FUNdamental Side: PEG RATIO

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source: http://www.valuewalk.com/

I bet by now you are in the level where we can say you are already a serious stock trader or investor. I know you you have been going from side to side, that is employing TECHnical and FUNdamental analysis to guide you in your stock bids or ask.

Another fundamental ratio which we can use to make sound judgement is the PEG Ratio.

PEG Ratio is defined by Investopedia.com as:

A ratio used to determine a stock's value while taking into account earnings growth.

As the definition says it is a valuation ratio taking into consideration the expected earnings growth. It is an estimate of the company's value(as reflected by the PE ratio) over  an expected growth rate.

To learn more you can watch  Investopedia.com's video presentation about this ratio below:

source: http://www.investopedia.com/video/

PEG Ratio just like PE Ratio can be use to check which  stock is undervalued and thus making a good buying decisions.

Now how can you use PEG Ratio in your trading or investing? Here is the catch with this ratio: one has to  understand risk in order to use this valuation ratio properly.

What risk again?

Yes, since PEG Ratio is a measure of the future earnings which is still uncertain you have to take into consideration  the risk associated with the stock. Also comparing one stock from the other might lead you to wrong decisions. Every company may have different nature of risk like a service company will have  different risk as compared with a holding company. Thus PEG Ratio is best use when comparing companies with the same nature and level of risk.

I have checked PEG Ratio of ALI & SMPH for 2011 in COLFinancial website and here is what I got:

STOCK	2011 Price	PE 2011	PEG 2011
ALI	15.16	27.93	0.90
SMPH	10.64	16.33	1.07

Lets use the above data to analyze these two stocks using PEG ratio.(Remember this is a 2011 data for example purpose only)

Price Comparison

Just looking at the price I guess you would have bought SMPH if you wanted to add a property stock in your portfolio. The lower price would mean you would be able to buy more stock with your limited funds. 

PE Ratio comparison

If you would base your buy decision you would probably buy SMPH right away because as compared to ALI it is way more cheaper to buy SMPH with a good return. Again PE is based on the current earnings but in reality you are just in the position to buy, you have to also consider the probability of you earning after buying the stock unless you intend to go short which will surely give you a good return since the stock is cheaper.

PEG Ratio comparison

 Looking at the PEG ratio it would tell you that comparing the future earnings ALI would be the better stock to buy. Again remember the risk that comes with this ratio. It is more of an estimate which may change upon unexpected events who knows SMPH would embark in new and better projects that would solidify its capability to generate better earnings next year thus changing the PEG ratio.

So there you go. PEG ratio will be best use if you are deciding between two stocks of the same industry and for sure for a time frame longer than months.

10 Lessons we can learn from Habagat crisis in the Philippines that we can apply to stock investment/trading

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I heard finally the sun came out today; we hope it stays that way until the water subsides.

source: http://www.theatlantic.com

What happened is an eye opener. We already went through Ondoy and we all remember the horrible memories that for some still haunts. I did my share to help even though I am not in the Philippines especially in Metro Manila by donating and feeding words to encourage our countrymen to stay brave, to be a hero, and to be aware.

I gathered some lessons that we learn from this event. We should always remember the experiences we go through and learn from it.

Lesson 1    Be ready

Often times the reason why lots of people die or perish is that they are not ready for such event. Yes it could be a calamity or an unexpected catastrophe but readiness is always a necessary element. In the military or even in rescue operations, personnel or soldiers do the drill several times to all kinds of possible situation so in case such happens they already know what to do. No more long time thinking and deciding because such is already done long before. Also "ready" means having all the needed tools and supply in case of emergency. These essentials are stored in easily accessible place so that no time is wasted looking for them.

Same with our stock investing. Ready means that you are able to make decisions and able to have the capital or the means to place a buy or sell in case there is an unexpected price surge or an sudden opportunity to buy more. It is advisable to leave at least 10% of your portfolio as cash for ready funds in case an opportunity comes.

Stock Investing Myths: It's Easy Money

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source: http://www.quick-good-fortune.com

 Many think stock investing is easy money because of the concept of 

High Risk=High Return 

and thus a lot of people invest like a gambler, they load up their money without doing the math hoping that the next bet will hit the jackpot.

