About the PLDT tender offer…

Last December 28, 2011, I made a post in our group page in facebook regarding my theory on PLDT tender offer

I mentioned that I expected PLDT shares to rise way above 2500 pesos so that on the tender offer period, dgtl shareholders will prefer to convert their holdings to tel shares for 2500 apiece than cash for 1.60 gross. The management will intentionally push the price up for it to happen because it will be more favorable to them to issue additional shares of TEL than to pay huge amount of cash that I estimated to be around 4.6 billion pesos. And I expected that when the final settlement is done, we can see tel shares to drop to its normal price level.

Here is my actual post

According to the news on Pldt last January 19 about the result of the tender offer, it mentioned that:

• Of the total shares tendered, 13% or 374 million Digitel shares are to be paid in cash, and 87% or 2,514 million Digitel shares are to be paid in PLDT common shares. This translates to the payment by PLDT of about P600 million in cash and issuance of approximately 1.6 million PLDT common shares.

The tendered shares are to be crossed in the Philippine Stock Exchange (PSE) on 24 January 2012 and settlement of both cash and share transactions will be on 27 January 2012.

On January 26, 2012, one day before the settlement date, TEL shares went down by 4.37% to 2652. After reaching 2886 last week, it is now trading to 2652 and expected to go down further.

I have here the broker information for tel on January 26 2012:

The top seller for that day is DEUTSCHE (broker 209) selling 260 million plus worth of TEL shares representing 26% of total volume traded for that day.

DEUSTCHE is MVP’s broker.

This January, we saw a strong bull market when the index reached new high and most of the stocks making strong upward movements. But part of that index movement is contributed by the increase in TEL. Now that they are dumping TEL shares, it will pull the index down with it. So by February, stock prices “may” go back to its normal level.

Lesson: Perfectionism

what is the trader’s mantra?

it is ” buy low, sell high. seems easy to do right?

think again! i have seen lot of traders do the opposite. buying high, selling low. much worse is buying low, selling lower.

The point here is nobody knows the bottom or the peak. Deal with it!  Buying at the very low and selling at the very high requires pure luck!

Most traders, are perfectionist!

They want their trades to be perfect. They want to buy at exactly the very low and want to sell at the peak. Traders get in and out of a  stock trying to squizz every bit of gains they can get from it. In my own tagalog term, ” nilalaspag nila ang stock”. What do you think of the stock market? Your own ATM machines?!!

Even Jesse Livermore admitted that getting in and out on a stock is fatal. That is coming from one of the best speculator and I don’t think you even come close to his level so don’t try to do the impossible. ( well, respect for the momentum traders. i am referring to average traders.)

Nobody knows the low or the high. Because we want to buy at the very low, we miss the rally. Because we want to sell at the very high, we were caught in the decline when prices correct or collapse.

Perfectionism is also the reason why most traders stay on a losing position. Because they want to prove themselves right and  the market wrong (Dude, don’t go against the market!). Or because they want to look good with others and taking losses & admitting that they are wrong will make them look losers ( if you insist on staying on a losing position and do your wishful thinking, yup, you are a loser).

Even when it comes to developing a system for trading. They want it to be so perfect, it becomes complicated. You dont need a perfect system ( which by the way, do not exist). What you need is a system that works. That makes money.

Perfectionism sometimes result to greed. They are not contented with what they make, because they want all of it. Boy, you already made money. Be contented with it.

For perfectionist traders out there, i suggest be more realistic. okay? and stop basing your performance on the performance of others. It pressures you to trade more.Just focus on your own investment goals and don’t be bothered of how well others are doing.  I know that we are all after mastering the craft of trading. But set our own limits and be realistic.  Respect the market ( i have another article about it, check it out!).

Nathan Rothschild, one of the richest guy who made his money from the stock market said,

I never buy at the bottom and I always sell too soon.”

Keep learning and do your homework all the time guys! ( i mean study your stocks, funda or techni)

That’s all for today. Need to do my SCHOOL homework. I hate making HW, so high school!. haha

Don’t stress yourself much on trading. Enjoy and Happy trading!

