Gus Cosio says so

Ideas on the Philippine Stock Market

Biblical proportions

This is a bloodbath of biblical proportions if you look at what has been happening to the Asian markets.  While the PSEi is down 1.39%, Shanghai Composite is down 2.60%, Hang Seng down 2.11%, Nikkei down 1.78%, Jakarta down 1.33%, Singapore down 1.68%, KOSPI down 1.76%, Taiwan down 1.87.  Europe is also opening with varying degrees of sell-offs, all these because Maumar Khadafy decide to shoot down Libyan protesters.

The implications get deeper than that since the big picture seems to show a widespread unrest in the Middle East and North Africa which comprise many of the OPEC countries.  Oil futures – West Texas Intermediate  for March delivery – shot up 7.44% overnight.  With inflation arising from agricultural commodities already experiencing extremely large price spikes, the last thing the world needs is a disruption in the flow of OPEC oil which could result in very high fuel prices down the road.

The implication for the market is if much of the world’s liquidity is being used to finance all kinds of commodities, money going into financial assets will be squeezed badly.  The initial sentiment looks to me like fuel being poured into inflationary psychology and I think that is bad for the markets.  Some had already seen inflation to be the enemy but it is only now that it is starting to look like a formidable task.

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February 22, 2011 - Posted by | Financial markets in Asia

68 Comments »

  1. gus, i assume this post isn’t from you? the composition and spelling is a bit off.

    Comment by ed | February 22, 2011 | Reply

    • I still know it’s from Sir Gus. Only, a little twist like using the word “biblical”. I like it, just like a spice on the receipe. On the market side, I see many still decided to sell out of fear while the buyers are handing cash for the stock with a bright smile as saying ” yummy… I off for the good journey upside”

      Comment by Benson Lim AXA Life | February 23, 2011 | Reply

      • i just feel the style is different, but that’s only me.

        Comment by ed | February 23, 2011

    • Yes, it is my post. I was in a hurry to do it so I was not able to spell check. I just wanted to express the idea that things could get worse before it gets better.

      Comment by Gus Cosio | February 23, 2011 | Reply

  2. If there is an impending oil crisis, is it good to invest on oil companies like PCOR? (appreciating oil prices good for PCOR?)

    Thanks.

    Comment by scion | February 22, 2011 | Reply

  3. As in most things about markets, this too shall pass.

    Comment by genkumag | February 22, 2011 | Reply

  4. sir gus, besides the obvious ones like PCOR, which stocks are potential Oil plays?

    Comment by gelineohara | February 22, 2011 | Reply

    • geline,
      You can give COAT a try. They make bio-diesel. I do not own any COAT but I think it get more profitable as diesel prices move up. Another is EDC since the viability of expensive geothermal prospecting and drilling gets better as oil prices go up. I own some EDC FYI and I am underwater.

      Comment by Gus Cosio | February 24, 2011 | Reply

      • Thanks for the advice sir Gus, especially about COAT. I have actually been doing some research on that stock for a long time. I have also tried to dig on PERC, which seems to have some geothermal project ongoing with EDC as venture partner. The stock price of PERC also seems to have bottom at around 5 in the past months and seems to have broken out from that range. What can you say about PERC as a company? I would love to learn about your opinion. 🙂

        Comment by gelineohara | February 25, 2011

      • Geeline,
        I have no research at all on PERC. I only know that it was the former Philodrill which was then controlled by the same people who control AT.

        Comment by Gus Cosio | February 25, 2011

  5. The spike happened so fast and so unexpected it was hard to take advantage of it. I already lost 2% of my portfolio before I could shift to commodity positions. I went from 0% to 75% in oil positions and I’m still not sure if I should go all-in. The last 25% is with strong growth stocks that I’ve had for a long while like AAPL.

    Obviously this is a temporary play, but my experience with commodities over time has proven it carries momentum during spikes last this making it surprisingly easy to see when to exit (you have to look if it’s just momentum or there’s still a force behind it and exit fast because commodities are the most volatile plays, it can spike up but it can also spike down). Also, Libya’s problems unlike Egypt is completely in the “no one has a clue what’s gonna happen” category since Ghadafi has zero morals and won’t mind wiping out Libyans to keep power so a bounce tomorrow even on strong stocks is not certain.

