Gus Cosio says so

Ideas on the Philippine Stock Market

Enjoying a roller coaster ride

8:35am Wednesday  19 January 2011

For most of 2010, the Philippine market had only one identifiable trend which was up. When stock prices were as strong as they were, people are lulled into believing that the risk of investing in stocks is small.  People then tend to overestimate their ability to handle that risk.  Reality starts to set it only when you start to lose money.  In the first two weeks of this year (actually even in late November 2011), we had very volatile markets.  Many investor who entered the market only in the last 12 to 18 months may have never experienced this kind of roller coaster.  It is only now that they are realizing what the real risks to investing in stocks are.

In my view, now is a great time to reassess your individual risk threshold.  Do you own too many stocks? Are you over-weighted  in a speculative plays?  Are your stocks all in the power sector?  Are you tending a lot of dogs in your portfolio?  Are you long because you chased the market? Do you have positions simply because somebody gave you a tip? Do you never keep cash or are you always fully invested?  If you are feeling very uneasy now, you know that you need to raise cash.  I for one feel that in our market, which is not very deep, you should always have 20 percent in cash.

I think people are worried that the time for a long market decline has come.  I will not try to argue that point because my opinion would be only one in a thousand.  It is just that I often choose to look at the fundamentals without ignoring market dynamics.  Right now, the market is saying that many investors notably the foreign funds want to get out.  I believe there is a lot of wisdom in that view.  It is a proper time to bank some profits in.  Also, foreign fund have a variety of reasons to cash in – currency gains, windfall on some stocks or they simply underweight allocation to this market among others.

What matters now is whether or not this market will rebound because when it happens, you should be holding the stocks which should gain the most.  I do not have the crystal ball to tell me when this market will bounce back.  Presently, I hold the view that stocks are generally in a trading range.  For one, I think DMC will range between 33 and 37.  I could be wrong but I will take that view and play the range since I like DMC over the long haul anyway.  Another is AP which I thought was a screaming buy at 26.20.  It looks to me that AP should range between 26 and 32, but beware if it breaks 26.  MBT will likely range between 61 and 67 while MPI will trade between 3.50 and 4.20.  Range trading is a strategy where you make your best guess when taking a position with a disciplined decision to play the range.  This also means that if the support and resistance are broken, you mast take appropriate action: cut if it breaks support or buy up if it breaks resistance.

I foresee further volatility within the 3950 to 4250 range of the PSEi.  While this represents tough times ahead, it is also a tremendous opportunity for outperforming the index.  I think technical trading would characterize the market in the coming weeks.  My guess is we will not see a breakdown in prices.  The business sentiment in the country is not bad at all. Furthermore, I believe in cycles and I sense that we have not yet seen the peak of this one which started 18 months ago.  Like all roller coasters, there are ups and downs; but at the end of the ride, you always feel exhilarated.  Yes?

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January 19, 2011 - Posted by | Financial markets in Asia

56 Comments »

  1. Sir, Gus, I am still holding and accumulating my core issues – AGI and DMC. I hope I can sell my MER today at a good price before it rolls back again.

    Comment by Shan | January 19, 2011 | Reply

    • Just hold on to them.

      Comment by V | January 19, 2011 | Reply

  2. Sayang talaga, I should have disposed of my DMC when I had the chance. Now cash is an issue again.. :grrr:

    Comment by jasper | January 19, 2011 | Reply

  3. sir gus,

    what’s your thoughts on LND , since it’s already a andrew tan company. will it follow MEG’s price?

    Comment by yanyan | January 19, 2011 | Reply

    • Yanyan,
      I can only guess. I’m usually hesitant with M&A situations unless I spot it early enough. LND has gone up a lot. If you have profits, it won’t be bad to cash in on some. Nobody loses by taking a profit.

      Comment by Gus Cosio | January 20, 2011 | Reply

  4. Sir Gus, it is always refreshing to read your blog. You are unselfish in sharing your valuable insights and at the same time exercising prudence in advising your readers to evaluate their risk appetite. And the quality that sets you apart is your humility in accepting that you could be wrong and that you do not know what the future holds. More power!

