Buy investment bank products or Buy the investment bank?

Buy investment bank products or be the investment bank? What's the difference? One of my favorite authors David Foster sheds some light.

If you buy investment products, managed by the investment bank, and these investments perform poorly, the investment bank still takes their commissions or management fees from your money. Not only have you taken up all the risk of losing your money, you also paid for management fees regardless how poorly your investment performed.

On the other hand, if you were the owner of the investment bank, investing the money of other people, not only do you transfer the risk of losing money to these other people, you also collect management fees no matter how the market or these investments perform.

Consumers of investment products are at the receiving end of the musical chairs game of risk.

David Foster further adds, these glamorous office buildings, expensive cars driven by CEOs are actually bought from YOUR money.

This is not to say all investment banks are like this. Some do merit talent in their investing prowess.

The Largest Dividend Payers in BPI Philippine High Dividend Equity Fund

In September 2013, BPI Asset Management released another mutual fund called BPI Philippine High Dividend Equity Fund.

I thought it would be a nice reference to see the fund's holdings, some of the highest dividend payers in Philippine equities.

As of August 30, 2013
Top Holdings:
Gross dividend yields from Bloomberg as of 12/12/13

1) PLDT (4.83% at P2,610 per share)
2) SM Investments Corp. (1.36% at P695 per share)
3) Aboitiz Power Group (5.12% at P32.45 per share)
4) Globe Telecom Inc. (4.19% at P1,600 per share)
5) Aboitiz Equity Ventures Inc. (2.65% at P54.25 per share)
6) Manila Water Co. Inc. (3.46% at P22.05 per share)
7) Manila Electric Co. (3.24% at P253 per share)
8) Universal Robina Corp. (1.32% at P114 per share)
9) BDO Unibank (1.74% at P69.10 per share)
10) Bank of the Philippine Islands (2.12% at P84.85 per share)

Source: https://www.bpiassetmanagement.com/upload/files/bpi-investment-funds/bpi%20hi%20def/BPI%20HIGH%20DIVIDEND%20August.pdf

Now before jumping in to buy these stocks, always check the other indicators like book value, P/E ratio, and dividend yield at current prices, to estimate the margin of safety of your investment.

The falling market will surely help us value investors to get better prices.

Regards, Pilifinance

The Miracle of Dividend Reinvestment Plans (DRIPs)

I've been browsing a bookstore when I came across the book "Lazy Investor" by Derek Foster and I've heard of an investment plan called THE DRIP.

A DRIP or Dividend Reinvestment Plan, as the name obviously states, is a plan where the cash dividends of the companies you are holding are not paid to you, but automatically buy you more shares of the same company. Derek Foster has said in his book that brokers will allow you to do this - buy more shares of the company - for free, that is without the brokerage costs.

I have found out that unlike in the Philippines where a minimum brokers will charge you is P20, here in North America, minimum is around 29 dollars.. or around P1,200 per trade for the first 1000 shares.. on top of the actual cost of the shares. That is 60 times more expensive than in the Philippines. If what Derek Foster claims in his book is true, that will equate to huuuge savings in broker fees.

Now let's take a look at the principle of DRIPs a little bit closer. Warren Buffett, one of the richest men in the world today, has always been a fan of dividends, other companys' dividends that is. He always mentions re-investing the profits. So DRIPs are like Buffett's strategy isn't it?

Next, we've already mentioned the huge savings from broker fees. What about compound interest? Albert Einstein once said that compound interest is the most powerful force in the universe. What we're doing here in DRIPs is exactly just that! Reinvesting and reinvesting, with huge discounts in brokerage fees.

Unfortunately, I don't believe there is anything like this with financial brokers in the Philippines. Perhaps a financial company might consider doing this, or else I might LOL.

No wonder Derek Foster has retired by 34 years of age. He said, pick stocks that have consistently increased dividends over a ten year period. Those are winners.

