Gus Cosio says so

Ideas on the Philippine Stock Market

Evolving a community of decent and constructive people

11:30 Sunday  February 13, 2011

Over the weekend, I read a few comments on this blog that had indecent or harsh language.  I also noticed some exchange of comments that were exceeding the boundaries of the free exchange of ideas that I am trying to promote in this site.  I would like to remind our readers that we should rise above our narrow self-interest because that is not my intention in this blog.  If you noticed, I do not push my ideas on any of you.  If some ask my opinion, then I give it as I see it objectively.  I also lay no claim that I know everything nor do I claim that everything I say in this blog is infallible.   I do this blog for the benefit of those who want to learn things in the market.  I am an investment advocate and the purpose of my sharing of my ideas is so that people who read my articles can eventually have a good experience in the market.

Sometimes, I make calls on some stocks because that is how I process the information.  A regular follower with a bit of common sense should be able to glean after a period of time how to process information in a way that suits his or her investment parameters.  I do not push stocks in this site; I push ideas which is what investors would normally get from their advisers.

I would therefore ask all those who post comments on this site to be civil in both their attitude and language.  After all, if you do not like what other people are saying, you can just ignore it.  what I would really like to develop in this site is an investing community where people can help up build each other and contribute to the growth of our very own capital market.  Let us not be like the run of the mill crab minded people that we all hate.  Let us be people of genuine goals and motives.  We all want to make money and arguing anybody’s point to death is simply not the way to do it.  What will really serve us is if we can be constructive in everything that we say.

If you have a trading system or technique to share, fine.  If you do not like the trading style being offered, fine as well.  As I said to two readers about their argument over this site, in the end, it is the market who determines that is right.  That is why I assert my points about following the market and gleaning thoughts from what the market action is telling us.  Remember, the stock market is an accumulation of all the information available.  The art is to make more favorable moves than the unfavorable ones.  You cannot make it work for you if you are bull-headed.

So much for that.

I received some texts expressing delight that the Egyptian crisis is over and people can start looking at the economic and market fundamentals that should steer the course of the local market.  I had thought that what had been driving our market was the exodus to the developed markets.  Surely, foreign selling has taken its toll on many stocks.  Our market is down over 10% from end 2010 levels and close to 20% down from the 2010 highs.  That is 670 points at Thursday’s close.  The levels where we are now make a lot of sense to me.  After a record-breaking 62% gain in 2009, I was just really expecting around a 20% gain of the index in 2010.  That would have had the PSEi settle around 3615 at the end of the year.  Instead, it far exceeded my expectation and surged to 4397 and eventually closed around 4200.

With the index back down to 3740 level, it does not look too far from where it should have been.  Why a 20% gain of the index in 2010?  Because that is what is in line with aggregate earnings of listed companies more or less.   That is also consistent, in my opinion, with the two-year compounded growth of earnings.  I think the market exceeded valuations that were acceptable to sophisticated portfolios.  I think the S&P 500 was trading around 12.7X PE in December 2010 while the PSEi was trading around 13.7X PE.  Today, the relationship may already be reversed with the PSEi already cheaper.  This is why I think we are coming close to the end of this sell-off.  Theoretically, the market can dip to 3615 or 3620.  That level will be very cheap for a good number of stocks.  I must caution you, however, to remain with the strong issues at this point.  I may have some speculative favorites, but if one were to be prudent, he or she should stay with stocks with strong earnings.

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February 13, 2011 - Posted by | Financial markets in Asia

48 Comments »

  1. Gus,

    what’s your thoughts on AEV being included in MSCI?

    also, any updates on ORE (shipment schedule)

    and with the conclusion of Egypt’s political turmoil, do we see the index going to 3900 levels, or will we see it test the 3600 level within this week.

    thanks!

    Comment by buhawi | February 13, 2011 | Reply

    • ORE’s shipment could be coming this March, but I would not pin my hope for that. This stock is best traded by following it’s price action, but that is if you have the time. This seems, to have found it’s state of equilibrium at around 2.8-3.0. Anything higher could be more risky, while anything lower could be rewarding yet also risky.

      Comment by Seth | February 14, 2011 | Reply

    • Buhawi,
      The inclusion of AEV in the MSCI is appropriate since among the holding companies which can give you weighted exposure in the Philippine market, AEV has the largest market cap. BPI and ALI have similar market cap levels as AEV, but they give exposure only to banking or real estate.

