Forex

Towards the end of last year 2013, my friend and I ventured into forex trading. We attended a free seminar provided by Admiral Markets in Makati. We used MetaTrader 4 as the software for executing forex trades. Initially we used as demo account. I wasn't really earning any money from the demo accounts. In fact, I must have blown at least 3 demo accounts. When I say blown, it means that I lost all of the money in the demo accounts due to wrong trades. Even though, I couldn't make money through the demo accounts, I decided to go for the real account. So I opened a real account in Admiral Markets. I deposited 100 USD into a bank account in BDO. Then Admiral Markets emailed me a code for a card that contained 100 USD. This number code I then inputted into the Admiral Markets website.

It was maybe just a week before I lost 80% of the 100 USD. Then I decided to purchase another 100 USD card, thinking I may recover the original 100 USD. Soon, both 100 USD's were gone and eaten away by the forex monster. The volatility is just too much.

It took me around 3 months to have the courage to open a real account from a demo account. I blew up the real account around February 2014 I think. I then promised myself never to play forex again.

Several months later, I think several changes have occurred in Admiral Markets. Am not sure if their Makati office is still open. Somehow, Admiral Markets I think was taken over by some other Forex trading company. I tried another demo account in MetaTrader. So far, I still can't make money through forex. The volatility is just too much.

The selldown rules

I am not an expert in stock trading and earning money through the stock exchange. In fact, I am still in the learning process and will be in this process for quite some time. Through my trading experience, I have set some rules that seem to work for me, to protect me from impulsive decisions and to somehow maximize profits and minimize losses. These rules are what I have collectively called the selldown rules. Please take note, however, that these rules do not apply for everyone. Each person has his own unique personality to which a unique custom set of rules has to be carefully tailored for.

These are the selldown rules which are bound to change over time:

1. Find a good company to buy, preferably one whose fair value as provided by your broker's research team is significantly higher than the current market price of the company. Preferably, the company should have a good story on how it will be able to make money in the near future.

2. Maximum buying allocation per month is 5% of initial capital. For instance, if you are just starting to trade with an initial capital of 100k, then the maximum purchase you can do for a month is 5000 pesos. The rationale behind this is to avoid impulsive purchases or incorrect purchases which you may deeply regret. You might not like what you get or buy. So don't be greedy and foolish.

3. Take note of the number of months it took you to buy your total number of shares for a certain company. 

4. Wait for the market price of a company to reach near its estimated fair value. You may start selling if the market price is within 10% of its fair value. Don't be greedy in thinking that the market price will continue to go up well past its fair value. That's why it's called fair. Once the market price becomes fair, start selling or else, you might end up not profit anything at all.

3. In selling a company, divide the number of total shares by the number of months used to purchase the total amount of shares. The quotient is the maximum amount of shares that can be sold for the company for a single month. Rationale behind this is that sometimes, fair values given by brokers are upgraded every now and then. If you sell all your shares one time big time, and your broker suddenly announces an upgrade in fair value, then you lose opportunity to maximize your profit.

Eei update

Eei is currently trading at 13.86 pesos. If you bought it at 0.88 pesos several years ago, you would have multiplied your investment quite substantially. Of course, assuming you did not sell your shares prematurely.

Citiseconline currently publishes a fair value of 14 pesos for Eei. In the run from 0.88 to the current price, col has had several upgrades on its published fair value because the market price just kept going higher. Col also thought that even with the higher Eei price, Eei was still cheap and very attractive. This is why, it kept increasing its fair value for Eei. In recent months, however, the fair value of 14 pesos has remained constant. This is probably a sign that the current price has finally catched up with true valuations.

I have started selling my Eei shares slowly.

I think Eei is a good company even for the long term. Its president Roberto Castillo has a son, and I had the privilege to teach his son a few months ago. If his son becomes heir to the company, I think the company will still be in good shape as his son is no joke. Studies hard, above average intelligence and diligence, and is kind hearted and well liked by his peers.

Cheers to Eei. My current suggestion is to lighten your Eei shares as market price seems to have reached fair valuations already. You may opt to hold on to your shares for the long run though and just wait for the regular dividends. The company is a good one to hold on to.

Stock picking through Citiseconline

In this tutorial, I suggest how Citiseconline may be used to choose a company to buy or invest in. To begin, login to your Citiseconline account and choose the following sub-menu: Research..Fundamentals..Investment Guide:


Next highlight the data (CTRL-a) in the investment guide table and copy it (CTRL-c).

Then, open the Notepad application and paste the table data (CTRL-v) onto it.

