My Take on Double Dragon

Before all the hype, I was impressed at the company behind the rehabilitation of the W.H. Taft Residences in De La Salle University Manila, because the location of that project was really, really great. The plot of land was almost part of the campus. 

However, when I heard that the proceeds of the IPO will be used to build more malls in the country, it left a little question at the back of my mind. 

Don't we already have too many malls in the country? Even before the offer, I was already worried that Henry Sy was building too many malls, and now another IPO to build more malls?

I know the man behind this is the founder of Mang Insasal Chicken who sold it to Jollibee at roughly P4 Billion in 2004, and Jollibee is buying a huge stake of his property company.

The proforma net tangible book value after the offer is P 0.74

They are selling these for P 2.00. The highest it went so far was P 4.42, nearly 6 times the cost of its physical assets on hand.

Am I missing something here?

Update: 2 days since listing day, Double Dragon or DD has become the speculators dream. The company which sold originally for P2 apiece now sells P4 more, in its second day! Opportunities abound!

Fundamental and Technical Analysis?

When you look at the fundamentals of a stock, you don't need charts to tell you again where the stock is going to. The fundamentals already tell where it should be going.

You only need to know if it's cheap enough, within that 365 day or 52 week period, and the valuations you have made. You don't need to draw arrows or lines on price patterns to determine where the stock is going.

It's all about Profits!!! Dividends!!! Same thing!!

According to books by Peter Lynch and Benjamin Graham, stocks who pay higher dividends consistently trade at higher prices than stocks who don't. If the price doesn't appreciate, you're just as well paid handsomely by high dividend yields every year.

I realized, just like in the business world, it all boils down to profits, even in stocks. As stock investors, we refer to these profits as dividends.

If what Peter Lynch and Benjamin Graham wrote was correct, to be successful in stock investing, we only need to guess which stocks will pay higher dividends in the future. The capital gains and dividend yields will follow.

Generally, where the profits go, prices and dividends should follow.

When I say profits, these are long term trends in profit, of around 10 years or more; not just hickups.

Some investors take it another level, and look beyond profit trends, into the capabilities of management beyond the profits.

I once attended a seminar by BPI Trade, and one of the speakers said something along, "When you buy one of the big companies, it is like buying a mutual fund or trust fund, but the managers are Henry Sy, Lucio Tan, Zobel de Ayala..."

In the even of a major economic downturn, it is the company's management who will make the liabilities into assets and losses into profits, foundering enterprises into turn-arounds.

A famous stock market commentator in a business paper says that prices of stocks are affected by the tides of capital, supply and demand, which is absolutely true. 

But what affects a company's desirability, more specifically, a stock's desirability? Isn't it the ability to generate profits? Yes, that's right, everybody wants high profits reinvested or dividends generated as passive income. If prices continue to go down, all the more better, because your dividend yields go higher.

What is the MSCI Philippines Index?

There was an interesting post at the Pinoy Money Talk Facebook page the other day about the MSCI Philippine Index.

A few months ago there was some fuss about restructuring of the index, resulting in sell-offs by traders on the excluded companies.

MSCI Philippines Index stands for MorganStanley Capital International Philippines Index.

Morgan Stanley is an investment bank.

Google/Wikipedia says,

MSCI Inc. is a US-based provider of equity, fixed income, and hedge fund indices, and equity portfolio analysis tools. It is best known for publishing the MSCI World and MSCI EAFE Indices. Wikipedia

An index is simply a basket or collection of securities to which a comparison of performance is based on. It also serves as a model portfolio of "safe stocks" to invest in.

The MSCI Philippines index is said to comprise 85% of the entire "Philippine stock universe".

Pinoy Money Talked also compared the performance of the Morgan Stanley Capital International Philippine Index with the PSEi or Philippine Stock Exchange Index and MSCI Phils index outperformed the PSEi.

They are also saying that the MSCI Phils. Index is at par with most UITFs and Mutual Funds. 

Hence, they are suggesting it is worth a look to anyone who's looking for a suitable model portfolio.

Read the full article here:

http://www.pinoymoneytalk.com/msci-philippines-index-composition-february-2014/

For me, as a value investor, I try to avoid stocks which are regarded as "blue-chip" for the reason that most of these are overpriced. Companies in this index are usually oversubscribed and prices are pushed up by the hot money of foreign investors. In my viewpoint, bargains will not be found in this list, unless a massive sell-off ensues.

Like their page here:

https://www.facebook.com/pinoymoneytalk?ref=ts&fref=ts

The Rule of 72

Facebook page of investment advocate Aya Laraya posted something interesting the other day, it's called the Rule of 72.

What is the Rule of 72?

Like their page here:

https://www.facebook.com/pesosandsensetv?ref=ts&fref=ts

According to the post from Pesos and Sense:

"WHAT IS THE RULE OF 72?

The ‘Rule of 72’ is one of the simple ways to know how long an investment will take to double, given a fixed annual rate of interest. 

It works by dividing 72 with the annual interest rate of the investment. The answer will give you a rough estimate of how many years required to double your money. (Again, the result is only a rough estimate but this figure will help assess if you really have the time to invest that long.) 

Formula: 72/interest rate = years to double your money

For example, at 6% annual interest, your money will take 12 years to double. 

Take note that this formula only applies for double your money scenarios. (It will NOT work in triple, quadruple, or other growth scenarios.) 

READ MORE >> http://pesosandsense.com/rule-of-72/"

Direct Investment or Direct Share Purchase Plans

Apparently direct selling of shares isn't a new phenomenon in the USA. According to Peter Lynch in his book Learn to Earn published in the mid-90s, if McDonald's can sell you hamburgers, why can't it sell to you its stock?

The main advantage of this is the significant reduction in brokerage costs. Eliminate the middlemen. You deal directly with the company's stock transfer agent. 

He reasons out that many people, especially young ones who don't have a lot of capital to invest are shut out of the market. Usually, these young people would like to buy just one share to get them started.. He gave an example where in a share of a company is selling at $57..

Most brokerages here in North America have commisions of up to $40 per trade. That's nearly the amount of the share itself. He said that no investor will win by paying $97 for a $57 stock.

In the Philippines, brokerage costs are $0.50 or P20 pesos which makes it very affordable and easy for beginner investors.

For example, you can buy McDonald's shares through its MCDirect Shares Plan in this website:

http://www.aboutmcdonalds.com/mcd/investors/investor_tools/how_to_buy_stock.html

You can buy shares directly and also participate in the dividend reinvestment plan through Computershare, a stock-transfer agent in US and Canada.

Forming Investing Clubs

In Peter Lynch's book Learn To Earn he mentions something about investment clubs. A investment club is simply a group of people who meet regularly in one of the member's houses to discuss stock picks, and vote on which stocks to invest in. Votation is by fhe rule of majority. The members also contribute a specified amount of money each time to the pot, to which they invest. According to Peter Lynch, members of investment clubs do better than if they invested individually because of the added benefit of discipline when it comes to major corrections. The cooler headed members of the group will vote out the ones who do panic.

I think it's interesting idea to form this investment club.

Nowadays most people simply join online groups in social networking sites, but investment clubs add variety and a more personal and formal structure to the organization.

If you'd like to form an investment group, kindly comment below. 

Here's the direct quote from page 138 of Peter Lynch's Learn to Earn Book:

In thr Philippines, it is similar to the cooperatives that we see cropping up in many corners of towns, and villages.