"Happy Valentine's Day" = "Ad Hype Spent Vainly"

In other words, isn't Valentine's Day just another marketing ploy used by businesses to make money out of the "emoness" of the common person? My single friends, who rightfully feel that they have nothing to do with this so-called occasion, are none too pleased that they're still adversely affected, what with sudden increases in prices of various goods and services, the ghastly traffic in select areas around the metro, and the additional pressure to find one's "meaningful other" whenever this dreaded day nears.

Which doesn't mean couples have it any easier: not even the most cynical among us can escape the pressure to do something extra "sweet and thoughtful" for our loved ones; imagine how much more challenging it is for me, with more than 1,000 kilometers between me and my girlfriend. But thanks to the Internet, the help of a friend, and a couple of creative and enterprising young ladies, my girlfriend and I managed to share something special this Valentine's Day: a custom-made "LDR Cake" courtesy of The Cake Shack.

I know it's not the same as actually being there, but it's something that made my girlfriend and I very happy nonetheless. Which brings us back to Valentine's Day being just about the money -- well, come to think of it, maybe there's really nothing wrong with that. Maybe it's good that there's The Cake Shack -- and Hallmark, the flower vendors in Dangwa, all those fancy restaurants, and all other people and business that make money from Valentine's Day -- that we can turn to whenever we have trouble expressing ourselves, or are simply physically unable to be with our loved ones.

In the end, everything's fine because we all know that there's more to "Happy Valentine's Day" than "Ad Hype Spent Vainly." Get it?

MVP Offers to Buy MRT for $1.1B

IN THE NEWS from Inquirer.net

Local infrastructure giant Metro Pacific Investments Corp. (MPIC), headed by Manuel V. Pangilinan, has offered to buy the government’s stake in the Metro Rail Transit (MRT) 3 train line traversing EDSA for $1.1 billion. The acquisition will give the group 100% ownership of the company that holds the right to operate and manage the train line until 2025.

MPIC said it planned to spend $300 million to increase the MRT’s capacity to 700,000 passengers, a day from the current 350,000 a day, in two to three years.

What's in it for the government to accept the proposal? Plain-vanilla cash. First, the proceeds of the sale will be used to settle the government’s outstanding debt to MRT Corp. bond holders, resulting in interest savings. Second, the government stands to save $150 million in annual subsidies if it accepted the proposal.

What's in it for MVP? Like MPIC's other investments in utilities and transportation (Maynilad, Manila North Tollways, and Meralco), MRT has the potential of becoming a fat cash cow, with a service demand for which is bound to go nowhere but up, and whose price can be easily controlled, especially by one who knows how to push the right regulatory buttons. MVP doesn't even have to completely fix the bureaucratic and operational mess left by the previous owners, as in the case of Maynilad and Meralco, to turn a handsome profit.

What's in it for us? Well, as tax payers we would all indirectly benefit when the government finally stops hemorrhaging money from that orifice. Directly, as commuters, we should expect to enjoy better service resulting from both an anticipated change in management and increase in capacity. Unfortunately, these benefits, like all good things in life, come at a high price, with the up to 100% fare increase just around the corner.

The bottom line is that the privatization of the MRT is something that should happen, and happen soon, regardless of the who the "white knight" is. One of the keys to economic development is a well-planned and efficient transportation system, an unmistakable trait of the more developed economies in the region (Hong Kong, Singapore, Taiwan, etc..). Ultimately, it should be the government's responsibility to deliver such a system, but when the government is as stupid, greedy, and inutile as ours, we have no other recourse but to turn to private enterprises. Yeah, we may have to pay more for what is universally considered a basic social service, but in my opinion 30 pesos is a small price to pay for being able to avoid facing this at the beginning of each day.

Image courtesy of Hap

Is Now a Good Time to Invest in Stocks?