Hope you learn something valuable. See yah!

 

 

 

Film: Inside Job

Inside job is a documentary film that tells story behind the 2008 financial crisis. This financial crisis is neither a natural phenomenon nor part of an economic cycle but rather a man-made crisis. It is the result of the combined greed of these few people who tried to create something out of nothing at the expense of other people. They are the so called financial engineers who do not build bridges but dreams that turned into nightmares and the world suffered from it. This is a financial disaster that was the product of two elements: Wall Street greed and Regulatory failures.

Financial institutions must be well regulated and their operations & other activities must be closely monitored to prevent any abuses and to protect the interest of the public. Because once these financial institutions were deregulated, this is what happens.

1. Iceland

In Iceland, their 3 major banks, Kaupping, Landsbankinn and Islandsbanki, were privatized and deregulated by the government as part of their financial experiment. These banks before do not borrow money abroad but after the deregulation, they started borrowing money outside of the country that amounted to $120 billion which is almost 10x larger than the GDP of their country that is only $13 billion. Since they are deregulated, these financial institutions are free to do any of their operations regardless of the risk it may involve. Sad to say but although something wrong is already happening, their regulators did nothing. Why? It is because 1/3 of their financial regulators work in these banks. Aside from borrowing abroad, these banks paid big bonuses to its executives and employees. They also gave big credits to some people who spent all of this borrowed money to buy luxurious stuffs from expensive boats to private planes. This created a financial bubble and resulted to the collapsed of these banks.

1. U.S.

The deregulation of financial sectors combined with WallStreet greed caused the Internet bubble in 2000 and financial crisis in 2008. The deregulation allowed merging of banks so they get bigger which is not advisable because once they fail, it can bring the whole economy down. The deregulation also allows banks and other institutions to speculate using depositors’ cash. Depositors put their money in the banks believing that it will be safe not knowing that these banks use these deposits to speculate and put it in risky investment.

When investment banks speculated on internet stocks they knew will fail, then paid analysts to fool the public and hyped the stocks until its price skyrocketed, it resulted to the Internet bubble.

When financial institutions created derivatives as the securitization food chain was introduced to the public, it resulted to real estate bubble.

Warren Buffet said “Derivatives are weapons of mass destruction”. I agree with him. The introduction of these unregulated financial products is the instrument used by these financial wizards to defraud the public and to create value out of nothing.

In the traditional borrowing, if a borrower needs money, the bank conducts credit investigation first to ensure that the borrower is capable of paying the debt before granting the loan.

But on Securitization Food Chain

It makes banks/lenders to grant loans regardless of the ability of borrowers/home buyers to repay. Because the mortgages created on these loans by banks/lenders were bought by Investment Banks like the Lehman brothers and Goldman Sachs and combined them to create a complex derivative called CDO or collaterized debt obligation. Then this CDO were sold by Investment banks to investors. Investors earn from CDO when the home buyers make their mortgage/loan payment.

This system made borrowing easier and more loans are being granted as lenders are now more liquid because instead of waiting for the loan payment by the borrowers, they immediately received cash when investment banks buy these mortgages.

But here is the problem. Since the risk of default is not a concern anymore by the lenders/banks, they keep on granting loans to people regardless of their ability to pay. Investment Banks keep on buying these mortgages from banks to make more CDO out of it. The more CDO, the more profit. Knowing that these CDO are now risky so why will investors buy these? Well, they don’t know they are making risky investments on it. Because Investment Banks paid Rating Agencies like S&P and Fitch to give their CDO an AAA credit rating. Even those CDO created from the combinations of subprime loans or high risk loans were also given an AAA credit rating by these rating agencies. Now, these investors bought it, thinking that CDO’s are safe investments. It is just a matter of time before the worst financial crisis is waiting to happen.