I have read in the internet that DRIPs have not been widely known by the public, and at one point, were banned from being advertised in the U.S. Read more about DRIP history here: http://www.directinvesting.com/drip_learning_center/direct_investment_plans.cfm

Read an article from The Globe and Mail about DRIPs: http://www.theglobeandmail.com/globe-investor/investment-ideas/portfolio-strategy/building-wealth-a-drip-at-a-time/article2218024/

One of the financial brokers here in Canada, TD Waterhouse, has offered some insight on drip investing in their online facility. View the link to this page below:

http://www.td.com/to-our-customers/tdhelps/#psce%7Ccid=871%7Clid=1%7Ctid=001%7Cvid=a020c1cd0

Philippine Markets are Falling, Do You Know Where the Bottom Is?

Philippine markets are falling, but where's the bottom?
Once again we face the great stock market illusion.

I think the bottom of the market is where you think it is.

When investing, I like to think that when executing a trade, you agree, like saying "yes" in a marriage, that you are getting value for the price you are paying for, and also like a "marriage" you have the solidarity and fortitude to stick to this belief, for better or for worse, no matter where the price goes.

I have slowly developed the adage and belief that when investing in companies, you understand the values behind the prices you are paying for, and how these values change over time. This way, you know WHERE THE REAL BOTTOM IS.

And the adage: "Do not try to time the market. When you invest in stocks, don't watch the stock, watch the company."

So going back, the bottom is the point where you no longer want to buy, because of various reasons. It could be that you have already committed to a position and have filled your allotment in your portfolio, or perhaps you think the business is not performing very well lately and carries a certain amount of uncertainty and risk.

This way, you keep in mind, the value of the company, and as long as it is below this value, you are getting a good price.

Trading platforms make us want to sell our positions because of how red our portfolios look sometimes. And if we decide to sell, what we are doing, is turning paper loss into realized or actual loss. We are giving away less cash for the value of the assets we have, and cutting the vital cashflow from the dividends of these stocks.

As Peter Lynch would put it, "The key to making money in stocks is not to get scared out of them."

Hamburgers

That is how Warren Buffett described averaging down and stock investing. He said, if you ever planned to eat hamburgers for the rest of your life, would you be happy if prices continued to go up, or when they sell at discount prices? Let's look at something more familiar, the price of gas. Would you be happier if there are price roll backs or price hikes?

Well, he said, the only place where people get happy when prices go up are in the stock market.

So take a deep breath, get ahold of yourself, sit back and relax for a moment, and think why you bought that stock in the first place,

and from there you will see where the real bottom is.

Probable reasons why the market is falling from BusinessWorld: http://www.bworldonline.com/content.php?section=StockMarket&title=PSEi-could-retreat-to-6,000&id=79790

Philippine ETFs by First Metro Investment Corporation

(Photos from fami.com.ph)

The Philippines' first ever ETFs or Exchange Traded Funds are to be listed today in the market.

Exchange traded funds are like index-tracking mutual funds that can be purchased through the stock market. They can be bought by buying common shares of the said fund in the exchange.

ETFs have gained popularity in the US in the mid-90s starting with index-tracking funds and have since evolved into endless varieties to include ETFs for precious metals, various asset classes, industries, countries and regions.

This is a huge first step for the development of our financial markets, and shows resilience of the Philippine industries and its people.

In a nutshell, exchange-traded funds, as the term implies, are a basket of securities such as mutual funds that are traded in the stock exchange like a stock. This is designed to track the (PSEi) or Philippine Stock Exchange Index.

First Metro Investment Corporation also runs traditional mutual funds, through First Metro Asset Management. This time, they are launching the country's first mutual funds that can be bought and sold in the stock exchange, the exchange-traded funds or ETFs.