      Comment by Gus Cosio | February 14, 2011 | Reply

      • hi mr. Gus cosio,

        i am now in with almost all of my money in the stock market now. I did not sell almost all my positions even last year. now that market going down, i have lost about 80 percent of my gains. im afraid to sell now,because as most people including you say now should be buy, and not sell. at same time,i afraid to lose all my gains totally and even go negative if its possible.

        do you have specific advice for me? thank you and more power.

        Comment by Johnny | February 14, 2011

      • I would advise you to shed stocks which you favor the least in order to increase your cash balance. anyway, you still have 20% left of your gains.

        Comment by Gus Cosio | February 15, 2011

  2. The level of rudeness in an anonymous forum seems to correlate with the level of pain that investors/traders are experiencing. It could probably serve as an inicator. I observed the same behavior during the crash of 2008. If these traders are still clinging on, then one more dive for the index could flush them out.

    Just my opinion.

    Comment by Melvin | February 14, 2011 | Reply

    • I recall there was an indicator known as the VIX (volatility index) which went to an all-time high during the crash of 2008. I wonder if it is possible to make an analogy of the VIX for the PSE so it is easier to track the level of fear in the market.

      Comment by chris munti | February 14, 2011 | Reply

      • The owner of the site your linking your name to has disavowed any connection with you. Perhaps it is time to stop linking his site

        Comment by Garver | February 15, 2011

      • Chris munti,
        You can do this manually by tracking the day to day changes and mathematically compute for the standard deviation. From there, you can compute for volatility. I am not a mathematicians but there are programs which can do the computation for you.

        Comment by Gus Cosio | February 15, 2011

  3. As always Sir Gus, you have wrote a very gentlemanly reminder to all of us readers and posters. Your blog is a big help to us market followers where we can glean on market insights far deeper, broader and much experienced than how we look at it. Thanks for sharing all of these to us. Happy Hearts Day Sir.

    Comment by skywalker | February 14, 2011 | Reply

  4. Hi Sir Gus, I just want to ask for your opinion. How come that foreign money is going out from emerging markets to the developed markets when these same emerging markets are also important in the fundamental valuations of the developed markets as a result of globalization? Surely it is just no because of interest rate hikes. The BSP has even confirmed that they have no plans as of yet to increase interest rates. Past actions of foreign investors is already beyond reason. Confused..

    Comment by Seth | February 14, 2011 | Reply

    • If the selling continues, I think that a good buffer would be basic utility companies. Since people would have to buy it even if the price of their service increases.

      Comment by Seth | February 14, 2011 | Reply

    • Seth,
      From what I interpret from the strategy recommendations being followed by global portfolios, many are incline to do “beta” investing meaning focusing on the large markets and large cap stocks. Since many portfolios are indexed on the DJIA, S&P500, FTSE and EuroSTOXX, following the “beta” or volatility of these indices are now the theme of the strategies of the very large portfolios. This is in contrast to the “alpha” strategy which they followed in most of 2010. Seeking “alpha” means seeking to outperform the main indices; that was why they all went to emerging markets last year. The tide is now ebbing back to their home markets or towards global indices.

      Comment by Gus Cosio | February 14, 2011 | Reply

  5. As always Sir Gus, thank you very much.
    Even as a newbie, I really felt your sincere objective of keeping us all informed with the right information. I also thank the other followers who share their experiences and knowledge. I agree with Sir Gus, let us be constructive in everything that we say.
    If I may add, it will not hurt anybody if we will let us all respect each others opinion.

    Happy heart’s Day to all! 🙂

    Comment by check | February 14, 2011 | Reply

  6. *If I may add, it will not hurt anybody if we will respect each others opinion.

    Comment by check | February 14, 2011 | Reply

  7. Happy Heart’s Day everyone.
    Hope both bears and bulls will have a truce today.

    Comment by jopard | February 14, 2011 | Reply

  8. I believe that this blog should be as constructive as ever. It should educate and not ridicule, informative and not harsh. I hope we will be able to keep this healthy. Anyway, it’s Sir Gus’s blog and not anyone else.