Stock Investing is like driving

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source: http://www.2gn.com.au/banks.htm

So many people are still confuse or have many question about investing in the stock market. I know it's a mind boggling activity and a very serious vehicle or means of investing in a sense that you could be a millionaire or broke in just a second.... only if you don't know what you are doing.

The key to a successful or profitable stock investing is really knowing what you are doing. That is why it is said to be one of the secrets of the affluent or the rich one because of the lower tax rate(in the Philippines stock transaction tax is 1/2 of 1% of every sale. I heard about a new law being discuss but have no details yet) and two because you are only placing idle funds(remember only idle funds) which could earn higher to fight inflation.

Now why did I say it is like driving?

 source: http://order.uprintinvitations.com/

I am just a newbie driver. I learned  to drive because I have to drive. Because here in Guam public transport is not famous. Yes there are buses but they come every after hour and it is not fast. There are taxis but the cost is not affordable. Driving is still better and it will get you to your destination sooner.

Stock investing is like driving because like stock investing in order to be good at it you must learn it and really focus on it or else you gonna get into an accident. You don't just drive a car and go into a high way. You need a driver's license and you must have the will to drive(for those not driving you will feel this "will" I speak of when you get to drive a car... if it is your first time you might have thoughts that you can't drive because that fear of getting hit or hitting other cars is always in your mind).

You need focus when driving and it also applies to stock investing. Focus on what you are investing on. You have to learn about the company you want to invest, learn its growth potential, and make a strategy on how to increase your holdings on such stock. The thing is when you make an investment and then suddenly the price drop our tendency is to sell it and get another(for first time investors you will go through this just like what I did). If you invested in a sound company with a proven growth and a stable financials it is still possible that its price will drop(look at TEL today). But when a strong company's price drop don't just go to panic mode and sell it, you have to learn why it is going down.  When its operations is good and yet the price went down then it could be that the market or investors' appetite for it slowed down thus the price is stagnant or gradually goes down. On such occasion it is the best time to cost average.

In driving you have 3 mirrors to guide you but always remember to look at what is in front of you or else you will surely hit somebody. Same thing in investing. You have to look what is in front of you, if you need to you can look at your side mirrors and rear mirror if you need to make a turn or change lanes. In investing you must have one direction and that is to earn. There are times that you will be caught in traffic and thus you need to change lane or take a turn. On those instances you use your mirrors to make a safe turn but you are still going to the intended destination. 

I guess that explains it. If you have more queries or if you have questions don't forget one of the rules and that is don't be shy to ask questions. Search the Internet go to www.pse.com.ph, call up the online stockbrokers(some have free seminars), join a stock investing forum and post your questions( click here for a stock investing forum), or simple ask a friend who is into stock(click here or this one).

How did I start in investing?

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source: http://www.debtfreeadventure.com/

I have forgotten that I have been babbling about stock investing and online stock investing for sometime now without sharing how did I start about investing.

Let me share with you a long story of my financial freedom quest and the reason behind it.

My consciousness about the importance of money really started when I was in college. When I was young money was not a problem since it is not my duty to worry about it. Also being and studying in the seminary has taken that away even if I know my mom and dad worry about the tuition(yes some seminaries are not free so if you can donate or sponsor a seminarian please do so). The moment I entered college I learned how money really affects each and every one's life. Studying in Manila is not cheap, living there alone is not cheap.

I enrolled in Philippine School of Business Administration-Q.C. My Alma Mater is primarily focus in the area of Accountancy and Management so I ended up taking B.S. Accountancy. As a newbie in Manila at the same time newbie in accounting I am always fascinated about the course I took. Accountancy is not about how to get rich, it is more of how to analyze the business transaction. If you are also an accounting graduate like me I believe you can do Fundamental Analysis which in our accounting language is Financial Ratio Analysis(the subject you hated besides Accounting 7, Management Accounting, Law, and Tax ). 