    Comment by jamie | January 19, 2011 | Reply

    • I couldn’t agree more!!! More power Sir!!! Let’s enjoy this roller coaster 🙂

      Comment by MJL | January 19, 2011 | Reply

  5. what the… what happened to SHNG? it went down -25%

    Comment by jasper | January 19, 2011 | Reply

    • Nag post agad ako ng order for 5k shares at 1.55p each. Nobody is taking. Might be that someone made a costly mistake again ala CEB the last time :/

      Comment by jasper | January 19, 2011 | Reply

    • SHNG is a good value play i think, do u agree?

      Comment by cliffhanger | January 19, 2011 | Reply

      • yes, it gives good dividends 5% and is below book value. I used to have tons of shang but diverted it into VLL instead

        Comment by jasper | January 19, 2011

      • which stock gives the highest yielding dividend?

        Comment by Johnny | January 19, 2011

      • To my the best of my knowledge, they are TEL and SCC

        Comment by Gus Cosio | January 20, 2011

      • I too have shang, but sold to buy VLL… vll townhouse and condos is selling like pancakes… i think it is the foreign selling thats affecting the price… but fundamentals are strong..

        Comment by bush | January 19, 2011

    • Something’s wrong with SHNG. The big drop in price did not just happen once, as it happened twice in a span of a few days. What’s the fair value of SHNG?

      Comment by V | January 19, 2011 | Reply

  6. I am enjoying the ride. All my profits in BEL offsets my losses in other stocks. US Casino companies has 50% Gross Profit from casino operations.

    CEB is an screaming buy, but can still go down to 80. Its time to avoid illiquid shares now, you will be having a difficult time to sell the security.

    Comment by alexis | January 19, 2011 | Reply

    • CEB is on a downward trend. Better to wait until it hits rock-bottom. Then let it vibrate there before buying.

      Wouldn’t want to be a hero

      Comment by jasper | January 19, 2011 | Reply

  7. FLI keeps on slipping. Is it going to bounce back to 1.30?

    Comment by weena | January 19, 2011 | Reply

    • hope so!

      Comment by jopard | January 19, 2011 | Reply

      • FLI’s prices are already ridiculously cheap. Even if they fall down some more, it is very unlikely it will remain there later in the year.

        Comment by V | January 19, 2011

      • I agree with your view on FLI. You should also consider RLC which is also cheap or VLL which is ridiculously cheap.

        Comment by Gus Cosio | January 20, 2011

      • That is uplifting! If we are seeing red now, the exhiliration when the market peaks is worth waiting for.

        Comment by weena | January 19, 2011

  8. What are your thoughts on TA and SOC. Both energy companies appear underpriced.

    Comment by Central Texas | January 19, 2011 | Reply

  9. Sir Gus,

    Just trying to confirm what you’re saying in your latest blog. Are you lightening or selling much of your positions today?

    Comment by V | January 19, 2011 | Reply

    • I’d lightened up in December. I’m doing some accumulation on EDC, DMC and got more ORE. I’m not very comfortable of a bounce. I’m just betting that when the company earnings results gets released starting next week, traders will turn cerebral. Right now, everyone seems to be in a panic.

      Comment by Gus Cosio | January 20, 2011 | Reply

  10. Sir Gus,

    Trying to confirm what you’re saying in your latest blog, are you lightening or selling much of your positions today?

    Comment by V | January 19, 2011 | Reply

    • I was holdong a comfortable cash position. I did some selling inDecember to protect some profits. Some stocks are in prices lower than December so I am slowly accumulating but with a lot of caution.

      Comment by Gus Cosio | January 20, 2011 | Reply

  11. Sir Gus

    Does it follow that when the stock market is down the NAV per share of a mutual fund, say FAMI, is also down? If that is so, then it is also the best time to start investing so one gets a low average and benefit with a bigger yield when the market recovers. Is this right? i just want to time my entry to FAMI.

    Comment by weena | January 19, 2011 | Reply

    • I have MF investments since May of last year and yes, most of the time when there is a drop in the PSEi it reflects in the NAVPS prices.

      Comment by RTC | January 19, 2011 | Reply

    • I think that will depend on the portfolio of the mutual fund… if the mutual fund is 100% invested in stock, then that maybe true

      Comment by Jan | January 19, 2011 | Reply

    • I think it will depend on the portfolio of the mutual fund… if the mutual is composed of 100% stocks then in may be possible that NAV will go down… then again that also depends on the stock they invested in.. it doesn’t necessarily follow that when the market is down the NAV is also down.. anyway that’s just my opinion

      Comment by Jan | January 19, 2011 | Reply

    • Yes, that’s correct. But to be more precise, you can probably check the information on the fund that you want to acquire – i.e. what stocks they’re investing in.