SEC allowed lifting of the leverage limits or increased of the leverage ratio of the Investment Banks so that they can buy more loans/mortgages and create more CDO. Investment banks made big profits defrauding the public. They gave big bonuses to its executives and management. Many people from WallStreet took home big pay checks spending it with all the luxuries in life.

There is also another financial product created but this time by AIG or American International Group, an insurance company. It is called CDS or Credit default Swap, a derivative that is similar to a traditional insurance but unlike the traditional insurance where only you can insure what you own; in CDS everybody can insure your property. CDS were used to insure CDO where once CDO defaults; they will make payment of the total amount. AIG made profits from the premium paid on the CDS. Similar to the Investment banks, they also gave big bonuses to its employees. Actually, what is funny here is that even those Investment Banks like the Goldman Sachs bought CDS to insure themselves on risk of default of CDO they themselves created.

There was a real estate boom because home buyers can borrow more at ease. Real estate prices skyrocketed as the buy and sell of houses and other real estate’s financed through borrowing continued until the market became saturated with all these properties. After the real estate bubble, CDO defaulted because borrowers cannot pay anymore their mortgages/loans. AIG cannot pay investors and speculators who insured themselves against CDO. AIG collapsed and Lehman Brothers went bankrupt. US economy went down and many lost their money, jobs and houses.

It is really sad on how such things happened. The regulatory bodies failed to do their part in protecting the public. The top executives of these financial institutions who defrauded the public are still free and some of them even have positions in the government. There is even no attempt by the Obama government to recover the wealth from these people. No attempt to regulate the financial sector. Is the US government a WallStreet government?

There is no dispensation from the Law of Compensation

I have here an article about my favorite law of nature, the Law of Compensation. This is not my work but I want to share it to you guys.

There is no dispensation from the Law of Compensation

What do I mean by saying there is no dispensation from the Law of Compensation? I first need to explain the meaning of COMPENSATION. I’m not using it to mean ‘salary’ or ‘benefit package,’ but to mean ‘what constitutes, or is regarded as, an equivalent; what makes good the lack or variation of something else; what COMPENSATES for loss or privation; amends or recompense.

This is how the English Metaphysical poet Francis Quarles (1592 ~ 1644) describes compensation: “As there is no worldly gain without some loss, so there is no worldly loss without some gain. If thou hast lost thy wealth, thou hast lost some trouble with it. If thou art degraded from thy honor, thou art likewise freed from the stroke of envy. If sickness hast blurred thy beauty, it hath delivered thee from pride. Set the allowance against the loss and thou shalt find no loss great.”

In modern terms, we could say one man is rich but bored and another is poor, yet happy. One woman achieves great success but dies young; another is less successful but lives longer. Or, a rich man can afford steak and lobster but finds it hard to digest while a poor man has a hearty appetite and good health. Or, someone else may have a large salary, but little time to spend with their family.

Ralph Waldo Emerson (1803 ~ 1882) explains compensation in clear terms: “For everything you have missed, you have gained something else; and for everything you gain, you lose something else.” Again, in his journal dated January 8, 1826, he writes, “The whole of what we know is a system of compensations. Every defect in one manner is made up in another. Every suffering is rewarded; every sacrifice is made up; every debt is paid.”

The title of this article, then, means there is no exemption, no exception, or no escape from this law of life. We cannot have successes without failures or hardships without gains. For every gain, there is a loss. We lose the wood to gain fire and heat. We lose the heat to cook the food. We lose the food to nourish our body, and so it goes. This law of nature is about balance, harmony, and equilibrium. It is similar to the Law of Conservation of Energy in science. (Energy may neither be created nor destroyed and the sum of all energy remains constant.)

Another aspect of the Law of Compensation is we will reap what we sow. Isn’t it true that if I plant tomatoes, I’ll reap tomatoes, and if I plant weeds, I’ll reap weeds? So, it should come as no surprise that if I plant seeds of love, I will be loved, and if I plant acts of kindness, others will treat me kindly. But if all I sow is anger, all I reap will be hostility. When we practice the Golden Rule by treating our neighbors as we wish to be treated, we live in harmony with this principle and will reap its benefits. Or, as Ralph Waldo Emerson put it, “It is one of the most beautiful compensations in life that no man can sincerely try to help another without helping himself.”

