Gus Cosio says so

Ideas on the Philippine Stock Market

Jack be wise

10:50 pm  Sunday  6 February 2011

By now, I am sure many are hurting badly in their portfolios.  After a very strong rally which lasted a year and a half, things do not look as rosy.  I for one am nursing some losses in my portfolio – around 7% year to date.  I remember a quotation from Jack Bogle, founder of the Vanguard Group – the world’s biggest mutual fund management company.  He said, “If you have trouble imaging a 20% loss in the stock market, you shouldn’t be in stocks.” I guess that should prepare us to the mindset of stock market investing.  If you cannot live with a loss, you should not even be looking at the stock market.  Also, if you are one who cannot cut losses in your portfolio, it would be better to entrust your savings to a mutual fund manager.

Anyway, the reason I mentioned Jack Bogle’s quote is because this market looks to me that while we can expect some occasional up ticks, the stronger pull is like that of gravity – downwards – at least for the time being.  Do not get me wrong.  My constructive view of the market still persists, and I expect the market to gain 10% to 15% by the end of 2011.  Unfortunately, in the short run, I am not so bullish because of how the market reacts to good news.  Take the GDP figure last week of 7.3% for full year 2010.  We had the best one year growth for 34 years, yet the market ignored it.  Another was the 33% increase in earnings of BPI which the market not only ignored; it even sold BPI down.  I shudder to think how traders and investors alike will react to disappointing company news should they arise.  The good thing was that sellers did not react extremely when the inflation figure of 3.5% was released Friday.  This number was on the high end of consensus.

This leads me to another of Jack Bogle’s snippet of wisdom: “Time is your friend; impulse is your enemy.” I think if you agree with me that the good economic fundamentals will eventually make its way into stock prices, then we have to be patient and put time on our side.  If the market is not trending, then it should be ranging, and making money in a ranging market or a trading range requires a lot of patience.  It also requires the discipline to sell when prices are strong and the nerves to buy when the market is weak.

The last Bogle quote I would impart is “When reward is at its pinnacle, risk is near at hand.” That is why an investor gets to be seasoned when he starts to recognize the difference between a rewarding situation and a risky one.  People tend to be comfortable buying stocks when the market is strongly and fail to realize that rallies eventually lose steam.  Fortunately, money can be made even in times when market pulls back.  Do not forget that lower prices mean lower risk as well.

All told, stock picking boils down to fundamentals and liquidity – fundamentals because sound companies are able to weather stormy markets and liquidity because if a stock does not have a following, there will not be enough buying to bring the price up.

We should be watching stocks like TEL, BPI, SM, RLC, MBT, DMC, SCC, EDC and all those which have solid fundamentals and a proven following.  It is also a time to spot special situations or opportunistic strategies such as mining and natural resources which are the object of commodity themes.  What I would like to share is the view that I think a trading range will be the name of the game.  It could be a 3800 to 4000 range over the next few weeks, but watch the downside.  If it does not find support at 3800, 3650 cannot be far behind.  As a corollary, even if the market breaks out of 4000, I do not recommend chasing it.  I, for one, would be a seller above 4000 while market conditions are like this.



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February 6, 2011 - Posted by | Financial markets in Asia

41 Comments »

  1. Hi sir Gus. Thanks for the reality checks. But if fundamentals are taking a backseat, what could spur our market back to its bullish track? Are the global funds now veering away from emerging markets, and if so where do you think they are headed?

    Comment by jojo | February 6, 2011 | Reply

    • Hi Jojo, I have attended COL’s outlook for 2011. They mentioned some hedge fund managers are moving funds to Taiwan, Korea, U.S and Germany. Aside from Philippines, there are also corrections happening in China, Indonesia, India and Thailand. What I do not know is, if these countries have better or as good fundamentals and healthy economic indicators as ours…

      Comment by Jerome Peralta | February 7, 2011 | Reply

  2. I’m glad I held on to my SCC. I read in Financial times that the price of coal will go up because of flooding in Australia (which is the number one coal producer)..and the demand in the US because of the harsh winters.

    Thanks for the tip Sir Gus, I’ll probably hold on to SCC until PSEI goes to 4000 (if it goes below, 3800…waaaaah!!!)

    Comment by Kristin | February 7, 2011 | Reply

    • I believe australia is the number one exporter. Producer can be either China, US, or another country I don’t seem to remember. 🙂

      Comment by twisted_pretzel | February 7, 2011 | Reply

  3. The biggest loser for me two weeks ago was JGS and RLC.. now its ORE and DGTL.. A sew-saw battle.

    But I’m glad I diversified. No single stock can destroy me now.