For more information about ETFs, please read the following links:

Primer to Exchange-Traded Funds: http://fami.com.ph/wp-content/uploads/2013/11/First-Metro-ETF-Primer-for-web.pdf

Quick Info:

[source official Summary of Terms and Conditions]

Listing of 30 million (30,000,000) shares

Listing date: December 2, 2013, Monday

Par value of P100 per share

Net Asset Value Per Share (NAVPS) is P99.20

Listing Price: P99.20 per share

Minimum board lot: 10 shares

The Fund is a duly authorized corporation, incorporated on January 15, 2013.

Intra-day Net Asset Value (INAV) of the fund will be calculated at one (1) minute intervals during trading hours of the PSE, updated and disseminated periodically throughout the day through the fund's website and the website of the PSE.

Source: http://www.pse.com.ph/resource/memos/2013/LA_IPO_2013-0448.pdf

Traditionally, ETF prices shouldn't deviate much from actual value or the NAVPS as indicated here in the PSE website.

It might be important to note that at the latest price of P100, or P99.941 NAV, the PSEi is sitting at around 6,250.

(Source: pse.com.ph)

Concepcion Industrial Corporation IPO

Disclaimer: The author is not an investment professional. The author does not guarantee the accuracy of the information, and is sourced from the official prospectus for Philippine residents only. This short summary is intended for fellow Filipino investors, and for the intended audience of the official prospectus (link below) only. It does not serve as a buy or sell recommendation, and investors are advised to conduct their due diligence or consult with an investment professional.

First and foremost, please read Marvin Germo's 10 things I like about CIC (Conception Industrial Corporation)..

http://www.marvingermo.com/10-things-i-like-about-the-concepcion-industrial-corporation-ipo/

Official prospectus can be downloaded here:

http://www.concepcion.ph/investor-relations/index.asp

(Click "CIC Final Domestic Offering Circular")

Note: You may skip to Bottom Line below, for the author's personal comments.

Summary (Important Points):

"Firm Shares": 74,965,000 common shares total that they will offer to the public

Price: P 26.00

(Par value P 1.00)... 

Firm Shares: 

"Firm Shares" broken down into 2 offers

     (a.) Primary Offer : 11,244,000 shares - these are newly issued common shares.

     Total proceeds that will be raised from sale of primary offer: P 292,344,000

     (b.) Secondary Offer : 63,721,000 shares - existing common shares sold by subsidiaries / parent /                       holding companies (the company will not recieve any of the proceeds from the sale of secondary offer)

Total proceeds that will be raised from the sale of the secondary offer: P 1,656,746,000 (assuming no exercise of over-allorment option)

    

     (b.2) Optional Shares / Over-allotment Option : 11,244,000 - additional shares that may be purchased by Maybank ATR Kim Eng Capital Partners, Inc. up to 30 days from the listing date ,with the same terms as the secondary offer shares, in its role as the "stabilizing agent"

***A total of 261,244,002 common shares, INCLUSIVE of the optional shares, will be outstanding after the offer.

The company has authorized capital stock of P 700,000,000 divided into 700,000,000 common shares inclusive of outstanding shares.

The Firm Shares (exclusive of optional shares) will make up 28.7% of the outstanding common shares after the offer.

Net proceeds from the Primary Offer will be used for:

[a] expansion - start-up costs for a potential joint venture with Midea to expand the company's products to other white goods or home appliances.

[b] payment of financial obligations

[c] working capital and general corporate expenses

[d] IPO related costs

Up to 70% of the firm shares are being offered and sold outside the Philippines

Dividends: 

Upon completion of the offer, the Company shall adopt policy to declare dividends annually and at a minimum of 30% of the prior year's net income.