    The problem with exiting strong growth stocks like AAPL is that re-entry is always a problem. If the dive is very temporary, it’s definitely a bad play because it always bounces back hard and is followed by a correction. If not, then at least you have to exit early to take advantage of it. So really the only reason you would want to exit those stocks is if you believe the problems that caused the dive will last long enough that it will waste a significant amount of your investing time.

    Losses can always be recovered, but you can never recover time. Learning to differentiate between a temporary loss and one that would eat time to recover is the key to investing IMHO. The usual problem stems from the fact that not doing anything on a sustained loss is equally as bad and sometimes worse than adjusting on a temporary loss. So holding on is not always a good play.

    Comment by Mars | February 23, 2011 | Reply

    • Me too, I am like being ambush caught flat footed. My profits are sliced down heavily… Well, thats the reality we are in and we choose to be in this venture, scary but lucrative. Still our best weapon, TIME. Good luck to all….

      Comment by Benson Lim AXA Life | February 23, 2011 | Reply

  6. Sir Gus,
    Are you recommending we cut whatever positions we are still holding because of this development?

    Comment by Garver | February 23, 2011 | Reply

    • I would not ask you to take any losses. I would do it when the situation requires, but you’ll have to come to that conviction on your own.

      Comment by Gus Cosio | February 24, 2011 | Reply

  7. in times like this, it is prudent (well, it always is) to go with companies where there is little chance of permanent loss of capital.

    any plunge in stock prices from recent events would be from negative sentiment, not much from changes in the financial strength and operating business of quality listed companies.

    for peace of mind, go with companies with a lot of cash. we as stock market investors know what a lot of cash can do in times of distress or uncertainty.

    Comment by aaron | February 23, 2011 | Reply

    • I like your adivce, Aaron. You are the investor more than a trader and you decide based on fundamentals. We have the same strategy. All the best.

      Comment by Benson Lim AXA Life | February 23, 2011 | Reply

      • Thanks Benson!

        Perhaps one can be better-off abstracting him/herself from the noise of the market once in a while.

        I remember reading from the Chief Strategist of Legg Mason — “Naturally, an investor requires information to make decisions. But investors must also make a crucial distinction between noise and signal.”

        Couple that with what was engraved on the gun of Harry McKenna’s gun from the movie The Mechanic — “Victory Loves Preparation”

        If we do our homework, we put money where we expect it to grow, keep comfortable level of cash as part of prudent portfolio management, then we should be celebrating victory for the financial market’s reaction to recent events.

        But don’t forget Keynes’ wisdom — the market can be irrational longer than investors can stay liquid.

        Happy investing! 🙂

        Comment by aaron | February 23, 2011

  8. Future Earnings? 😦

    Comment by nick | February 23, 2011 | Reply

  9. Isnt it more prudent to just stay out of the market for the mean time?

    Comment by Garver | February 23, 2011 | Reply

    • just like the saying “who can argue with success?”, arguments for staying in cash (but should be in the form of time deposit/SDA) cannot be refuted.. 🙂

      Comment by aaron | February 23, 2011 | Reply

  10. Anyone else notice that yesterdays post here “A matter of nerves” is now missing?

    Comment by jhesqi | February 23, 2011 | Reply

    • I noticed that post too and when I saw it was gone I thought I was just imagining things. Do you suspect anything fishy, jhesqi?

      Comment by Chris M. | February 23, 2011 | Reply

      • maybe sir Gus can enlighten us hehe.

        i just saw it in my rss reader and its saying page not found. no idea here dude 😉

        Comment by jhesqi | February 23, 2011

      • I pulled the post in order to verify the information further. I re-posted the edited version in “I’m digging.”

        Comment by Gus Cosio | February 24, 2011

    • yes jhesqi, im just little worried that if somebody else is posting bogus comments by pretending to be Gus, it is not a remote possibility that person is also blogging in behalf of Gus. now I have doubts whether the blogs from here on is written by the real Mr. Gus Cosio 😦

      Comment by Chris M. | February 23, 2011 | Reply

      • That’s why his comments are just comments and our decisions are and will always be our own making whether it is based on facts or just comments

        Comment by donlyn | February 24, 2011

  11. Oh my, the uniformity of RED in my portfolio is overwhelming. It’s as red as the flood of blood that Ghadafi warned as how he’ll wipe out his protesters. The crises in the Middle East are a flock of Taleb’s black swans in flight.