    Comment by jasper | February 7, 2011 | Reply

    • yup, diversification is very important if you are an amateur investor

      Comment by cliffhanger | February 7, 2011 | Reply

      • i say that with humility and respect though..ive always been an advocate of diversification

        Comment by cliffhanger | February 7, 2011

      • saksakan talaga ng yabang ‘tong si cliff tsk tsk

        Comment by A.J. | February 7, 2011

      • come on guys, trade and tirade should not mix in this site.

        Comment by obilesil | February 7, 2011

      • Diversification is done also veteran investors, not only amateurs.

        Comment by Johnny | February 7, 2011

      • hehe dont take it personally though..i think the title “amateur investor” is even better than “professional investor”. amateur investors are not subjected to the pressures professional investors have to face day-to-day. i will admit that i am amateur investor and would like to say amateur for the rest of my life 🙂

        Comment by cliffhanger | February 7, 2011

      • 4 people disagree with you, and only one (maybe yourself?) agrees.

        If you still consider yourself an amateur for life, despite being in the stock market everyday for a long time from now, that does not make you an amateur. That makes you incompetent and just being a smart-ass who thinks he knows better than others.

        Comment by tina | February 8, 2011

      • retail investor yata tawag cliff, not amateur investor

        Comment by A.J. | February 8, 2011

      • dont want to debate further, here are the definitions..

        here are the definitions from investopedia

        What Does Retail Investor Mean?
        Individual investors who buy and sell securities for their personal account, and not for another company or organization.

        Also known as an “individual investor” or “small investor”.
        Investopedia explains Retail Investor
        Retail investors buy in much smaller quantities than larger institutional investors.

        the definition of “amateur” from wikipedia.org

        An amateur is generally considered a person attached to a particular pursuit, study, or science, without pay and often without formal training.

        Comment by cliffhanger | February 8, 2011

    • ORE rallied twice @ 3.17. I just missed that opportunity. I’m still holding my ORE @2.96… 🙂

      Comment by Ogie | February 7, 2011 | Reply

  4. Recently the market always opens high then closes at the low. Selling at the open and buying at the close seems to work well these days.

    Comment by Seth | February 7, 2011 | Reply

    • Seth,
      That is a sign of a bearish market. When we start to see strong closes, then we can sense that sentiment has improved.

      Comment by Gus Cosio | February 7, 2011 | Reply

  5. Hi Sir,

    You mentioned in your previous post that you are also timing your buy on TEL. Is now a good time? I think you mentioned that it is already a good buy at the 2400 level but with the market still going downwards, do you think it could touch 2300?

    Thanks

    Comment by Chriss | February 7, 2011 | Reply

    • Chriss,
      I do not know if it will touch 2300, but 2400 is pretty reasonable and even if it goes down to 2300, it couls always recover to 2500 on strong earnings later this year.

      Comment by Gus Cosio | February 7, 2011 | Reply

  6. hi sir gus!

    review on RLC

    debt/equity = 1.01 (on the boarder)
    price/book value = 1.43 (on the boarder)
    sales 2007-2009 = 10,687, 10,496, 11,241 (looks good if 2010 will surpass 2009)
    earnings per share 2008-2009 = 1.15, 1.19, 1.28 (consistently growing)
    net profit margins around 30% (good)
    return on equity = 12.8% (good)
    dividend yield = 3.4% (just ok)
    PE ratio for 2010 projected income around 10-11 (good)

    like to hear your further thoughts 🙂 thanks!

    Comment by cliffhanger | February 7, 2011 | Reply

    • There were a lot of older posts indicating what Gus thinks about RLC. But more important than that.. well, what do you think cliffhanger? Is RLC a good buy or not?

      Comment by jasper | February 7, 2011 | Reply

      • well i think gus opinion is more important than mine hehe but based on the numbers, i could get comfortable buying RLC..still interested though in what gus thinks with the numbers..

        Comment by cliffhanger | February 7, 2011

    • I think RLC has very good numbers. From what I’ve read, 70% of RLC earnings is recurring from leases and rents. My valuation of RLC, based on investor relations guidance, is that it is trading around 8X 2011 earnings.