Another term to describe reaping what we sow is ‘karma.’ In Sanskrit, karma means action or deed. In the spiritual sense, it means both our actions and the consequences that flow from them. Those who believe in karma believe that their fate is governed by the choices they make. The happiness they experience or the suffering they undergo is a result of how they use their free will. So, it’s just another way to describe how we reap what we sow.

Yet another term used to describe the same thing is The Law of Action and Reaction. That is, for every force, there is a counter force. The greater we stretch a rubber band, the greater its snapback. The more I scowl at you, the angrier you will become; the more you smile at me, the more pleased I will become. We could also express this idea by calling it the Law of Cause and Effect, or just by saying that virtue is its own reward and wrongdoing causes suffering.

The Law of Compensation, or sowing what we reap, is not about God punishing the wicked and rewarding the holy, but simply His law of natural consequences. If we fall into a fire, we are burned not because we’re evil, but because of the heat of the flames. So, it is wise to become familiar with the laws of nature to avoid unnecessary pain and unhappiness.

Once we understand for every gain there is a loss, we can free ourselves from envy and live contentedly. Blessed are the contented, for they are never poor. Woe unto the discontented, for they are never rich. Blessed is she who has little and wants less, for she is richer than he who has much and wants more. Blessed, too, is he who realizes that a little is a great deal when it is enough. And, as Socrates (469 ~ 399 BC) taught, “He is the richest who is content with the least.”

There is a time for contentment and a time for discontentment. When we use discontent to raise ourselves to a higher level, we are living in line with the Law of Compensation. For at such a time, we realize that there is no gain without loss, or no gain without pain. We understand that our success depends not on what we take up, but what we give up. So, we willingly sacrifice time and comfort to reach our goal. And if we experience a temporary setback, we’re not discouraged because we understand that hidden in our problems are blessings waiting to be discovered. In the same way, when we are pounded by adversity, we find solace in the Law of Compensation, looking forward to the benefits that await us.

Also, we don’t make the mistake of comparing our lives with those of others. For although their gains are clearly visible, their losses are hidden from view. Neither do we allow our imagination to exaggerate the extent of our losses or others’ gains. We also keep our balance by remembering that all is relative. After all, bad is never good, until worse happens.

Lessons from Warren Buffett

Value Investing, the Buffett Way

This is an excerpt from an interview made by Forbes Magazines about the investment principles of Mr. Warren Buffett. It’s a long article so I decided to summarize it and point out important things. As a value investor, these are the very principles I used in my investments. I hope that you will be properly guided and learn from it.

Buy stocks as if you are buying the company. Company that you want and you believe will do well in the future. Never buy it for a quick profit or fast turn on an earnings report or for dividend play. Remember that in investing, you don’t buy stocks because you want its price to go up but rather you want to become part of the business of the company.

When the stock prices are going down, such bargain prices produced panic rather than purchases. Such panics present buying opportunities for investors. Be greedy when others are fearful; be fearful when others are greedy. But consider always if it is cheap for the wrong season or the right reason. A stock price may go down not because it loses its value but because of the negative general sentiment for the moment.

Most analysts saw only good but fully valued stocks. But when we analyze stocks, we don’t base our decisions solely on things found on the balance sheet, but also for values that may not appear on it. Things like valuable brand names, strong market positions, consumer loyalty etc.  These off balance sheet values are priceless, virtually immune from inflation and capable of continued growth like compound interest machines. The key to investing is to determine the competitive advantage of any given company and above all, the durability of that advantage.

There are also good stocks but are cheap. Some analysts say yes it’s cheap, but it’s not going up. That’s silly. People have been successful investors because they’ve stuck with successful companies. As you see, the stock market in the short run is a voting machine, but in the long run, it’s a weighing machine. You are neither right nor wrong because people agree with you. So you keep cool, hold down the risk and go with what the scale tells you rather than what the trend of the moment says. Anyone who can do that consistently his stock is certainly worth a premium to the market.