DEAR INVESTOR JUAN

Dear Investor Juan,

Hello sir, great blog! I'm new to investing, and I'm considering investing in BDO UITFs. Considering their great performance last year, I was wondering if this means there's nowhere to go but down from here? Sorry if it might seem like a stupid question, but I'm just worried that investing now would just be the equivalent of buying high then selling low later. Do UITFs work that way? Or would fund managers work behind the scenes by hunting and investing on low-priced stocks that can still go up, and keep this trend going?

Thanks and more power!

Anonymous


Dear Anonymous,

The most widely believed explanation for the great run which started in September of last year and pushed the PSEi to a high of around 4,400 in early November is the surge of "hot money", a huge sum foreign capital that flows in and out of local markets. The problem with hot money is that, unlike more permanent forms of capital inflows like foreign direct investments or FDIs (when foreign investors actually invest in real assets like real property, offices, and buildings or form actual businesses), the speed at which it can enter and leave markets can result in "bubbles" that can wipe out smaller investors when they burst.

In the last quarter of 2010, big foreign investors became tired of the slow recovery of the US from the financial crisis and the instability of financial markets in Europe, and decided to move a huge amount of capital from those markets to developing economies in Asia like the Philippines and Indonesia. Perhaps the strongest evidence that the rapid rise in stock prices in Manila in that period was due to hot money, and not because Philippine companies all of a sudden became more profitable and fundamentally sound, is that the same thing was happening to our Southeast Asian neighbors at the same time, sometimes at even at higher growth rates.

What has happened since December of last year is that these foreign investors have started to become more confident of the US economy, and so have decided to pull out of our markets and reinvest in US companies. The graph below clearly shows that since early December when US stocks, represented by the S&P 500 Index, have started to rally, Philippine (PSEi) and Indonesian (JCI) stocks have followed an opposite, downward trend.

So is now a good time to invest in Philippine equities, in general? Yes, I think so, since prices are now at a more sustainable level. Is it the best time to invest in equities now? That, I am not so sure of. It's possible that the outflow of foreign capital from the market will continue to depress prices, but I think it's highly unlikely; the actual performance and prospects of Philippine companies should be enough to justify the stock price gains last year and possible further increases this year. Also, the long run relationship between the US stocks and Philippine stocks is positive, so despite the inverse relationship we are seeing now, US and Philippine stocks should eventually move in the same direction.

As for your other question, yes, strictly UITFs are actively managed funds where fund managers can and should adjust the composition of the fund to maximize returns for unit holders (that's what unit holders pay the management fee for), subject of course to general constraints defined by the kind of fund (for example, 80% of equity funds should be invested in stocks and 20% in fixed income instruments, while balanced funds should have a 60/40 mix, or however the funds are defined in the fund fact sheet). But what actually happens is that UITF fund managers invest conservatively and, more often than not, just invest in large, stable, "blue-chip" companies, which is a good thing for investors, in my opinion, since it reduces volatility (big, sudden movements of the NAVPU) and results in funds that closely resemble the benchmark PSEi.

So go ahead and invest, Anonymous. Good luck. :)

7 Values that Make Chinese-Filipino Businesses Successful

STUFF I LEARNED FROM S. Gordon Redding's "The Spirit of Chinese Capitalism"

If there's one thing we know, one thing we are sure of, about business, it's that the Chinese are very good at it. If you take a look at Forbes' list of richest Filipinos in 2010, you'll find that 7 out of 10 are of Chinese descent. Ask anyone you know to name a successful businessperson, it's almost certain that that person will quote a Chinese name. And this phenomenon is not exclusive to the Philippines--we see it in other countries in the region as well, what with Dhanin Chearavanont of Thailand, Robert Kuok of Malaysia, Sudono Salim of Indonesia, just to name a few.

So it's not surprising to hear many aspiring entrepreneurs ask, "What makes these successful Chinese businessmen and families tick?" And with today being the Second Day of the Lunar New Year celebrations, it's as good a time as any to try to answer this question.

I say "try" because there is no one, clear cut answer. But one of the more popular schools of thought is that it's all about the culture--Chinese culture in particular--and the beliefs and values that come with it. And with that, let's go through this list from Gordon Redding's seminal work that can help us better understand what separates Overseas Chinese businesses from all the others.