      Comment by Gus Cosio | February 7, 2011 | Reply

      • thanks sir gus!

        i appreciate it so much when you mention numbers on your posts 🙂

        Comment by cliffhanger | February 8, 2011

  7. The US Market is in SUPER CALM right now…

    Comment by Rene | February 7, 2011 | Reply

  8. Hi Sir Gus (and other people in the blog),

    NIKL is at an all time high, but with the volatile market, I wonder if I should sell. My naive candlestick charting knowledge tells me I should wait, but I’m paranoid because NIKL (and SCC) are the stocks that are breaking even in my portfolio. Any suggestions?

    Comment by Kristin | February 7, 2011 | Reply

    • Kristin,
      Do not ignore the rule about trading (or investing) – “ride your winners, cut your losses.” I think you have winners in NIKL and SCC. Why cut it? What you should do is have a disciplined trading stop on both stocks. If NIKL drops to below 20, then sell or SCC drops below 200. If you need to sell something, sell a laggard in your portfolio even at a loss.

      Comment by Gus Cosio | February 7, 2011 | Reply

      • Thank you thank you so much Sir Gus for that insight and guidance. Newbies like I need that.

        Now, for the courage (and the discipline) to cut my losing stocks (APC at -17%) 😦

        Comment by Kristin | February 7, 2011

      • Antay-antay lng sa APC. Naging paborito rin yan ng mga traders. Patience is virtue. If it doesn’t move in 2 weeks probably you need to look for some other stocks that is trending… You may cut some losses and switch it then to the trending stock/s.

        Cheers! Have a good day! ^_^

        Comment by Ogie | February 7, 2011

      • i too don’t know what is right strategy on this situation.

        what i did yesterday, i sold all my SCC at 19% profit and my plan is buy it back on correction. I’m waiting for the right time yo buy-back my MER as well.

        On my portfolio, im DMC(-5.59%), FPH(-10.10%) and MWC(5.69%). Its interesting to know why FPH is not moving even if its very strong.

        I am thinking at cutting loss at FPH at 10% if it does not move, and take advatage of rising NIKL.

        what do you think sir gus?

        Comment by rdthedeveloper | February 8, 2011

      • Kristin, I know exactly how that feels. When a stock starts plummeting what I do is cut loss at around 12%. Maybe sell half and use the fresh funds to buy a stock that is about to soar. Also, I make sure not to go all in especially when I am not sure if the market will go down further. It has helped me a lot to keep 20% in my cash balance so that I do not go crazy when I see really good buys at the bottom and the coffers are empty. Goodluck! Be strong!

        Comment by weena | February 8, 2011

  9. what’s the TP for SCC and NIKL?

    Comment by buhawijack | February 7, 2011 | Reply

  10. Hi Sir Gus,

    What do you think of the IPO of Megawide? Will you subscribe to it?

    Comment by Allen | February 7, 2011 | Reply

    • allen,

      pls check sir’s previous post’s comments…
      towards the bottom of the comments portion, you’d read his take on MEGa’s IPO.

      Comment by ricky | February 7, 2011 | Reply

  11. Hi Sir Gus,
    What about BEL, will it still recover?

    Thanks

    Comment by Mhon | February 7, 2011 | Reply

  12. BPI habulin mo c UNIonBank…hehe

    Comment by Rene | February 8, 2011 | Reply

  13. Hi Sir Gus, hello every body.

    May I have your thoughts on AP, please? I bought some shares last December, but now the price is down by P3/share. Would it be wise to cut losses now, or should I simply wait for the market to recover? After all, i am just as optimistic that the index will rise once again, it is only a matter of time.

    But you see, I am quite new to the market,I have yet to get used to the roller coaster ride that it is. Thus, my huge paper losses in jfc and ap can be quite disturbing.

    Comment by beanstalker | February 8, 2011 | Reply

    • I still holding my AP even up to now. Fundamentally, AP is still a good stock to own long term.

      Comment by jopard | February 8, 2011 | Reply

  14. Hi guys,

    I was thinking if most of the companies SMC acquired did well, maybe in 10 year’s time, SMC could be the next TEL? This may be really a long term investment but who knows?

    Comment by Chriss | February 8, 2011 | Reply

    • I would not mind holding SMC for 10 years. I like what the company has reinvented itself into. I am waiting on the sidelines for correction, and then I will enter.

      Comment by beanstalker | February 8, 2011 | Reply

  15. Hi Sir Gus,
    What abut BEL? Is it going to recover? Already at 10% loss, what are your suggestions.

    Thanks

    Comment by mhon | February 9, 2011 | Reply


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