculative stocks can behave in the same way as blue chip stocks in the Philippine market because it is quite a narrow market. While I totally agree with the text book theories on investing, Ben Graham would never have recommended investing in Microsoft during its high growth years because it had no balance sheet and was trading at 120X PE. Certainly, Buffet admitted that he never invested in MS. The theory of acid testing investments is a great theory but if you apply it to our market, you will end up investing in a very narrow range of stocks some of which sorely lag the market. MWC is one example. You’ll end up holding a stock even when the market is in the tank. I choose to use a combination of variables the bottom line of which is a verifiable sustainability of a business. Incidentally, mining will likely not fall into grahams acceptable investments.

        Comment by Gus Cosio | December 16, 2010

  11. I already paid my tuition fee for the first semester, Sir Gus. I started participating in the stock market around March this year, I paid around 15-17% of my capital with prudent cut loss plans, and I learned a lot along the way. After 5 months, I initially learned how to calm my nerves when the market is down. Discovered my 10 favorite stocks that I monitor even if I don’t own them all at the same time. Right now, I am positioning to buy more for next year. Oh, and by the way, I have an overall 25% net gain in my portfolio since I started. Not bad for a newbie like me 🙂 I know next semester, I will have to pay my tuition fee again, hopefully it’s a smaller one 🙂

    Comment by Dez | December 14, 2010 | Reply

    • Very nice portfolio, indeed. Goodluck on your next journey… 🙂

      Comment by Ogie | December 15, 2010 | Reply

  12. My tuition fee was 85% loss on my capital during the peak of financial crisis (2008?).

    At the end of the day, you have to build your own investment/trading principle…books are good source of info, same goes for the blogs…but you have to build your own principle when to invest and liquidate.

    Comment by Raymond | December 15, 2010 | Reply

    • Long term investing should make your losses smaller or even make a gain as the market gets better.

      Comment by donlyn | December 15, 2010 | Reply

  13. Hi Sir Gus,

    Thanks for sharing.
    I just want to ask you if you ever get wipe out since you started investing?

    For me, i was wipe out hard 2 times already in my investing life, and learned a lot from it.

    Another question if you do not mind answering. When will be your next speaking engagement? i was not able to go to your last talk.

    many many thanks.
    regards,
    david

    Comment by david | December 15, 2010 | Reply

    • David,
      I got wiped out in 2000 when the market went into a long term down draft. You probably do not recall but TEL went from 1200 to 200 between 1999 and 2003. I lost everything and I was not even working at that time. I came back with whatever little I had in 2003 to buy TEL at 216 but sold a few months later at 420. I eventually got fully involved again after I gave up a BPO business in 2005 to get involved in mutual fund investing. I have been in the market both institutionally and personally ever since and I had to build my personal portfolio from zero to what it is now. It is not a big personal portfolio but it is meaningful enough for me to take it seriously.
      I am organizing monthly investment lecture series in cooperation with firstmetrosec.com.ph which is an on-line service. I’ll let you know the details in time.

      Comment by Gus Cosio | December 16, 2010 | Reply

  14. Stock market is not just fundamentals of companies. It is also composed of emotions (psychology). That is why one should control his emotions in trading. I agree, one should have his core holdings apart from the speculative ones. Moreover, I learned during my 8months trading that you should only have 5 stocks the most. Focus on it, take some profits along the way and reposition once consolidation takes place.

    Comment by claire | December 15, 2010 | Reply

  15. Sir Gus,

    What are your advice on peso cost averaging?.When I started investing in stocks, my plan is for the long haul using the pca system since I cannot afford to really buy a bulk of shares from solid growth companies. Right now I am already starting to study the market in the hope of learning short-term trading. What can you also suggest for a good reading material for short term trading, swing trading..etc.. for newbies?, can you suggest some training venues that i can attend?.. thank you sir and God bless,,!

    Comment by Oliver | December 15, 2010 | Reply

  16. sir whats happening to JGS?? should we sell now to prevent further losses? my average is around 24..