I know my story is kinda deviating so here is the reason why I got myself to investing.

source: http://www.shepherdsvoice.com.ph/

I read a book written by Eugenio Sanchez Jr. aka Bo Sanchez. The title of the book was "Simplify and live a Good Life". I have read his magazine, Kerygma, and Thank God, His Boss! but in all his works this one greatly influenced me. With my background as a seminarian and the thoughts Bo wrote in this book it made me think why are so many people are tired everyday. They work and work for no reason. They work hard to pay the house they never really enjoyed because 3/4 of the day they are not in it. Money shouldn't be the problem. One must know how to make money work for them so that one wont go to the trouble waking up even though you really don't want to but because you have a house to pay and expenses to pay you drag yourself out of your bed to go to work. I am not implying that going to work is bad, we need to earn a living but most of us are buried in debt that makes our lives miserable.

At the same time at school, we have this subject Corporate Accounting. My professor and dean of the school, Dr. Raul Addatu, would always tell us to buy stocks of SMC(San Miguel Corp.) and wait till it goes up. Yes I learn about stock, stock rights, stock dividend, and so many things about stocks but never about stock investment and stock trading. Dr. Addatu always tells us that in his MBA class, in order for a candidate to be granted the MBA title one must buy a stock and have a profit at the end of the program. That scared me because I was planning to take my MBA but until now I haven't.

So after all those experience I started looking for answers that bothers my mind. I searched publications about investments. I got a primer from a local paper discussing stock investment and my mind started to swirl when I learned that stock brokers require a minimum of 100,000.00 pesos to open an account. Online stock brokers are not yet around at that time. But it did not stop me from dreaming to own stocks of some famous company the likes of PLDT, SMC, and Ayala.

When I was working in my last employer before working here in Guam I already set my goal to be an investor. I have been setting aside money for it. The very first investment I made was at a mutual fund. I just have to make that first move to keep myself going into that direction. It was just a small and right now I don't know how it is already but hoping to check it after five years to avoid charges of early withdrawal of funds. 

While working here in Guam I always check the websites about stock market like PSE, DOW, Bloomberg, CNBC and TV shows like CNBC watching the World Wide Exchange, Managing Asia hosted by Christine Tan, and other programs. I waited nearly two years until I opened my brokerage account. 

source: http://www.shepherdsvoice.com.ph/

In Bo Sanchez's book 8 Secrets of the Truly Rich he mentioned about Citiseconline. So checked them out and even emailed them on how would I open an account even though I was outside the Philippines. And so last November 2009 while on vacation I opened my account with them placing my initial deposit of 25,000.00 pesos. To tell you the truth I was thinking twice and I was a bit jittery about it. Even though I have read a lot about it and even played the online stock trading game it still makes me think how will I do it.

I have eyed on stock of JFC(Jollibee Food Corp.) and have been placing buy order from January 2010 to early March.  It was only in March that I have my first buy transaction. Then SMPH(SM Prime Holdings). I have been holding this two until it made a profit in around April or May and released it. From their on I started bold buy and sell transactions. It came to the point that I was holding 18 stocks and most of them are at the negative. But it didn't bother me. The years of learning and understanding stock market trading finally sink in to me. 

Also I have joined a forum and started this blog to share what I learned about stock investing. It may be scary because it is your hard earned money that is on the line but knowing how to play it and having knowledge about it makes it easy. And so I will re-iterate my and my friends advice when doing stock trading:

1. Only invest free cash

2. When your portfolio is negative you have not yet loss anything

    unless you sell it

3. Buy low, sell high. Lower your average cost per share and take 

    profits when prices is near your target price 

4. Prepare for market correction. Always have available cash for 

    bargain buying

5. Read, research, and learn. 

6. Don't be afraid to ask, you are an investor

7. Always be humble and share your knowledge to others
8. Trade at your own risk. 

How about you how did you start your stock investment? Share your story here in the comments

Income classification: why is income from stock investing the secret of the rich

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I already posted about active and passive income. If you want to know more about active and passive income click here for my post.