Summary of Financial Information

Revenues                           Net Income            Outstanding Shares Post IPO     Earnings Per Share

2010 P 6,122,900,000       P 794,900,000            261,244,002 shares                P 3.04

2011 P 5,605,700,000       P 646,700,000            261,244,002 shares                P 2.47

2012 P 6,939,800,000       P 684,400,000            261,244,002 shares                P 2.62

2013 P 3,769,100,000*     P 409,300,000            261,244,002 shares                P 1.57

P/E Ratio

2010    8.55

2011   10.52

2012    9.92

2013*  16.56

Hypothetical dividend rates and dividend yields (based on earnings per share and 30% minimum dividend rate):

     

            Dividend Rate    Dividend Yield at Offer Price

2010    0.912                               3.51%

2011    0.741                               2.85%

2012    0.786                               3.02%

2013    0.471*                              1.81%

*for the 6 months ended June 2013

Capitalization (source: p.45 of official prospectus)

Dilution and book value of shares (source: p.46 of official prospectus)

BOTTOM LINE:

One of the things I like about the stock is its dividend policy that will give out a minimum of 30%, but the book value or value of tangible assets is only 31% of the purchase price. That is a premium or mark up of 69%.

Now let us look at the earnings. The earnings have brought me home. 2010 P/E is less than 10 times. That's a strong earnings figure. And converting these to dividend yields.. These earnings bring a good rate above inflation. 

These strong earnings figures make the company look cheap, supporting a good argument for capital appreciation on listing day.

My recommendation, it's your call. I cannot say that this is a safe investment issue. This could well be speculative. But, perhaps, the strong earnings figure make it a good candidate for a good IPO stock. You can buy small amounts for speculation. But as for investment levels, I would recommend that you wait for it to become cheaper.. Perhaps in a recession or depression.

Another thing, regarding the nature of their business, with the current real estate boom, the condos springing up like mushrooms, new occupants will need airconditioners to keep air flowing in these enclosed spaces.... Because of this, I speculate that earnings might go up in the following years.

Harbor Star Shipping Services Inc. Fundamental Stock Investing

Disclaimer: The author is not an investment professional. The author is not in any way related to or representative of the following companies. The author does not take responsibility for the accuracy of the information and sources of information are given reference. The purpose of this is to filter, review and comprehend the available data that might be useful to common stock investors. This article is not a buy recommendation, but rather an analysis by the author for his own personal use, simply shared in this blog so that it may be read by others of with the same interests. It does not serve as a buy or sell recommendation, and investors are advised to conduct their due diligence or consult with an investment professional.

Harbor Star Shipping Services, Inc. is one of the leading Filipino providers of harbor assistance, lighterage, towage, salvage, and other marine services. The company was registered with the SEC on July 5, 1988, but only in 1999 did the company launch official operations as a one-tug boat services provider at the port of Subic. In 14 years it has garnered various accreditations and licenses and expanded its fleet. Currently it maintains a fleet of:

(27) tug boats

(1)   anchor handling tug supply

(3) barges

(1) cargo vessel

(1) oil spill response vessel

Risk: capital intensive business.

Today Harbor Star has established operations in 12 base ports all over the country, including:

1. Manila International Container Terminal

2. Bataan

3. Batanggas

4. Cagayan de Oro

5. Davao

Harbor Star is the only harbor assistance provider that operates at MICT, the country's busiest port for containerized vessels.

Risk: A significant amount of Harbor Star's business is done without long-term contracts. This increases the risk of losing clients to competitors.

Services approximately 5,658 ship calls in 2012, (92.12%) of which are foreign ship calls.

Listing date on October 30, 2013 

of 181,600,000 common stock at an offer price of P1.88 per offer share.

Par value is P1.

Aggregate Offer Price: P341,408,000.

Offer shares represent 30% of issued and outstanding shares after the offer.

After completion of offer the issued and outstanding common shares are 605,238,580

Lock up period of 180 days after listing date for those who own 10%.

180 days later will be April 28, 2014, Monday.

Net proceeds of the IPO will be used for:

[a] the settlement of the bridge loan for the purchase of Anchor Handling Tug Supply Vessel "AHTS"

[b] the acquisition of tug boats for domestic and international expansion and re-fleeting

[c] debt retirement

[d] the acquisition of Landing Craft Transport barge "LCT" or tug and barge tandem for lighterage operations

"Lighterage" is defined as the offshore ship-to-ship transfer of various oil, petroleum, and mineral products from larger to smaller vessels capable of entering shallow-draft ports.