Select the data from Notepad (CTRL-a) and copy it (CTRL-c). Then open Microsoft Excel and paste the copied data onto the Microsoft application (CTRL-v):

Next, right-click on column F and click Insert:

A new blank column will be inserted. On cell F1, type in the formula as indicated in this picture:

Copy cell F1 (CTRL-c) and paste it (CTRL-v) onto the rest of the cells in column F:

Now, on the Data menu of the Excel application, click the Sort icon:

Then, in the Sort dialog box, untick the "My data has headers" tickbox, Sort by Column F, and Order from Largest to Smallest:

The Excel table data will now look like this:

Select the first six rows by highlighting the left side of these rows. Then right click and choose Delete:

The data will now be reduced to as follows:

For a given stock, column C represents the current price, while column E represents the target price or the fair value of the stock as estimated by Citiseconline. The target price represents the future price value of the stock which Citiseconline thinks the stock will attain within more or less a year from now. Column F represents the percent growth of the stock price assuming that the price moves from the current price in column C to the fair value in column E. Column F is now sorted in descending order, and the stocks are listed according to their potential growth in their current stock prices, beginning with the largest growth potential down to the least.

Based on this list, ABS (ABS-CBN) has the highest growth potential of 130%. Before buying ABS, however, you have to check the story line behind ABS to see why Citiseconline puts such great value on it. The next company on the list is CEB (Cebu Pacific Airlines), and the third is FPH (First Philippine Holdings).

To see the underlying stories behind these 3 stocks, in the Citiseconline webpage, choose the following sub-menu: Research..Archive. Now, check the story line of ABS by choosing ABS from the stock list:

The news reports and commentaries about ABS will be listed:

Notice that the second report mentions that Citiseconline has terminated coverage on ABS. Note also that several recent reports show ABS missing earnings estimates: Net income drop, net income drops, below consensus forecast, misses COL forecast.

All these reports indicate that the 130% potential growth for the stock price of ABS cannot be relied on. Citiseconline has ceased analyzing the company, and most probably, ABS is not performing that well, and so Citiseconline does not want to include it anymore in its list of companies covered. To be safe, then, do not buy ABS as its earnings are in a declining trend.

Next, we check the story line behind CEB:

Again, like ABS, CEB seems to be recently declining in earnings as well: performance disappoint, earnings decline, all in the negatives. Therefore, it would not be a good idea to buy CEB. The investment guide of Citiseconline often is not updated so you have to confirm the story line to check whether a good potential growth in stock price has an underlying fundamental story basis at all.

Finally, we check on FPH:

Based on the headlines alone, overall, FPH looks like a good company to invest into. Simply put, it has fundamentals. We check one of the stories to check if this is a safe investment:

The story line looks all right. Nothing scary like the company not meeting forecasts or estimates. Next we check the technicals through bloomberg. Go to http://www.bloomberg.com/quote/FPH:PM

We check for an approximate one-year trend:

The stock price chart shows that the price is in an uptrend. It would have been best to come in at the start of 2012, but even at this time, it may still be a good time to come in, given the fair value of 117 Pesos as estimated by Citiseconline. This corresponds to a gain of about 50%.  It would have even been better to come in before 2012, but it is usually safer to wait for a breakout to confirm an uptrend. Prior to 2012, as shown in the chart, the price was in a side-ways, neutral trend. Then in November 2011, there was a breakout. Once you have the breakout from a side-ways, rectangular trend, then it is a good sign to come in.

Before buying into FPH, it would be even safer to check other brokers besides Citiseconline to see what their opinions are regarding FPH. We can, for instance, check on the analysis of AB Capital Securities:

In this case, not only does Citiseconline recommend FPH, but AB Capital Securities recommends the company as well. This double affirmation confirms that FPH has fundamentals; that is, there is basis for believing that it is currently underrated or undervalued, and that it is actually worth more than what it is currently worth today. Note, however, that AB Capital Securities estimates a more conservative fair value of 85 Pesos per share, in contrast to the 117 Pesos estimate by Citiseconline.

In summary, Citiseconline provides an investment guide that can aide investors in finding which companies are the best buys. The investment guide, however, may not be updated, and so, it is always best to check the story lines to see if there is any basis on why Citiseconline highly recommends certain stocks. Besides having good potential stock price growth, and a good underlying story, it is wise also to check that the 1-year stock price chart is on an uptrend. It might be dangerous if it were on a downhill trend. Lastly, check with other brokers to see if they have similar positive opinions about a stock or not. If one has several positive confirmations about a company, then there is less reason to fear, particularly if the whole economy is on depression mode due to some recession or disaster. If the company has true substance, then its price will most likely eventually recover and rise in the future until it reaches its fair value. The more knowledge you have, the less impulsive you become, and the less emotionally-driven your decisions become with regard on what to buy and more importantly, on when to sell.

Comparing fund performances

Investors are usually faced with the problem on which fund to invest their hard-earned money in. This tutorial gives a brief guide on how to compare the performances of similar funds, and by doing so, enabling the investor to prune out funds that are lackluster in performance, and choose funds that are actually doing what they are supposed to do: earn money.