    Comment by Shan | February 14, 2011 | Reply

  9. Hi sir,

    Any news on TEL? Its been going down for the past few days. I know its already a good buy below 2400 but maybe theres big news why?

    Thanks

    Comment by Shane | February 14, 2011 | Reply

    • Yeah sir gus.. any news on TEL? it has been going down recently and am thinking of getting some since it seems really cheap at current prices. Do you think it will go down further?

      Comment by Cholo | February 14, 2011 | Reply

      • Cholo,
        TEL is one stock that is in absolutely all foreign portfolios and has been there for a very long time. I suspect those long time holders have been steadily shifting to newer favorites which I think are the likes of DMC, AEV, AP, MBT, AGI, etc. Simply said, in the past TEL was the only stock that may had fit the liquidity and market cap parameters of global portfolios. Now, the stocks I mentioned have acquired a significant amount of market cap and liquidity. I think when TEL settles down, it would be a good blue chip investment, i.e. steady earnings and dividends with potential capital gains fom time to time.

        Comment by Gus Cosio | February 14, 2011

  10. hehe you should check out the comments made on my blog sir gus..grabe the extents people go through just to try to put someone down..but i accepted it na..thats just how it is on the internet 🙂

    Comment by cliffhanger | February 14, 2011 | Reply

    • I try to read everything, but i really cannot answer everything. I have my regular work and private life to attend to.

      Comment by Gus Cosio | February 14, 2011 | Reply

      • thats very true sir gus, we shouldnt forget the bigger picture in life, valentines day pa naman, enjoy sir gus!

        Comment by cliffhanger | February 14, 2011

  11. As long as we reply to each other without being judgmental we’re all good. I’ve noticed also that some posters here have become so arrogant answering questions not directed to them, while some have the propensity of further “fanning the fire.

    Just learn to respect and ignore. Carry on guys.

    Comment by jopet | February 14, 2011 | Reply

  12. oh, man!! lalo pang lalaki ulo ni chris munti. The Gus Cosio just wrote a blog post for him.

    Ok this comment is said in jest. I really appreciate the post actually. I feel like Mr. Cosio is the professor and we’re all students. The disrespectful posts just ruins the classroom atmosphere. 😀

    Good luck to all this week! God bless.

    Comment by blue monday | February 14, 2011 | Reply

    • im happy about giving my opinion. sorry if you misconstrue such as “yabang” but at least I don’t have to put up an analogy that the dynamics of stock prices can be likened to “a flop of butterfly wings causing a storm in seven days,” which sounds more like sci-fi to me than real science. hehe…

      and by the way since this post by Mr. Gus is about “evolution,” i just would like to recall what Charles Darwin said about it: that the process of evolution is driven by the survival of the fittest. The dodos did not survive by following their leader and resorting to groupthink. adios! 😉

      Comment by chris munti | February 14, 2011 | Reply

      • chris munti,

        we’re here to learn from Gus. groupthink multiplies the effects. we don’t want to learn from your arrogance.

        Comment by Tee Bag | February 15, 2011

      • Tee Bag,

        i try to help out by offering an alternative perspective. i don’t know why that is such a problem for many; groupthink can sometimes be good, but other times it is not. “arrogance” was also the term Marcos use to describe Ninoy’s defiance. please remember that.

        Comment by chris munti | February 15, 2011

      • chris munti,

        i find most of your opinions/ideas regarding stock investing and stock market in general informative …and i really appreciate them.

        i think the negative reactions from people, the ones who think there’s “yabang” in some of your posts came about because of what you usually put towards the end of your posts, e.g.,
        “so your “control” is easy to say but difficult to practice unless you apply yoga in your trading. do you? :)”
        “do you always have to base your investment decisions on what “seems cooking”? kung ganon, mag-chef ka na lang”

        i’m sure that if the comments above were not included in your posts, those people who reacted negatively would have appreciated your posts. 🙂

        Comment by ricky | February 15, 2011

  13. I believe all is very clear now in participating in this blog. Moving forward, I am confident that a very strong support is at 3,650 because of what Sir Gus has shared that 2010 should and expectedly closed at 3,615. If many analyst will be right in predicting a 15 – 20% growth for 2011, then let’s set our sight to 4,330 psei and stay invested and not panic. All the best to you All….