On September 23, 2013 the Board of Directors resolved to approve a dividend policy declaring at least 20% of it's prior year net income as dividends.

Here's the link of the video of the IPO:

http://youtu.be/FkYkTwHmlXA

Summary of Financial Information

                   Revenues         Net Income       Outstanding Shares     Earnings Per Share

2010      P 543,605,000   P   26,174,000        605,238,580                  P 0.043

2011      P 737,733,000   P 131,764,000        605,238,580                  P 0.218

2012      P 807,264,000   P 147,812,000        605,238,580                  P 0.244

2013*     P 426,794,000*  P   51,514,000        605,238,580                  P 0.085

P/E Ratio

2010    43.72

2011      8.62

2012      7.70

2013*   22.18*

2013     5.04

                     Book value / Equity      Shares Outstanding       Book value per share

2010                P 290,542,000             605,238,580                      P 0.48

2011                P 743,130,000             605,238,580                      P 1.28

2012                P 890,793,000             605,238,580                      P 1.47

2013*              P 922,079,000                                                        P 1.57*

2013**                                                  605,238,580                      P 1.60**

2013 actual book value                                                                  P 2.13

Price to book value ratio:

2010      3.92

2011      1.47

2012      1.28 

2013**    1.18

Hypothetical dividends of 20% using EPS  

2010      P 0.0086

2011      P 0.04

2012      P 0.0488

2013**   P 0.017

*period ended 6 months, June 30, 2013

**pro-forma net tangible book value per share AFTER THE OFFER

Earnings from the official prospectus: 

Balance sheet from the official prospectus:

Capitalization from the official prospectus:

Dilution, from the official prospectus:

BOTTOM LINE:

I do not want to prophesize what may happen to this stock. The market price peaked and had been falling ever since. Honestly, I do not know much about the experience, ability and expertise of the management except that it is predominantly Filipino, and that the company has managed to expand its fleet from 1 to 27 tugboats in a span of 14 years, in addition to other vessels and accreditations.

The price is cheap when it comes to earnings at a hypothetical P/E ratio of 7.70. The price does not have a high premium above the purchasing value of the equipment/assets with a price to book value of  1.18 at offer price. The dividend payout rate is at 20% of the net profits.

You may buy this stock at the current price below offer price if you believe the management has the ability to maintain or expand profits and the business.

I do not have specialist knowledge regarding the shipping/lighterage industry, but knowing that the Philippines is an archipelago, ships are of great value, and Harbor Star is ahead by capitalizingon the stock market and servicing ports like Manila and Cebu.

QUARTERLY REPORTS

QUARTER              EQUITY (YTD)             REVENUES (Q)      NET INCOME (Q)         EPS (YTD)

2013 Q3                P 953,222,529            P 241,813,771         P 31,143,714               P 0.20

Discovery World Corporation IPO

The Discovery World Corporation is a resort and upscale real estate developer which owns the world class Discovery Shores Boracay, Discovery Country Suites in Tagaytay, and the Discovery Primea condominium in Ayala Ave, please read some of the articles and my comments below.

DISCLAIMER: The author does not guarantee the accuracy of the information, nor does this serve as a buying recommendation. The author is not a registered financial planner or business professional. The author is a fellow retail investor. Prospective investors should use their own discretion in their investments and if necessary should ask the assistance of an investment professional. Stock market investing is subject to internal and external risk factors that may result in substantial loss.

Please read about Mr. Mangun's (PSE Trader, US Stockbroker) insight on IPOs in this article published in the newspaper last week:

http://www.businessmirror.com.ph/index.php/en/news/opinion/22415-what-to-do-about-initial-public-offerings

This is the official prospectus for prospective investors in the Discovery World common shares:

http://www.discovery.com.ph/files/Discovery-World-Corporation-Prospectus.pdf

Summary (important points): 

Offer shares: 168,000,000 shares with a par value of P1.00 being offered to the public for P3.28 per share.