Another way to look at income is how to relate the quantity. Income could either be linear, fixed, and exponential.

source: http://guidetosuccess4life.com/the_plan

Linear income is an income where you earn based on the quantity performed. The best example of this type is employment. When you are employed you have a rate. It could be an hourly rate, weekly rate or monthly rate. You are paid based on how many hours you have worked. It could also be in the number of item made or sold. For example a banana cue vendor's earnings is based on the number of banana cue he can sell, a doctor's earnings on how many patients he or she can served, and a sales agent's on the number of sales he or she makes and if the quota is reached.

Linear isn't that bad, the thing is you only earn when you work and make effort so if you got sick, or you are tired or you ran out of  materials to create the thing you are selling you wont earn anything. You are limited to the availability of you time or resources. 

source: blogs.inquirer.net/moneysmarts

Fixed income on the other hand as the name says is fixed. In a way it is similar to Linear income only that fixed income is always just there. A good example of this is earnings on interest on time deposit that is not compounded. In a time deposit the bank pays you a stated interest rate for a period of time. It is in a way the effect of passage of time. So if you placed a time deposit of Php 250,000.00 that pays you 5%  per annum and the interest is paid quarterly for five years you will get Php 3,125.00 every three months. Now did you noticed what I said....not compounded right?

source: http://fxtraderzone.com/
Exponential income is in a way fixed income with the effect of compounding and timing. If the time deposit above is compounded it will be a different story. Compounding means putting interest on top of the original principal plus the earned interest. This is one form of exponential income. Another form is timing and the best example for this are stock investments. 

Stock prices go up and down...but the secret as always is to buy low and sell high, meaning timing. That is why we have the term bottoming up and taking profits. You buy stocks when they are at their lowest possible value and take profit when they are near their highest value. This is exponential income because your earnings is not dependent on how many hours or units you made, it depends on how much is the value. Of course being exponential does not only mean exponential earnings, it also means exponential loss. That is why timing is a key factor in the stock market trading.

But another way of looking at exponential is how it duplicates itself. The best example of this is a music made by a composer. Remember there is only one music done and yet so many albums sold. It is by duplication that the earnings becomes exponential. Another one is by franchising. A franchise is actually a business modeled by some wise businessmen. In order to earn more the businessman allows others to use the business model he created thus one: the business is expanded and duplicated and two: it reaches more customers. 

source: http://anongbalitangayon.blogspot.com/2009_10_18_archive.html

In the Philippines Tony Tan Caktiong has one of the most successful franchises that the Jollibee brand has expanded worldwide. They have also established and acquired brands to capture certain market and at the same time combining two franchises to have better choices for the customer. Thus in some places Jollibee and Greenwich are juxtaposed.

One of the recent earning streams is by blogging. Blogging actually earns though advertisement which we call online marketing(to know more about online marketing click Jomar Hilario's site). They key factor that can make your blog generate exponential income is readership or what we call traffic. The more readers you have the more advertisers would like their ads to be in our blog. But you may ask how in the world blogging becomes a source of exponential income?

 source: google.com

Well if your blog is heavily trafficked and ads are related to your post even if you stop posting new blogs as long as the words and ideas are still there, your blog stands as a online billboard. People searching the Internet might stumble on your post and learn and is able to see a link that will lead them to a product. Imagine that, after making your blog so famous and so widely read and then you suddenly stop. People will still come to your blog probably by Internet search or referral or what we call a back link. You are not doing anything yet readers still come to you and off course where there is traffic there is earnings...you are just like the music composer who once wrote the song and sold millions of copies of the album.

I know my post kinda diverted from stock investing but at least you know what are these types of income. In stock investing you can compound your earnings by re-investing whatever gains you have from your profit taking. You can also duplicate your money by investing in several good stocks. Just keep the cycle going. Buy low, take profits when prices are high, reinvest your earnings, and invest to more good stocks.

Investing word of the day: Correction

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source: http://seekingalpha.com

We have seen this lately in the local stock market after the DOW went to the red. Also due to the three or four days that the PSE defied DOW thus this week it is expected to slow down after a great uptrend for the past days, so what then is correction or market correction?