      Comment by Kristin | January 19, 2011 | Reply

      • how will we know what stocks the funds are investing in?

        Comment by frepoy | January 19, 2011

      • All mutual funds, unlike UITFs are, required to make a quarterly disclosure report to the SEC. You can access the report in the SEC.

        Comment by Gus Cosio | January 20, 2011

    • Speaking of timing your entry….I entered FAMI balanced fund on it’s peak at 2.0756…. Sir Gus can I average down on this?

      Comment by Johann | January 20, 2011 | Reply

      • Johann,
        The most effective way to invest in mutual funds is to do a peso cost averaging. Ideally, you should do it on a regular basis like monthly. Yes, I think you should buy now to lower your average. FYI, I put money regularly in the equity fund without fail every 15th of the month. This is on top of my personal stock portfolio.

        Comment by Gus Cosio | January 20, 2011

      • Ok, now I understand. Thank you.

        Comment by Johann | January 20, 2011

  12. You have any news about MEG, FLI, and MBT? Why are these blue chip stocks beaten down to absurd prices?

    Comment by Johnny | January 19, 2011 | Reply

    • Johnny,
      It is the entire market that is down. I think it is due to foreign selling which many locals are riding on.

      Comment by Gus Cosio | January 20, 2011 | Reply

  13. weena most of the time. but don’t procrastinate as this could go up again by the time you decide to invest plus the days it would take them to process your investment

    Comment by ydeot | January 19, 2011 | Reply

    • Thanks ydeot for the wake up call.

      I think that when investing in mutual funds, timing is not much of an issue. The more important thing is to do it regularly so we get the benefit of averaging when the market bottoms or peaks. With that said, it is apparent that the right time is NOW!

      Comment by weena | January 20, 2011 | Reply

  14. Sir Gus,
    Im holding MEG @2.29 today is 2.15, plz. advice to me

    Comment by Newbie | January 19, 2011 | Reply

    • Hold or accumulate as the stock goes lower.

      Comment by Gus Cosio | January 20, 2011 | Reply

  15. Very well said, Sir Gus. Thanks for this very timely topic. Enjoy the ride!

    Comment by Rx | January 19, 2011 | Reply

  16. Sir which is a better buy MEG or VLL? I already have both stocks but am thinking of averaging down on both..

    Comment by Cholo | January 20, 2011 | Reply

    • my money is on VLL.

      Comment by Gus Cosio | January 20, 2011 | Reply

  17. Sir Gus did you buy ORE today? I am tempted to buy but I am afraid it will go back to 3.0. More power to you sir.

    Comment by jaayem | January 20, 2011 | Reply

    • I bought yesterday. I was a bit early. I should have waited for today.

      Comment by Gus Cosio | January 20, 2011 | Reply

  18. Sir Gus, what are your thoughts on EDC? It is currently forming a cup and handle pattern. This usually is a very strong signal to buy.

    Comment by Seth | January 20, 2011 | Reply

    • Seth,
      I’ve been accumulating EDC. I like the stock fundamentally and technically it looks very strong. We just need to get out of this market gloom and doom psychology.

      Comment by Gus Cosio | January 20, 2011 | Reply

  19. Sir Gus,

    What are your thoughts on DGTL? Would you buyer at this level? Thanks Sir 🙂

    Comment by KennyV | January 20, 2011 | Reply

    • I’m already long on DGTL. Yes, I would be a buyer.

      Comment by Gus Cosio | January 20, 2011 | Reply

      • Sir Gus,

        What’s your thought on Vantage (V). Suddendly it became active, fundamentals are good and undervalued.

        EPS .25 (annualized)
        PE below 7
        Book Value: 2.23 as of 9/30/10
        Very Low Liability
        High Cash Balance
        Net Foreign Buying yesterdy is 14+ Million

        Comment by Ralph | January 20, 2011

  20. Would I still wait for FLI to go down below 1.00 to average. Thanks Sir.

    Comment by nur | January 20, 2011 | Reply

  21. Hi Gus, what’ are your thoughts on MPI and Dmc at their current prices?

    Comment by Mike | January 20, 2011 | Reply

    • I picked up some DMC at 32.95 today. i may have entered too early but my average is around 32.40 for my entire position and I already sold last month at upwards of 34 anyway.

      Comment by Gus Cosio | January 20, 2011 | Reply


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