    Comment by Redge | February 23, 2011 | Reply

  12. wawawa….. I;m losing 100k +

    Comment by Sam | February 23, 2011 | Reply

    • Hi Sam, I say you are not loosing. It is just the price what the panic seller is willing trade. I suggest you check the book value of your company. If you purchase it at below bv, then you have purchased it with a discount. Wish you well….

      Comment by Benson Lim AXA Life | February 23, 2011 | Reply

    • There there… it’s only a paper loss dear, don’t cry…

      Comment by Mama | February 23, 2011 | Reply

    • that’s temporary Sam, once this Libya thing is fixed and interest rates factored in, it will be happy days again.

      Me im losing 184k so far but im least worried. Its money we can afford to lose anyway. Will average down in the right time.

      Comment by chaser | February 23, 2011 | Reply

    • it is just paper loss, right? you could not count it as a real loss unless you sell your holdings at current prices. if you ask me, my paper loss is almost 8 times as yours. But I\’m not bothered because I\’m in for a very long term. I will just average down along the way.

      Comment by mike wallace | February 23, 2011 | Reply

      • Your are really an investor mike wallace. Every greatness can be achieve by experiencing pain. SM Megamall was constructed during a recession so that when the market is ready so well does the mall. Therefore when there is bloodshed in the street, pick up the pieces cheap then get ready to sell when the market is ready to buy at a high price. I know you will get cheaper cost/share by t cost averaging then enjoy the profits when market goes upside…. All the best.

        Comment by Benson Lim AXA Life | February 23, 2011

      • thanks Benson,

        from the way I understand it, fear is what makes people sell during a prolonged downtrend. logic tells me that when panic sets in, cheap prices are on offer. and I agree with you that if one has an idea of what the stock price should be on the basis of a company’s books, cheaper prices only imply one rational response: BUY especially when the market price is a whopping discount with respect to value! kaya happy ako habang marami ang takot 🙂

        Comment by mike wallace | February 23, 2011

      • Very well said Mike. I hope you could share more insights about the market here. Do you have your own blog? If you do please let me know. Anyway, I have a question. What other stocks in the pse may be considered oil plays? I mean besides pCOR.

        I’d appreciate a reply. Thanks and keep up the good ideas.

        Comment by gelineohara | February 23, 2011

      • This kind of thinking is not bad but not always good. While the concept of paper loss can allow you to sleep at night it’s not really good investing. Cash is sometimes a good investment. That’s why it is important the to really study not only the fundamentals of your stocks but also the trend lines. If you’re pretty sure there’s a prolonged downtrend why not convert it to cash for now and just buy it back on the upswing?

        It’s only panic selling if it’s an ill-informed decision. If you sell based on facts, then it’s a strategic retreat.

        Comment by Mars | February 24, 2011

      • I guess what I meant to say is, the concept of paper loss makes you a lazy investor. Just because it’s gonna go back up eventually doesn’t mean you don’t do anything.

        Let’s say you have 2 people (person 1 and 2) who both bought 1000 shares of stock A at P15 per share. Stock A then starts a downtrend that will last a month. After 1 week and the downtrend confirmed, person 1 sold his shares at P12, leaving him with P12,000 while person 2 holds because the fundamentals are strong. After 1 month and bottoming out at P9 it starts going back up and at P10 per share the uptrend is confirmed and person 1 buys 1200 shares with his P12,000. At the end of the 2nd month stock A is back at P15 as predicted because it is a strong stock. Person 2 has zero losses but guess what, Person 1 has a P3000 gain.

        Comment by Mars | February 24, 2011

      • Mars,

        Guess what, nakalimutan mo yata na nung nagcutloss si Person 1 nalugi din siya ng 3000 pesos from his/her initial investment na 15000 (1000 shares of stock A at 15)… anyway, magandang theoretical scenario yan, pero hindi ka naman talaga sigurado na mangyayari palagi ang naiisip mo. But if that’s your trading style, no further questions asked. Hindi lang kasi lahat ng tao pareho ng style so best is to use the strategy that works best for you.

        Just a comment no paper loss as a lazy investment. I guess that works best for people who do not really have much time keeping track of the markets. It might be that you are a full-time trader or have a lot of time in your hands to watch the market round the clock.

        Comment by joppy gwapo | February 24, 2011

      • Now imagine that scenario and it took 1 year for stock A to recover. Sure you have zero losses, but you also have 1 year where your money didn’t gain anything. You would have been better sticking that money in a bank. Just like banking is lazy investing, sticking to purely fundamentals is also lazy investing.

        Adjusting stocks too much is bad, but not adjusting based on information is just as bad if not worse.

        Comment by Mars | February 24, 2011

      • If you’re gonna invest in stocks you have to put some time into it or just don’t invest in stocks at all, otherwise you are just wasting money. At the very least put it in the hands of someone who has time. That’s why you have financial managers.

        Comment by Mars | February 24, 2011

      • Cool lang Mars 🙂
        I agree to most of your points; but I guess some people really just can afford to keep their money in stocks and forget about it. And you\’re right, they do hire fund managers to do the dirty work for them.

        Comment by Chris M. | February 24, 2011

      • Nag cut loss nga ya ng P3,000 but his P12,000 went up to P18,000 (1200 shares at P15) so his overall gain is P3,000. It’s not a question of whether it’s going back up or not, it’s about not losing money that you don’t have to.

        The concept of paper loss is like a sleeping pill, it makes you sleep better at night. A loss is still a loss. But a true investor is not rattled by losses but on the other hand should be concerned with direction. A loss today doesn’t mean a downtrend. But if you do see a downtrend and you don’t act then you have a problem. As Warren Buffet said, it’s not about luck, it’s about how much time you spend studying your investment. If you don’t spend time studying your investment or at least get a financial manager, then you’re just gambling.

        Comment by Mars | February 24, 2011

      • Hehe wasup Chris. Cool lang ako. I’m just stating my opinion. Isn’t the purpose of this blog to help investors understand more about the market? 🙂

        Comment by Mars | February 24, 2011

      • imo, a loss is still a loss and it being human, it makes us feel poorer when we see our stock going south. doing our homework, act when circumstances required us to, and while respecting our investing strategy will make us better investors or trader 🙂

        Comment by rdthedeveloper | February 24, 2011

      • Mars: If youre gonna invest in stocks you have to put some time into it…

        Mars: Losses can always be recovered, but you can never recover time

        Am I seeing an irony or what?

        But what I understand is that you just do not invest money into stock investing, you also invest time. And it seems that when you have an issue of time (like what your two seemingly contradicting remarks insinuate), you are acting more like a short-term thinking trader than a stock investor. There is a big distinguishing factor between trader and investor: patience about knowing that big rewards need time. In the first place, if one is in for the long term, he or she must be sure that the stock bought is one that has been thoroughly researched. You just do not dive into a long-term investment in shares of a company that does not even have the prospect to last your lifetime.

        Comment by jbtapang | February 24, 2011

      • Mars, you are right, time is gold, I clasify you as a trader. If you can do a good timing, you can have better profits than investors who use fundamentals and time to gain. However, please remember, an average trader ends up getting lesser profit than the investor because traders always ends up a victim of personal whims and opinion. However, if you can have a higher level of technical skills, I wish you the best. I will be happy for your success…

        Comment by Benson Lim AXA Life | February 24, 2011

      • @jbtapang,

        in regards to your argument I think we are tuned to the same wavelength. Anyway, the debate is not really about whether short-term trading or long-term investing is the better strategy. What is important is that one recognizes the strategy that best works for his/her personality and lifestyle. As for me, I choose to spend more time for the more important things in life such as family, friends, and my career. Of course, I do not want to insinuate that Mars chooses to spend less time with his family in order to focus on day trading 😉

        Comment by mike wallace | February 25, 2011

  13. hi sir gus,

    what do you think of Megawide?

    thanks and more power!

    Comment by rommel | February 23, 2011 | Reply

    • Rommel,

      I don\’t think about Megawide at the moment. So I cannot say anything useful about it. But if you want exposure to the construction industry you can always consider DMC.

      Comment by Gus | February 23, 2011 | Reply

      • Thank you for the heads up Sir Gus

        Comment by marketbeginner | February 24, 2011

    • Rommel,
      I’d pick DMC as well over MWIDE. not only is DMC trading at 8.7 PE F2011, it gives you good exposure on Power, Water, Property and Mining as well. Also, MWIDE is forecasted to earn a net income of around 880M for 2011. DMC construction earned 1.67B for 2010, it grew by 110% compared to its 2009 income of only 794M. If I’m not mistaken, DMC is the largest construction company in the Philippines.

      Comment by Gordon Gekko | February 24, 2011 | Reply

  14. Sir any thoughts on FPH fundamental? FPH is currently down by 25% from its recent high. Thank you so much sir Gus.

    Comment by jaayem | February 23, 2011 | Reply

    • jaayem,
      I am more inclined toward EDC rather than FPH.FPH owns FGEN and EDC so FPH will definitely benefit from the earnings of EDC.

      Comment by Gus Cosio | February 24, 2011 | Reply

  15. You’re right! Just paper loss. Thanks Benson & Mike

    Comment by sam | February 23, 2011 | Reply

  16. Sir i have -15% loss on CEB, -10% DMC,-10% MBT, i have a limited cash, what stock should i first average down?, thnks!

    Comment by Handsam | February 24, 2011 | Reply

    • Hey handsam,

      I hope you don’t mind some unsolicited advice. I think CEB is something you would move away from for a bit. There’s quite a bit of uncertainty with oil prices and although CEB can always pass on fuel surcharges to its customers. this may affect passenger numbers.

      Dmc might be something you would rather look into, MBT as well. They’ve got solid numbers and DMC just released its 2010 full year earnings. They’ve increased by 89 percent and are expecting another 20+ percent increase in 2011.

      Norman

      Comment by twisted_pretzel | February 24, 2011 | Reply

  17. Any comment on GLO? I should have listen to Sir Gus when he have commented that GLO will reach 600+ level. I remember that time GLO is still at 800+ level. Is telco industry really that bad? GLO, DGTL, TEL all reach their 52 week low.

    Comment by wahzai | February 24, 2011 | Reply

    • Wahzai,

      I’d stay away from the telcos, but if you want exposure there. I’d pick either TEL (for dividends play) or DGTL (for capital gains). DGTL has still a lot of room to grow with a fair value of around 1.90 but I do not know when this will go up. Go for power, mining or construction. My personal favorite is DMC which has all that. Good luck on your trades, Bud.

      Comment by Gordon Gekko | February 24, 2011 | Reply

      • I’m pushing the prices up for this stock. Head and Shoulders forming (but inverted). 1.90 will be reached in 3 months! time to buy DGTL. something big is coming up.

        Comment by Kong Kong Wei | February 24, 2011

    • Thanks a lot.

      Comment by wahzai | February 25, 2011 | Reply

  18. i’m not bothered at all as long as my capitals are stil intact i’m still bullish. right now, my gains are slowly being eaten away with the current situation in the market. but my capital still 100% intact! i can afford to lose certain portion of my gains(97% in 2010 down to 87%ytd) but i’m pretty sure the market will reward me again at the right time.

    Comment by lolomo | February 24, 2011 | Reply

  19. Sir Gus,

    Any thoughts on when this bloodbath will end? Or will this be done after holy week?

    Comment by tina | February 24, 2011 | Reply

    • Hi Tina, I am of the opinion that when the market recovers, this will be a solid but moderate upside. Solid because the economy of Europe and USA are better today than the past coupled with the healthy economy of the developing Asia. Hot money will be moderate in comming in and out compare to last year where heavy inflow of hot money comming here then we feel market disappointments when the global funds rebalance. I think after the global rebalance, market in developing Asia will start to rise moderately.

      Comment by Benson Lim AXA Life | February 24, 2011 | Reply

      • Nice analysis sir Benson 🙂

        Comment by KennyV | February 24, 2011

  20. Sir Gus,

    I’d really appreciate it if you could provide some insights on the trend of the power industry in the stock market now that most of the country’s power plants have been privatized. Would it be wise to put our money in it?

    Thank you very much.

    Comment by Ferdie | February 24, 2011 | Reply

  21. hi Sir Gus,

    I’m losing a lot with the market’s status right now, I’m about to lose all the profit I earned for the past few months but I’m still holding on to my positions. Any thoughts on how the market will workout for the next few days or weeks?

    I already lost almost 35% on ORE, thinking it might come back soon. I don’t know what’s the best thing to do. I’m quite hesitant on selling it at a very low price from the price I bought.

    Comment by kukai | February 24, 2011 | Reply

    • kukai, do not sell ORE. Something BIG will happen very very soon. You can qoute me in this.

      Comment by ztz | February 25, 2011 | Reply

      • I hope you’re right.

        Comment by kukai | February 26, 2011


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