Pilifinance Stock Portfolio Policy for mid-2016 Levels

Disclaimer: The following is unsolicited investment advice and must not be construed as a recommendation to buy or sell securities. Investors must seek professional legal counsel and invest at their own risk.

>> The Philippine stock market had hit the highest level of 8,000 in 2015 during President Benigno Aquino administration's turn-around economy with an unprecedented surge since the 2nd World War, before dipping to around 6,000 and going back above 7,000.

A new presidency enters the picture with Davao Mayor Rodrigo Duterte, bringing with him more risks than the average new comer, with proposed drastic changes to the Government structure and constitution.

>> Stated bluntly, Pilifinance thinks that current levels are unsafe for additions to your equity portfolio for the following reasons:

1) Many of the popular blue-chip issues trading at many times their earnings;

2) The country is faced with many uncertainties of the incoming presidency;

3) The unprecedented surge of the PSEi may have been overdone. With a P/E ratio of 21 venturing beyond Yale Finance Professor Robert Shiller's unsafe level of 20.

4) Foreign direct investment has continued to lag in the country, with the growth driven mainly by Aquino's infrastructure spending (which are still currently being built), the BPO industry, OFW remittances and internal consumption.

PiliFinance's investment portfolio consists mainly of Real Estate development companies and Infrastructure companies. 

>> Even if some of the less-popular issues have declined in price, the current market levels might outweigh the benefits.

>> The market has shown eratic movements in 2015-2016, and Benjamin Graham tells us that if unsure, we must "follow the side of caution".

Hence we must adopt his conservative policy:

1) No buying of stock on margin/borrowed money.

2) No additions to investments on common stock.

3) Reduction in equity holdings "where needed" to a maximum of half of the portfolio and reinvested into bonds and savings accounts.

Investors with a dollar-cost-averging plan may decide to continue or stop his periodic payments.

>> However, since interest rates have remained fairly unchanged, and savings accounts rates remain around 1% per year, still less than most dividend yields, and that stock brokerages do not earn interest, it might be wise to hold on to your holdings (that have been selected as undervalued) for their dividends.

[PSEi chart taken from the Bloomberg App]