To compare mutual fund or unit investment trust fund (UITF) performances, first obtain a list of all funds, for a specific geographical region. For example, for the Philippines, you may type in the following keywords in your favorite search engine such as Google: "bloomberg funds Philippines"

The search engine may then lead you to the following site which lists all the funds, whether mutual funds or UITFs, in the Philippines: http://www.bloomberg.com/markets/funds/country/philippines/

Next, right-click on a specific fund which you may be interested in, and open it in a different tab. For example, to investigate the BDO Peso Bond Fund:

The Bloomberg page for the BDO Peso Bond Fund will appear:

Once the page appears, click on “Mutual Fund Chart for BDOPBF” link, and the interactive chart will appear:

Return to the list of funds page (http://www.bloomberg.com/markets/funds/country/philippines/) and pick another fund which you want to compare the BDO Peso Bond Fund with, and take note of the Bloomberg symbol. For instance, to compare the BDO Peso Bond Fund against the Union Bank Peso Bond Fund, you would note that the symbol for the Union Bank Peso Bond Fund is IFDPPBP:PM

Go back to the page displaying the interactive chart for the BDO Peso Bond Fund, and add the symbol IFDPPBP:PM

Notice that Union Bank Peso Bond Fund chart (green) has been superimposed upon the BDO Peso Bond Fund chart (orange):

You can display up to 4 funds. For instance to compare the BDO and Union Bank Peso Bond funds against the First Metro Save & Learn Fixed Income Fund:

It is obvious that for the past 6 months, the First Metro Save & Learn Fixed Income Fund has easily outclassed the BDO and Union Bank Peso Bond Funds. However, this has not always been the case. For instance, you may click on the 3-year horizon to view the past performance for the past 3 years:

Doing so, one will notice that it is only recently that the First Metro Save & Learn Fixed Income Fund has gained momentum. For the majority of the past three years, it was actually the Union Bank Peso Bond Fund that was dominating. The BDO Peso Bond Fund pales in comparison to the other 2 funds:

If we shift to a 5-year horizon, it is evident that the Union Bank Peso Bond Fund is the leader of the pack.

Unfortunately, Bloomberg only allows chart interactions for the time-horizons of 6 months, 1 year, 3 years, and 5 years. Nonetheless, it permits us to obtain information for the recent performances of a very large diversity of funds. By doing so, it helps us make wiser and more informed decisions.

In making comparisons, it is best to compare funds that all fall under the same category. For example, in this case, we compared the BDO Peso Bond Fund against the Union Bank Peso Bond Fund and against the First Metro Save & Learn Fixed Income Fund. All 3 funds are similar in that they are bond funds, and mostly invested in government treasury bonds. It would not make sense to compare a bond fund against an equity fund, since these 2 funds are invested in very different securities.

EEI after three years

Back in 2009, EEI stock price went as low as 0.88 Pesos per share. Today, it closed at 5.99 Pesos per share. That is a staggering factor of 6.8.

Stock portfolio: Buying EEI

Date: 10:26 2009/02/01

Cash Balance: 991,024.00

Holdings:
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

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.

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:
1,000,000

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.

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!

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.

Year-end window-dressing for I-Remit?

Today was an unusual day for I-Remit. Normally having a very low trading value of less than 100,000 Pesos, today, total trades amounted to 31 million Pesos for the company. The unusually high volume of trades caused the share price of the company to jump 17% for the day. Refer to Figure 1 for a 1-year graph of the share price of the company.

Figure 1. 2008 Share price graph of I-Remit

Notice the sudden surge in share price at the last trading day of the year. Could this be a classical case of window-dressing? It could be that the company bought some of its own shares so that it could show a more attractive, healthier company to its investors in its annual report. But what is queer is that last year, December 2007, no window-dressing was done?

I-Remit could be classified as one of the more resilient stock companies in the Philippines for this year. Given that the stock prices of most companies for this year have been crashing down to record lows unseen for perhaps decades, I-Remit’s stock price displayed strength and potential moving on into the new year of 2009. Compare the graph in Figure 1 against the graph in Figure 2 which shows the Philippine stock exchange index for the same time span of the year of 2008.

Figure 2. 2008 graph of Philippine Stock Exchange Index (PSEi)

In Figure 2, the PSEi is in a clear downfall throughout the year going to lower and lower levels. The graph of I-Remit is similar for the first half of the year down-skidding. But on the second-half of the year, a sudden surge of investor excitement pipes in, pushing the price upwards.

As to why I-Remit’s price buoyed up in the second-half of the year of 2008, I still don’t know.

Notice also that for the same last trading day of the year, the share price of the TKC Steel company also jumps significantly by 12% -- an unusual behavior. Since TKC and I-Remit are related in that they are both owned by the Ben Tiu family, this must be a classical case of window-dressing.