These 168,000,000 shares represent 26.84% of the outstanding shares after the offer.

After the completion of the IPO, there will be 626,000,000 common shares outstanding.

The net proceeds from the offer will be used for:

[a] the acquisition of Discovery Fleet Corporation and Palawan Cove Corporation

[b] debt retirement

[c] working capital purposes

On July 22, 2013, the Board of Directors of the Company approved its dividend policy wherein it shall distribute to its shareholders as dividends at least 10% of company's net income for the previous fiscal year.

Sept. 27, 2013, the Company has acquired a 67% stake in Euro-Pacific Resorts Inc. which operates Club Paradise in Coron Palawan.

Summary of Financial Information

Revenues                         Net Income        Outstanding Shares     Earnings Per Share

[2010] P308,640,000        P38,030,000         626,000,000                 P0.06

[2011] P347,780,000        P62,640,000         626,000,000                 P0.10

[2012] P366,000,000        P21,220,000         626,000,000                 P0.03

P/E Ratio

[2010] 55

[2011] 33

[2012] 109

Equity [Book Value]   % increase in equity  Outstanding Shares  Book Value per Share

[2010] P422,870,000                                         626,000,000                       P0.676

[2011] P462,560,000                9.39%               626,000,000                       P0.74

[2012] P548,550,000              18.59%               626,000,000                       P0.88

[2013] P578,901,111*              5.53%                                                          P1.26

[2013] P1,095,356,917**        89.21%               626,000,000                       P1.75

*as of June 30, 2013 as stated in p.58 of the official prospectus

**pro-forma net-tangible book value after the IPO 

(increase in tangible assets reflecting the P516,455,806.9 proceeds from the sale of the stock in the IPO, and addition of 168,000,000 shares from the offer)

Price to Book Value

[2010] 4.85

[2011] 4.43

[2012] 3.73

[2013] 2.60*

[2013] 1.87**

For more information about book value / equity valuation, look here:

http://pilifinance.blogspot.com/2013/09/how-to-value-stocks-basic-ie-asset.html

"Dilution" p.58 from official prospectus

Here is the Capitalization Structure from the official prospectus:

COMMENTARY:

From an investment (in contrast to a trading) point of view, my opinion is that the price is too expensive for the value of the company judging from its owned properties, and net income.

The estimated P/E Ratio is above 100 for year 2012 after the shares have been added from the offer.

Remember that the offer price is P3.28 and the book value or equity or "net worth" is only P1.75, including the proceeds from the IPO. That is a premium of P1.53 above the tangible assets of the business.

This does not mean that the price will not go up once the company is listed in the exchange.

For me, the price is too high at the moment. But if you believe in the company's management, that they can successfully sustain and increase profits and expand the value of the business in the long run, you may buy this company. Or else you can just wait for a lower price in the market after the IPO.

Images from Skyscrapercity.com and discoveryprimea.com. credits to the owners.

For more information about stock investing, please visit my blog at: pilifinance.blogspot.com

How to value stocks (Basic): Using P/E Ratio

Part II of our common stock valuation (basic) talks about the popular price earnings ratio.

If you've missed Part I of our Basic Common Stock Valuation using Book Value, click HERE.

P/E Ratio tells a lot about the profitability of the company relative to its price or relative to what you're paying for.

In real estate it is similar to cash-on-cash return, although technically you don't recieve 100% of the profits in cash, as you only receive the cash as dividend.

P/E ratio tells you how much corporate earnings you get for the price of the business you're paying for.

P/E Ratio is also called the "earnings multiple" since it is the price you pay divided by the latest earnings per share figure. Hence, it shows the number of times of corporate earnings at that price.

For example, a P/E Ratio or earnings multiple of 8 means that the current price is 8 times the company's latest earnings.

Sir Aya Laraya considers the P/E Ratio as the number of years you are going to get back 100% or all of your original investment. You can say that it is the number of years before you double your money in a stock.