    Comment by Benson Lim AXA Life | February 14, 2011 | Reply

    • Why not PSE 5000? 🙂

      Comment by Seth | February 14, 2011 | Reply

      • I see 5000 psei possible, that’s 38.31% from 3,615, the supposed closing of 2010. After all, equity returns comes in surprises and the level will result with a reasonable P:E around 14X. I will still closely monitor the inflation and interest situation. For me,Inflation should not breach 5% while interest rates on T-Bills at 7% or below.

        Comment by Benson Lim AXA Life | February 14, 2011

      • Benson,
        I think the market will be headed better, but I would not be over-bullish until we see the 4Q 2010 and full year earnings reports. Then we have to track 1Q 2011 to validate forecasts. Similarly, we must be careful about the interest rate situation. If we see a sharp rise in interest rates, investors may still flee the market.

        Comment by Gus Cosio | February 14, 2011

  14. Sir Gus, any news from the fund managers who visited ORE’s site? Thanks…

    Comment by jamie | February 14, 2011 | Reply

    • Jamie,
      Actually, I find the news positive except for the fact that something is delaying the shipment. They showed me pictures of the nickel ore stockpile which is estimated to be 140K to150K metric tons. They also said that the mine site is only 8 kilometers from the seaport which is very short compared to other mines. They were also shown the unmined ore deposits which were very close to the surface. What I was earlier concerned about ORE was whether or not the mine was viable. As it turns out, it is a very rich mine. The challenge now is to regularize the shipments because production is going pretty well in a cost effective way. ORE is not that speculative after all, given this information.

      Comment by Gus Cosio | February 14, 2011 | Reply

      • Thanks for taking time to share the information, Sir Gus.

        Comment by jamie | February 14, 2011

      • Once ORE can consistently deliver then price will follow.

        Comment by Seth | February 14, 2011

    • Would you still consider ORE as speculative even though there is already value in its current resources and based on reports, potential harvests? I know that there has been a long delay in its shipment but with any other company, there are of course operational problems that can be encountered from time to time…

      Comment by Shane | February 14, 2011 | Reply

      • Yes, ORE remains speculative until it can prove that it can consistently deliver steady profits. It is the consistency of revenue and income that moves a stock from speculative to a sound investment. What we are betting on, therefore, is that down the road, ORE will deliver steady revenue and profits.

        Comment by Gus Cosio | February 14, 2011

    • I should buy more ORE, but my courage escapes me. I might just average on RLC instead, and even buy some more CHIB.

      But I just need for JGS to not suck this week and gain just 10centavos. Then I can sell it and hopefully raise some cash as I am not convinced the selling has abated.

      Comment by jasper | February 14, 2011 | Reply

      • Many people reading this blog could be on the same train of thought as you have.

        Comment by Seth | February 14, 2011

      • I have always maintained that ORE is not for the faint of heart. Nevertheless, it is the speculative stocks that give extra returns on a diversified portfolio. Just keep your position on speculative stocks manageable. In other words, don’t go overboard on stocks like these.

        Comment by Gus Cosio | February 14, 2011

  15. Sir Gus,

    What your thought on SECB with the Press Release of 7.2 Billion unaudited net income for 2010 with PE of 17.20 per share. Seems the best bank performer of the year in terms of income. Is it time to buy at 80+?

    Comment by Ralph | February 14, 2011 | Reply

    • Wow… really. It will bring down the P:E ratio to 4.7x. My opinion, if you buy now at P80, and you are an investor not a trader, you will most probably gain. BV 2009 is P42.48/shr. Good luck Ralph.

      Comment by Benson Lim AXA Life | February 15, 2011 | Reply

  16. im sorry sir Gus for acting such a dork in my posts. and to you also Chris Munti, im sorry for insulting you, its all my fault.

    I hope we just continue the healthy discussions here.

    Comment by A.J. | February 15, 2011 | Reply

    • Apologies accepted. On learning from each other in healthy discussion – I hope so, too.

      Comment by Gus Cosio | February 15, 2011 | Reply

  17. Is PNB still going to merge with Allied this year?

    Comment by Sam | February 15, 2011 | Reply

  18. Is PNB still going to merge with Allied this year? Any updates?

    Comment by Sam | February 15, 2011 | Reply


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