1. Collectivism and familism. Among the Chinese, there is a greater emphasis on an individual's connections and relationships with others than the individual in isolation, and that the only essential and most important grouping within which this individual exists is the family.

2. Limited and bounded trust. Of course the Chinese know that the family is surrounded by people on the outside that it needs to coexist and interact with: an extended network consisting of relatives, friends, and business partners, and society-at-large, which includes everyone else. Within these two societal spheres, the Chinese follow a simple rule: trust family absolutely; your friends and acquaintances to the degree that mutual dependence has been established and face invested in them; with everybody else, no assumption about goodwill.

3. Guanxi or personal connections, which is clearly an offshoot of the two items above. It is widely believed that this network of connections is one important source of competitive advantage, an exclusive asset that Overseas Chinese use to get ahead in business.

4. Hsiao or filial piety. Absolute obedience to the father, the head of the family. It comes from a set of rules about deference that define important relationships within the family, with the five most important ones being (in descending order of importance): father-son, husband-wife, elder brother-younger brother, ruler-subject (or boss-subordinate), and as well as hierarchical distinctions.

5. Work ethic and hard work. In a society where each family is dependent on its own resources for survival, and where each individual is in turn dependent on family support for so much in life, the person who is not working as hard as he or she might for the common good will come under intense social pressure.

6. Money, frugality and pragmatism. Money-mindedness is often attributed to Southern Chinese, the regional group where most Chinese-Filipino families originate from. In these families, children are taught early to value money and not be easily deprived of it, and to bargain. Also, unlike in conservative Western thinking in the olden days, to the Chinese the pursuit of riches is seen as being respectable. Of course, historically, frugality is the result of "being so poor for so long" for many of the first generation of Chinese immigrants, and has eventually become a matter of pragmatism for later generations.

7. Li, or good manners and gentlemanly conduct. With the concept of collectivism and familism above, it results in the importance of "face," how the behavior of an individual may affect not only his or her reputation, but the social standing of the entire family as well.

One Year and Counting :)

Logo mock-up by my student, Gui

Who would've thought we'll last this long?

It wouldn't have been possible without the help of friends, old and new: all those who made comments, asked questions, and made discussions informative and lively (Tin, Henry, Jade, and Anonymous, just to name a few); all those who shared their experiences and wisdom with posts and contributions (Kat, Ange, Billy, Hap, and Sedfrey); all my friends, colleagues, and students for the support; all those who follow, subscribe to, and share links from this blog; all those who patiently spend a few minutes, nine times each month, reading my posts; and finally, my girlfriend who is always there to inspire and support me in every thing I do.

To everyone, my sincerest THANK YOU. Here's to another informative and prosperous year ahead of us...

...and a quick look at the year that has been.

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6 Things You Have to Know about Dividends and Capital Gains

PERSONAL FINANCE 101

Investors earn from investing in the stock market in two ways: first, by receiving periodic cash payments called dividends; second, by selling stock at a price higher than the purchase price, with the price difference being referred to as capital gain.

Here are some important things that you have to remember about dividends and capital gains.

1. Dividends tend to be more reliable than capital gains. If a firm has been paying 1 peso per share dividend per year in the last 10 years, it's highly likely that it will continue to pay this amount (or higher) in the foreseeable future. Capital gains, on the other hand, are highly unpredictable because of the inherent volatility of stock prices.

2. Dividend payments are announced several weeks before they are due. You can ask your broker to send you notices of dividend declarations, or check out the PSE website for such announcements (here is the last dividend declaration from Meralco (MER)).

3. To be entitled to dividend payments, you should own the stock on or before the ex-date. In the case of Meralco above, you should have owned the MER stock on December 22, 2010 at the latest to receive the 1.30 peso per share dividend. And yes, it's possible to own the stock for only one day and still receive the dividend.

4. In computing for the total percentage return, or proportional increase in value, of your investment, consider both dividends and capital gains, and all relevant taxes and fees. To illustrate how this computation works, here's an example of a recent stock transaction I made here in Hong Kong.