For example a company earns P20 per share. The current market price is P100 per share. Hence, the P/E Ratio is 5 (Price: 100 / Earnings: 20 = 5). He is saying that in 5 years, with earnings being constant, you will be able to get back your original P100 investment. Why?

You buy this stock for P100. Every year the company earns P20. That is 20% per year return on investment for your P100. Every year, you would have earned, P20 and another P20.. And so on. After 5 years your company would have made P100 of earnings on top of your original P100 purchase price for the stock/company. You would have gotten back 100% of your investment or doubled your money.

In his book Security Analysis, Benjamin Graham discussed the P/E ratio in relation to simply getting the percentage of earnings for the purchase price or E/P.

For example, using the above hypothetical example, a company with a P/E ratio of 5 has 20% earnings  or 20% ROI (return on investment) at that current price. This relationship between P/E and E/P(%) is constant.

P/E ratio is inversely proportional to the ROI or percentage earnings of the company.
The higher the P/E ratio, the lower the earnings. The lower the P/E ratio, the higher the earnings.
For example:

In a company with a P/E ratio of 20 = you get 5% earnings per share for every peso you pay for the company.
100% divided by P/E of 20 equals earnings of 5% per year (100% / 20 = 5%).

In a company with a P/E ratio of 10 = you get 10% earnings per share
100% divided by P/E of 10 equals earnings 10% per year )100% / 10 = 10%).

In a company with a P/E ratio of 5: you get 20% earnings per share
100% divided by P/E of 5 equals earnings of 20

If you choose to buy stocks below a P/E ratio of 10, it means that you are getting at least 10% of the earnings on the price you are paying for the company.

*The higher the P/E ratio, the more expensive the stock is. The lower the P/E ratio, the better.

Book: Payback and Debt by Margaret Atwood

"In heaven there are no debts, all have been paid one way or another, but in hell there is nothing but debt and a great deal of payment is exacted."

For something more profound and  intellectualy stimulating, here's a modern version of the parable of Ebenezer Scrooge: A Christmas Carol, by Margaret Atwood.. Start listening at 13:38 minutes

"Scrooge noveau lives in the 21st century so he does have a corner office and he doesn't have a firm. He has a corporation. In fact, he has many of them. He collects them; it's a hobby of his. He hasn't much care what they make, so long as they make money."

"Three spirits will visit you.. 'Do they have appointments!?'"

"Unless people treated the gifts given by the natural world with respect, and refrained from respectfulness and greed, divine displeasure would follow, signaled by drought, disease and famine. The prevailing ethos was there was a debt and it had to be repaid regularly, or the benefits that were given would be withheld."

"All wealth comes from nature, without it, there wouldn't be any economics. The primary wealth is food, not money..."

49:10 "You're witnessing a moment of hyper inflation. When people lose faith in the value of a currency, you need more and more money to buy anything. And in fact money simply melts away like the illusion it always has been. After all it's a man made symbol. It exists only if we agree that it does. And if you can't change it back to the things it is supposed to signify, it's competely worthless."

"In a world where everything have been changed to money, there is nothing left to eat."

"I don't really own anything, Scrooge thinks, not even my body. Everything I have is only borrowed. I'm not really rich at all. I'm heavily in debt. How do I even begin to pay back what I owe? Where should I start?"

The last 2 minutes and 20 seconds contain the gist.


Link:

http://podcasts.tvo.org//bi/audio/2066944_48k.mp3

Use Interest Rates to Your Advantage: The Money Movement Strategy

While browsing for books in Book Sale, I came across a book by Charles J. Givens called "Wealth Without Risk"

What caught my attention was the page about the MONEY MOVEMENT STRATEGY:

I think all of us have an intuitive idea of how the prevailing interest rates in the economy affect our wealth and finances. All of us have heard about time deposit rates, how much interest is on your car, your home amortization, credit card and personal loans.

But interest rates can be used to your advantage too.