As usual I got this definition from Investopedia.com:

"A decrease in the market price of an asset or entire market after extensive price increases. A technical correction occurs even when there is no evidence that the increasing price trend should cease. It is often caused when investors temporarily slow down their purchases of securities, which commonly leads to a pullback toward a short-term support level."

Layman's explanation:

It is a decrease of the market after a extended uptrend.  Generally when the market has enjoyed a continuous increase in price it will come to the point where it is at its highest point thus it will start to pull back. An analogy used by most is the bouncing ball analogy. Just like the bouncing ball, stock market is not always in an uptrend mode at any point it will go down and it will bounce back again.  

That is why it is important to learn how to time the market. When prices are down it is the best to buy because sooner or later it will bounce back or it may even surpass the previous highs. In relation to the Law of supply and demand when the stock market becomes saturated meaning either the buys or sells is more than the other it will surely create a change. When prices are rising sellers dominate the market because everyone wants to profit and when it is a downtrend buyers dominates it because it is a bargain market. 

The stock market is any ordinary market that we know. It is always buy low sell high. You don't sell at below cost if you are in your sane mind, you are trading for profit. Correction is that time when as Investopedia.com says there is no apparent reason for prices to go down its just that prices are to high and in order to sell prices should be lowered to attract buyers.

So bargain hunters lets go shopping!

Links worth checking:

http://uk.reuters.com/article/idUKLNE63F01120100416

http://www.ctv.ca/generic/generated/static/business/article1582086.html

Are you ready to invest in the stock market?

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 source: http://www.google.com/imgres?imgurl=http://lgimages.s3.amazonaws.com/data/imagemanager/

I have been posting things on how to get the information you needed in your stock investing decision. Also I discussed how could your small savings accumulate and be invested in stock. I hope you have also chosen a stockbroker and on the process of opening an account, the question now is are you ready?

An interview was made on Warren Buffet, one of the world's richest man, on what regrets he has in life. And I think you will be surprise on his answer. He told that his greatest regret was that he did not start earlier in investing. 

Yes stock investing may be scary at first. You keep on looking in the trading result the next day and you always zoom in the last traded price of the stock you bought. You are praying that it is not in the red and when you see its value went down you are as if gonna get a heart attack. You think you made the wrong choice or maybe you are telling yourself "I told you, you should have bought the other stock." But in reality you never lost anything yet. It has been a wrong notion of many new investors that when your stocks market price is down you lost. We call that unrealized loss. That is why when investing always choose stocks of companies with great fundamentals or as what Warren Buffet's mentor, Benjamin Graham,  term it intrinsic business value. Prices may go up or down but companies with intrinsic value will always be there. Buy them when their prices are down, which are surely temporary that may be due to market reaction to certain news or events, and sell them when they rise up.

Many say stock investing is like gambling. I don't think so. It is one of the wrong move of some people who sell their stock when it is already way below their cost. They never computed what was their investment's book value and also they haven't included their expenses when they purchased their stock investment thus they end up selling at a lost.  Always remember to sell beyond your breakeven which can be computed. 

One last thing is that you wont be able to start unless you make the first step. Buy your first stock investing only about Php 5,000.00. Yup just buy any stock you think is a good buy. When its price goes down be happy because you have made your first investment taking away that jitter that stops you from doing it. I guess the next buy will be better, and the next one will still better. Why better? of course nobody would like to lose money so your first loss will drive you to be better and be an earner.

Take a deep breath, click your mouse and make that first buy.

PSE Website Part 7: Investing in PSE; a comprehensive guide

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Okay it seems that there are so many things that yo wanna know about stock investing in the Philippines right? You have searched and read a lot of blogs and Internet sources but seem not to get it. Well the PSE website has this link Investing at PSE.

All the basic info you need about stock investing are here but I believe you will have an information overload thus I created a one day at a time guide regarding the PSE website. 

Again reminder that having the right information in your finger tips is an edge in stock investing. Knowing where to get an accurate one is another thing. The PSE website is pack with such information but some information regarding the company you are interested has most of their information in there own website. 

I will discuss to you one way to keep updated about a certain company through Google Alerts on the next post.