    Comment by Cholo | December 15, 2010 | Reply

    • well its about time you get to know Big John, if he wants to sell IPO, he pushes all of this stocks, pag nakuha na ung investors money eh, everyman for himself………..i wont be surprise if cebu reaches 95 in due time

      Comment by mike | December 16, 2010 | Reply

  17. I also read Ben Graham’s Intelligent Investor! a very good book to read for value investors.. 😉

    Comment by Perocho | December 15, 2010 | Reply

    • Also a big fan of Ben Graham. Took a while to finish Security Analysis but it was worth it.

      Comment by Cogitator | December 16, 2010 | Reply

  18. Hi Gus,
    What’s your take on the stock right offering of eg, 4:1 @ 1P? It looks too good to be true. Current px is at around P65.

    Comment by Davidoff | December 15, 2010 | Reply

  19. hmm.. the price action is odd. JGS and MBT has fallen down almost 25%..

    JGS 25 to 20
    MBT 80 to 65

    :confused:

    Comment by jasper | December 15, 2010 | Reply

    • Mbt is probably affected by its cheap SRO. Also, this is probably the effect of the dreaded holiday sell-off bug. Holiday sell-off bug —- (1) veteran investors locking in profits so as to avoid losses if any bad news where to happen during the long holiday break. (2) spot investors selling off their stock at whatever price so as to have cash for the holiday season.

      Comment by Davidoff | December 15, 2010 | Reply

      • Just wondering. Will the Santa Claus rally ever happen or this is just the bottoming-out to bounce up for it?

        Comment by xoknives | December 16, 2010

    • my math is messed up.. its not 25%, its 20%.. although its still a very large decline..

      Comment by jasper | December 15, 2010 | Reply

  20. Im am planning to accumulate MBT and JGS.. Sir Gus what price can you recommend. Thanks a lot.

    Comment by jaayem | December 15, 2010 | Reply

  21. Sir, Thank for all the inputs that you have shared to all of us… one thing i would like to share to all of us, followers, is just… OBSERVE,THINK & LEARN. MAINTAIN PROPER ASTUTE, AND KEEP YOUR BOOTS STRINGS TIGHT. ” PAHIYANG MUNA AKO” am out of the mrkt packed and heading for a snowy place in this world.ALL THE BEST! p.s. this is my first time to comment on your site, for the longest time CHEERS sir GUS!

    Comment by ottrho | December 15, 2010 | Reply

    • Merry Christmas to you too.

      Comment by Gus Cosio | December 16, 2010 | Reply

  22. Sir, do you think it is time that I sell my PX shares? I bought it for 13.3

    Comment by Allen | December 15, 2010 | Reply

  23. Sir Gus,

    What are your advice on peso cost averaging?.When I started investing in stocks, my plan is for the long haul using the pca system since I cannot afford to really buy a bulk of shares from solid growth companies. Right now I am already starting to study the market in the hope of learning short-term trading. What can you also suggest for a good reading material for short term trading, swing trading..etc.. for newbies?, can you suggest some training venues that i can attend?.. thank you sir and God bless,,merry christmas sir

    Comment by jhayson sibayan | December 15, 2010 | Reply

    • peso cost averaging is safer 🙂

      Comment by cliffhanger | December 16, 2010 | Reply

    • Jhayson,
      If you do the math, peso cost averaging will always keep you performing better than market because when the stock is going up, your cost will always be below market. When the price is going down, your average will be quite close to market.

      Comment by Gus Cosio | December 16, 2010 | Reply

  24. Hi Mr. Cosio,
    What book can you recommend for stocks trading?

    Comment by MVP | December 15, 2010 | Reply

  25. This is a very nice blog sir… I’m a newbie in the stock market and have paid my tuition… sad to say my portfolio is still down.

    Sir, is CEB good for a long term hold? Thank you.

    Comment by anding | December 15, 2010 | Reply

  26. “Success in investing doesn’t correlate with I.Q. once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” – Warren Buffett

    Comment by D' Intelligent Investor | December 23, 2010 | Reply

  27. Already paid my tuition fee…but its ok, if tuition fees are pre requisites for learning and in learning, we can manage to improve our portfolios then we can view tuition fees analogous to “puhunan” in a business, just a perspective…

    Comment by jofoler | December 26, 2010 | Reply


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: