Monday, February 9, 2009

Stock portfolio: Buying EEI

Date: 10:26 2009/02/01

Cash Balance: 991,024.00

comp num_shares price
EEI 10,000 0.88

Total Portfolio Value: 999,648.00

Transaction History:
time date type num_shares price cost
10:20 2009/02/01 BUY 10,000 0.88 8,976.00

Sunday, February 8, 2009

Stock portfolio: Change in strategy

Previously, selldown made the following strategy:

1. Trade a maximum of one buy-transaction per month.
2. A buy-transaction must not exceed 33,000 Pesos.

I thought about it and I think it would be better to change it to the following:

1. Buy transactions for a single month must not exceed 33,000 Pesos.

This would mean that one could issue an infinite number of buy transactions in a single month as long as the sum of the transactions do not go beyond 33,000 Pesos.

On why I think this is better is because there are so many good companies out there that isolating a buy transaction to a single company for a given month would lose us the opportunity of cost-averaging the purchase of other good companies. So our strategy would be to cost-average the purchase of several good companies simultaneously over time.

Wednesday, January 28, 2009

Stock portfolio: Initiation

The following are some initial strategies for the stock portfolio simulation:

1. Trade a maximum of one buy-transaction per month.
2. A buy-transaction must not exceed 33,000 Pesos.

Given that the global economy is in a recession, it would be best to be prudent with investments. As such, we should be extra careful in buying companies, or else the stock prices may fall significantly any time and we become stuck with the stock holdings, being unable to liquidate them without realizing large losses.

I am estimating the economic recession or stagnation to last from about two to five years. As it would be unwise to plunge all cash into stocks very quickly, it would likewise be unwise to wait for five years before starting to invest again, as we never know when the next bull run will start all over again in the cycle that is called the economic cycle.

As such, we take a balanced approach by slowly buying into stocks that are undervalued. We spread our investments over a course of about two and a half years. Investing about 30,000 Pesos every month for the next two and half years, would sum up to a total investment of one million pesos, which is the starting cash balance of our stock portfolio.

Going forward into the recession, we will expect stock prices to further drop. We will be able to take advantage of these drops by investing as we go deeper into the recession. But we cannot wait to reach the bottom of the recession, or else we will miss it.

In a way, what we are doing is what is called cost-averaging. That is, the strategy of buying small amounts of stocks at regular intervals in time, in the hope of averaging down the total costs of purchasing these companies. Also, it is a good way to compromise the impossibility of finding the rock bottom of bull market conditions such as today.

The stock portfolio simulation

Assumption of the stock portfolio:

1. The stock portfolio is unreal. It is just a simulation game.
2. It assumes an initial cash balance of 1,000,000 (1 million) Philippine Pesos.
3. It assumes a 2% charge for every transaction.
4. It assumes Philippine time is used.
5. It assumes the currency of the Philippine Peso.

The purpose of the stock portfolio is to test whether the strategies to earn money via stock trading, as discussed in this blog, are successful. A strategy is considered successful if it was able to earn money. It is considered a failure if it lost money.

The following is the initial stock portfolio:

Date: 10:34 AM, 29 January 2008

Cash Balance:

Stock Portfolio
No stocks in portfolio.

Transaction History:
No transactions in history.

On why EEI might be a good buy

Not everybody is familiar with the company EEI in the Philippines. Most probably, perhaps maybe just even one out of a hundred Filipinos know that such a company exists. But for a person familiar with stock trading in the Philippines, there's a higher chance that he has heard of this company.

EEI is generally a construction firm based on the Philippines. Though its logo claims that it has been in the construction business since 1931, its name is relatively unknown to the common Filipino perhaps because most construction firms remain largely uncommon to the ear of the average person, regardless of geographical region, at least in comparison to popular names such as McDonald's or WalMart.

So on why I think EEI is a good buy is simple. At least for me, whenever I go to work, I see its name and logo almost at every corner. From my home, I would see its logo at a huge construction going on along Quezon Avenue corner EDSA. From the MRT, I would see the deep escavation and the huge cranes swinging their mighty arms several stories above ground.

Then when I near my office along Shaw Boulevard corner EDSA, I see the same logo again. And with the logo comes some big, big construction going underway, consisting of twin towers. I think these towers belong to the St. Francis Square company. Then when I visit some friends at Fort Bonifacio, there's another huge residential construction going on beside the Serendra condominiums. And you guessed it right, I see the logo again that becomes more and more familiar as the years go by.

Well, one may argue that just because one sees a company's businesses sprouting everywhere in the city, does not mean that the company will automatically be earning big in the near term. Heck, this company has been in the Philippines since 1931. And no one still knows about it.

Think about it. If this company has had a high of about 5.5 Pesos in the past two years, and it is now trading at 0.90 Pesos a share because of the global economic recession which nobody has control of, then give it around two to five years and the chances of it rebounding to its previous highs of five Pesos are quite optimistic.

Wednesday, January 7, 2009

Sun Term 90

Let us discuss the life insurance product, Sun Term 90.

The Sun Term 90 is a term insurance. Term insurance is protection for a limited amount of time. One can think of it like temporary insurance, as one covered with term insurance is only protected up to a certain time period. In the case of the Sun Term 90, protection only lasts for one year.

Figure 1 shows the heading for a Sun Term 90 life insurance proposal.

Figure 1. Heading of a Sun Term 90 life insurance proposal.

From Figure 1, we note that the Sun Term 90 is a yearly renewable and convertible term insurance. It is yearly because as a term insurance, the protection is only valid for a single year. It is renewable because every end of the year, one has the option of renewing the term insurance for the next year. When one renews the insurance, he does not have to undergo medical tests again to qualify him for insurability.

The Sun Term 90 is also convertible because one can opt to convert his policy from a term insurance into a whole-life insurance. When converting to a whole-life insurance, he would be insured for the rest of his life as long as he pays the necessary premiums.

There are differences between term insurances and whole-life insurances. One notable difference is that for term insurance, one only has protection, no savings. For whole-life insurances, most of the time, one has both protection and savings.

For term insurance, once a policy holder surrenders his policy, he will get nothing. His beneficiaries only get money if the policy holder dies. Otherwise, all money is sucked in by the insurance company. This is why there is no savings in term insurance.

Figure 2 lists the payment schedule for a 30-year old male for a coverage of one million Pesos.

Figure 2. Premium schedule of Sun Term 90 for 30-year old male, non-smoker, 1 million Pesos face amount.

As the Sun Term 90 policy has no savings part, it is the cheapest. For example, to be covered for 1 million Pesos, one only needs to pay 4,800 Pesos for the first year. But as one gets older, his premium increases as well. For example, 50 years after, that is if the 30-year old client is 80 years already, then he would have to pay 100,040 Pesos instead of 4,800.

The Sun Term 90 product is then cheap at the beginning, probably cheaper than all other products, but eventually, as one becomes older, the product becomes more expensive. As one renews year after year, his premium increases as the risk of him dying becomes higher as well.

At age 90 years old, his premium is about 200,000 Pesos. That’s 20% of the face amount meaning that the insurance company thinks that at that age, one has a 20% chance of dying in any given day!

HK fund buys Alliance Tuna

A Hong Kong-based fund, Victoria Fund, has bought 13% or about 80 million shares of listed Thai-Filipino company, Alliance Tuna, at the start of the year 2009 at a price of 1.60 Pesos per share.

“They believe in our strategy of embracing globalization, our global sales and new products and acquisitions to leverage on our already formidable market coverage,” Alliance Tuna president Jonathan Dee said of the block sale.

Dee remarked that Alliance Tuna has been compoundedly growing at about 26% for the past 5 years and expects the rate to push up to 30% this year. This may have caused the attraction of the Hong Kong fund.

In a separate disclosure, the company plans to acquire a 51% stake in Prime Foods New Zealand, which is the second largest seller of salmon-smoked products in New Zealand. The acquisition is said to come in two parts: one to be paid immediately at NZ$650,000 and the other worth NZ$500,000 to be paid later in the year.

Alliance Tuna and Prime Foods plan to form a joint venture of selling salmon to the rest of the world excluding New Zealand.

Alliance Tuna is primarily engaged in the canning of tuna for institutional and retail-pack sizes. In the first nine months of 2008, it reported $18 million revenues from the institutional size and $19 million from the retail size.

Sun Life Financial (Philippines)

Let’s talk about Sun Life Financial or simply Sun Life.

In the Philippines, at least in Metro Manila, when one talks about life insurances, probably the most popular company that comes to mind is Sun Life. It used to be Philam, but ever since the fall of its parent company AIG last year, it seems to be that Sun Life will most likely be occupying the driver seat of the insurance industry in the Philippines for the years to come.

Well, Sun Life, they claim is the first and consequently the oldest insurance company in the Philippines. Being the oldest company means that it has endured the most hardships in the country from World War I to World War II to the credit crunch last year, the Asian crisis in 1997, etc. Being the oldest also makes the company the most experienced and probably most stable for having gone through all those financial storms in history.

Sun Life also has other products besides life insurance. Some time in the late 1990’s, it opened up a new market on mutual funds. Today, it caters to several types of mutual funds ranging from low-risk money market funds, to high-risk equity-based funds.

Besides funds, it also has a market on pre-need where it sells education and pension plans.

The Sun Life Financial company in the Philippines is structured into three subsidiaires. The first is Sun Life of Canada-Philippines (abbreviated as SLOCPI) which administers the life insurance business. The second is Sun Life Asset Management Company (abbreviated as SLAMCI) which manages the mutual fund operations. The third is Sun Life Financial Plans (abbreviated SLFPI) which handles the pre-need market.

Throughout this blog, I will be discussing some of Sun Life’s products, pointing out on key features, watchouts and comparisons among products.


Welcome to Sell Down!

In this blog, I discuss about money matters. Anything under the sun about money. These can be but are not limited to stocks and companies, insurances, pre-need plans, funds, etc.

As I am from the Philippines, most of the financial instruments or markets I will be discussing are local to my country.