I bought 100 shares of the Hang Seng Index ETF (stock code 2833) at 233.20 HKD on October 29, 2010, and sold the shares at 243.60 HKD on January 14 of this year.

As you see, total buying and selling costs can be quite considerable, in this case around 1.2% of my investment.

A dividend of 2.60 HKD per share was announced a few weeks after the purchase, with an ex-date of December 17, 2010. Since I owned the stock up to the ex-date, I was entitled to receive dividends for my shares.

We can compute for the total return of my investment (total % return) using the following approach:

So I earned 4.34% or 1,017.18 HKD (230 HKD in dividends and 787.18 HKD in capital gains) on my 77-day investment. It may not be good enough for some of you, but it's definitely good enough for me.

5. Total % return = dividend yield + capital gains yield, where

I'll let you work out the math for the example above. You should get a dividend yield of 0.98% and a capital gains yield of 3.36%.

Unlike in the example, in practice, dividend yields are quoted on a per-year basis and excludes taxes and transaction costs. Since dividends are usually paid twice a year, the dividend yield quotes you see on websites like Google Finance and Bloomberg include both payments. 

6. In most cases, especially if your investment is not big enough, dividends won't be enough to cover taxes and transaction costs (in the example, 1.2% in costs vs. a 0.98% dividend yield), so in deciding when to sell your shares, you have to make sure that you have enough capital gains to provide you the return that you're aiming for, net of all costs.

Are Women Better Investors than Men?

Hilary Kramer, the lady in the video (whose main purpose obviously is to promote her website together with this "contentious" idea), starts with the following statements:

1. Women who are in the stock market outperform men.
2. The reason why there aren't many famous women investors (despite their investing edge) is that not enough women invest in stocks because they are fearful of the stock market and they don't understand how it works.

The statements are easy enough to believe, especially since Ms. Kramer keeps on talking about how research supports these claims. What I find hard to swallow is how these two contingent statements lead to an all-encompassing generalization that "women make better investors that men," with the most obvious point of confusion for me being how women can be better at something they are fearful of and don't understand (her words, not mine).

Anyway, Ms. Kramer supports her claim with these reasons:

1. Women know how to do their homework; they take a look at the macro picture. They are able to multi-task. Thus, they are more capable of coming up with a "deductive-reasoning choice."

In other words, women are more capable of looking at all available alternatives than men, leading to a "deductive-reasoning choice" which, I take, just means "more informed decision." I could agree with this point. We all know how a lot of women take ages to shop for one item, how they would not stop until they see "the one." Men, on the other hand, go straight to specific store in the mall to buy what they want; it's all really very simple if you go online first to look at the alternatives, then decide what you want to buy and where you want to buy it before you even step out of the house.

2. Women are very inquisitive; they will ask questions of others. They do not rely on their ego, unlike men who are egotistical.

Is she saying that women nag and men are so full of themselves? I won't argue against that...

3. Women in general tend to be less risky and they understand things like asset allocation and diversification. 

Yes, I am aware of some studies that show how women are more risk averse than men. But there's more to the diversification issue than risk aversion. She can't generalize that men would more likely be stock pickers than women, and that women would tend to hold more diversified portfolios than men. One cannot generalize based on gender, and even risk aversion, because ultimately, investment strategy is a matter of personal belief. Even practitioners, regardless of gender, don't agree as to which strategy is better: active portfolio management (stock picking) or passive investing (something you all know I'm quite biased for). 

4. Women will cut their losses. Women understand the longer term horizon.

I've lumped these two together because they contradict each other. A woman who has a long-term investment horizon would not care about short-term ups and downs, and would thus not "cut her losses" when the price of her stock goes down. 

In any case, selling when stock prices are down is one of the most critical mistakes investors often make; we all know that the only way to make money in the stock market is to buy low and sell high, not the other way around. The testicular fortitude, the guts to make a counterintuitive decision, like sell when everyone else is buying and buy when everyone else is selling, is what separates the rich from the poor, regardless of gender.

Enough about what I think. What do you think? Do women make better investors than men?