The MONEY MOVEMENT STRATEGY tells us that when general interest rates are: 

LOW - the economy is usually on a roll, invest in stocks or equities. The author, Mr. Givens, claims that the greatest bull markets in history have occurred on low interest rate environments. And this is not hard to believe since low interest in the economy stimulates people to buy products and take out loans. Profits roll in and there is much liquidity in the system for that can be used for expansion.

When interest rates are: 

HIGH - Invest in debt-instruments or bonds and money-market. In other words, lending your money when interest rates are high. This makes perfect sense, since this is the main principle in bond or debt investing. The higher interest rate coupons you have on your bond, the higher interest you receive from it. When prevailing interest rates go down, the value of your bond with a higher rate goes up because all the other bonds have lower rates. 

Money-market are bank the time-deposits and other highly liquid "cash equivalents". Invest in these when the interest rates are high.

According to the strategy you have to set a decision line for the interest rate. This is highly a personal or arbitrary choice.

The main interest rates in the Philippine economy that I watch out for are:

The BSP Policy Rates: Overnight Lending / Borrowing Rates

[http://www.bsp.gov.ph/monetary/monetary.asp]

and the Bellwether Interest Rates

[http://www.bsp.gov.ph/statistics/sdds/tbillsdds.htm]

You may also check:

[http://www.tradingeconomics.com/philippines/indicators]

As we speak, interest rates are at record low levels, following a stable inflation rate and other factors such as the recent investment grade ratings upgrades in the first half  of this year 2013.

Is Your Bank Really Secure?

Recently, I have been contemplating whether to put my money in this rural bank. I will not specify the name of the bank for privacy purposes.

I have been attracted to this rural bank because of the higher interest rates on time deposit, especially those with terms of greater than 5 years.

Rural banks, and smaller banks in general offer a much higher interest rate than bigger established banks whose deposit products are often so low, your money will be eaten up by inflation.

Personal time deposit products with terms greater than 5 years are still exempted from 20% withholding tax, unlike retail treasury bonds for example which have recently been removed from the exemption of 20% withholding tax for terms 5 years and above.

I have been studying financial statements and balance sheets of listed companies, but I have yet to analyze a bank financial statement.

Before "investing" my money in this rural bank, like most investments, I have to check the soundness of the institution by doing a little bit of homework. On my list are forums, customer experiences, and balance sheet.

I encountered the term NPL or Non-Performing Loan Ratio which seems to be very important metric for a creditor or lending institution.

 

Photos: Mike Gonzalez (wikipedia.org/wiki/User:TheCoffee)

As you know, the main business of banks is money lending. If they lend money and do not get them back nor paid interest they lose money. That is what the NPL (Non-Performing Loan) ratio measures.

Investopedia.com defines Non-Performing Loan Ratio as:

"A sum of borrowed money upon which the debtor has not made his or her scheduled payments for at least 90 days. A nonperforming loan is either in default or close to being in default. Once a loan is nonperforming, the odds that it will be repaid in full are considered to be substantially lower. If the debtor starts making payments again on a nonperforming loan, it becomes a reperforming loan, even if the debtor has not caught up on all the missed payments."

Basically, Non-Performing Loans are loans that are on default or near default; the debtor has not paid his due payments and are beyond due.

In the Philippines, there are many rural banks that close every year. According to BanksPhilippines.com there were 24 banks that closed in 2012 alone.

The trend in most established banks today have a Non-Performing Loan ratio of below 3% of gross loans.

Bank of the Philippine Islands or BPI for example had a NPL ratio of 2.1% in the first half of 2013. [source info.bpiexpressonline.com]

This rural bank that I'm looking at has 15% non-performing loan ratio. That is a whopping 7.5x the industry norm of non-performing loans. I also noticed an increase of this ratio from 14% of the previous year to 15% this year.

Although, this bank's depositors are insured by the PDIC up to P500,000, being the conservative investor that I am, I will pass up on this opportunity.