Conventional wisdom says that no one ever went broke taking profits but that is not the way you must think as an investor.  There are huge advantages for an individual to get into a position where you make a few great investments and just sit back. You’re paying less to brokers and you’re listening to less non sense. You should never sell your stocks of great businesses as long as they stay great regardless of how high the stock prices may get. What would be the point? If you sell stocks of great companies, where can you find a comparable investment? You would have to reinvest the money in something less great. As Omar Khayyam says, “Oft I wonder what the vintner buys half as precious as the stuff he sells”.

Investing is picking good stocks at good prices and staying with them as long as they remain good companies. Essentially, don’t try and figure out what the market is doing. Figure out the business you understand and concentrate on it. An investor with a portfolio of sound stocks should neither be concerned by sizable declines nor become excited by sizable advances.

A successful investor has the ability to stand back and not be influenced by a crowd, not be fearful if stocks go down. There is no disaster proof portfolio. There may be worries of panics or depressions, but these uncertainties don’t bother an investor. Uncertainty actually is the friend of the buyer of long term values.

Understand that it’s smarter to look for a steady 15% or so compounding of your money than to search for hot stocks that would double or triple in a short time.

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”

In value investing, at first it will be difficult not to be affected by sizable declines and advances on stock prices. There will be moments that you are tempted to take profits or cut loss your positions. Here is a tip for you.

Invest in the stock market as if you had been given a punch card that only allows you to make a limited number of trades. Let’s say you can only make 3-4 trades per year or 20 trades in your entire investing career.  In that way you would only deal when you were absolutely sure on an investment decision and would avoid the temptation to dip in and out of the market on a whim. In my case, this is how I do it. I convince myself that I am impaired to execute any selling orders. In short no selling. In that way, I will be extra careful in my investment decisions because once I bought the stocks there is only one way in but no way out.

Remember this: We don’t want to become investors that are short-termist, make terrible timing decisions and are more fearful of losing money than are greedy to make it.  The future is never clear. But because something is unclear doesn’t mean it can’t happen. Now is the time to invest and get rich.

Source:  http://www.scribd.com/doc/31752060/Forbes-on-Warren-Buffett

Book: Trading for a Living

I was reading this book called trading for a living by Alexander Elder.  It’s about the market psychology, on how human behavior can influence and dictate price movements and overall performance of the stock market.

I really do believe that market is not just a battle of the minds but more of a psychological war. Our psychology affects how we behave in the market in executing our trades and choosing our stocks to invest.

There are 2 emotions in the stock market: fear and greed.  When you seek advices to people with experience in this field, they always keep on telling you that never allow your emotions go with your trading. Sounds easy to do, right? But believe me; controlling emotion over the market is far more difficult than reading charts and indicators.

You know it’s difficult because real money, your MONEY, is involved and any wrong trade may result to loss and further losses. It’s hard not to be emotional on times when you see your portfolio is all red and your paper profit is melting.

So, why we need to control emotions in the market? Well, it’s because trading ruled by emotions makes us do stupid trades. It makes us upset or excited on sudden changes in prices that deviates us from focusing on our trading plan. Emotional trading is for amateurs! The problem with most amateur traders is that when they enter the market, they only have one goal in mind and that is to earn big. It is possible that you can yield more than 10% of your initial investment in just a week but c’mon, the stock market is not your Santa Claus and everyday is not Christmas.

Every trader first goal must be long term survival. It’s not all about making money in the market. It is about trading well. If you trade well, then money follows. The first 2 years in the market is a battle for survival for amateurs. Afterwards, you can strive for a steady growth of capital. Making high profits should be your 3^rd and last goal in trading.

I am not yet finished reading this book. It’s a good book and I recommend it to people who want to take stock trading seriously. I will post more about this book.