The 2 Stock Market Approaches that Most People don't know about [and how we can use one of them to evaluate a Solar Investment] - Part 1

A friend of mine once told me (I think this was late last year), "hey Jeng, nagsisi-taasan na ang prices ng stocks ah. Nakita mo ba?"

I thought, parang nasa consolidation pa rin tayo as far as I know [and the current bull run that we have today started just around January or Feb 2012]. So I asked her, "how did you know?"

She said, "nakita ko sa dyaryo.."

She said the price of this certain stock (I think she mentioned  SMDC) has hit the roof and is now approaching P20. She caught my attention because, as far as i know from my last check: SMDC is one of the stocks I was following, and it was playing at the P8-P12  range. It could have been nearly impossible that it hit P20 that fast. Plus, during that time, the Europe Crisis was still getting hot.

I asked her, "Are you sure about this?"

She said yes.

I asked again, "how would you know that the stock price has 'hit the roof'?"

She said, "thru the newspapers. She said, it's on the Philippine Daily Inquirer."

"Ok," I said, "so, how then would you know or verify if the  newspaper is indeed right."

She said the newspaper told so. The headlines says so. "Also, it's listed on a table were all stocks are in there and you will see the current stock price," she added.

I reiterated.. "Ok, from what I know, what's listed in there are the stock symbols, the current stock price, the 52-day hi and low." I  asked again, "so how'd you know if the stock 'hit the roof' & is trending up?"

"I guess, the 52-day hi & low?" She was getting a bit unsure of her answer.

I finally told her, you don't easily see that on the news. You have to dig in further. I told her, "All you see is a reporting of what's happened on the previous day of stock action. When you base solely on the news, you're gonna end up getting IN or OUT of a stock at the last moment."

"You've got to know when a stock is trending up or down, why a stock is a bit cheap, why we say it's going up or is reaching it's peak. Yes, you can easily see that on the news, but it's not the whole story. Because if you do, then all the other people who are reading it will jump in and get that stock."

Just imagine people basing on the news and acting on what they see on the news.

All sorts of people just reacting, investing with no solid knowledge or measurable strategy. They are following what has been stated by a newspaper reporter, who may not necessarily be a Market Analyst, Strategist, or maybe not even a stock market investor. People jump in on the stock, with all the craziness, people filled with emotion - with excitement. And then suddenly a smart institutional investor sees the moment and seizes it. It happens. Your hard-earned money: goodbye!

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What my friend was seeing in the news is mostly a reflection of only 1 side of the coin. When we talk about the stock market, we could say we have 2 main schools of thought or approaches - 1) those who look at the  perceived value of a stock based on the company's earnings and performance, which we call the "fundamental" aspect; and 2) those who look primarily at the movements of the stock price (using stock charting) to outline the performance of a stock, which is the "technical" aspect.

Who am I to say this? Am I an authority or certified analyst? Well, no. I am not a big expert (yet) on stocks, I'll be honest: I did gain some &  lose some, but at least I know the basics. And I try everyday to learn and expand my knowledge on everything about business and investing, including the darling Stock Market.

That is why when investing in stocks (or in any kind of business and investing, in general), I say, we also need to educate ourselves, do our own study, do our own research & readings. There are a lot of guys out there who can help. Bo Sanchez, whom  I'm sure a lot of Filipinos know about, has a blog at  "BoSanchez.ph". He conducts seminars regularly.

Let me show you a free e-book from Brother Bo.... "My maid invests  in the Stock Market". 
My Maid Invests in the Stock Market…

He is one of my mentors and I check on his blogs and seminars from time to time.

Also, my stockbroker, CitisecOnLine (COL) gives out trainings and seminars on investing in the Stock Market (which covers both the Fundamental and the Technical Aspect).

If you want to start looking at more aggressive options like the Stock market, I suggest you start with those.

Because I know, from learning from these mentors, that both the Fundamental and the Technical aspects are very important in determining stock price action, as well as in your decisions as to which stock or company you're gonna get invested in. How you could gain money on the stock market, or make it work for you so that you get earnings, or even passive income.

I'm not here to be very technical about this, and I'm also not gonna cover a lot about the Fundamental Analysis aspect.. but I will only show, again, the 'basics' of what they call Technical Analysis, or the scientific or organized study of stock price action.

The basics of Technical Analysis include:
- How to know if the current price that we see on the news is a good price (or, in terms of fundamental lingo, a "cheap" price) to get in
- How to know if the price is trending up, or down
- How to know if we are in a bull market, or a bear market (they say you are either bullish, or bearish - which is essentially the outlook or the risk appetite of the investor)

The topics in Technical Analysis is so wide-ranging, and I tell you -  it could be very dangerous if you only cover a few and not all of  the basics.

Just a disclaimer: what I'm gonna be showing you is just a few of  the basics, hopefully I can cover some others in later posts.

On the other hand, the "fundamental analysis" aspect, in it's purest form, is different in that it doesn't rely on charts and graphs. It relies on price-to-earnings ratio, the earnings of the company (say in the last 4 quarters, or the last quarter, or assessments in the 1st or 2nd half of the year), if a company is indeed earning something, does a company have debt or incurred some losses, do they have incoming big projects that could boost it's stock value, etc.

Here is a tool that fundamentalists use:

Yep. I know, it's a newspaper. It's a basic tool. But I'm not saying it's not important. All the data in there are very very valuable, if you know how to use it. I'm saying that sometimes, you don't get the whole story with a full-page listing of the current stock prices.

The main difference, now, is that Technical Analysis uses charts & graphs. It uses projections graphically, using charts to see and justify those projections. Some higher topics even use formulas, and Da Vinci codes (no, I'm just kidding; but it's a bit true because they have what they call Fibonacci retracements).

Here is a sample tool of what Technical Analysts use. This is what they call a "Stock Chart" (this picture is our current Philippine Stock Composites Index, or PCOMP, at the time I wrote this post):

Technical Analysis basically says the value of a stock (from what the Fundamentalists state as the perceived price or fair value) is already priced-in on the 'stock-price' which we can squarely see on the charts, meaning if the stock did not perform well fundamentally, say: it didn't earn last quarter or has incurred some losses, it will  show on the charts sooner or later. It will show that the stock price is gonna drop eventually.

That a movement on the price has some sort of a justification. Like for example, if a stock has suddenly moved up for no apparent reason, so that even fundamentalists can't explain it (say, a mining company just moved up so quick). Be careful because sooner or  later that price is gonna drop. Nothing can sustain a momentum if that momentum has no substance.


Wow. I didn't realize that it's gonna take that long for me to explain things. But I just wanted to let people know that I want to be careful in describing abstract or intangible things, because I don't want to be an  irresponsible writer who will get the ire of people. I want to explain the things I learn from my mentors as best as I can, and in the language that I know.

I consider myself still starting at business and investing, although I've been doing stocks for about 2 yrs already. I can be wrong at times (especially when I get to state some stocks which I  think would be good to pick - if that happens in the future), but it's important to point out the things that already have a foundation, or, like what Stephen Covey says "a map of the reality, not the territory" - those things that are based on  principles and are widely-considered as true, correct or objective. Just like the 2 schools of Stock Market Investing.

You can either be a pure fundamentalist, or a pure technical analyst. You can have balance between the two (which should be the correct way for most people, I should say - especially for those who are still starting & learning, or those who prefer less risks or those who have low-risk appetites or preferences), but these two are totally distinct and different approaches to Stock Market investing.

Sorry, I don't have anymore time for now. I will continue with this tomorrow, or as soon as possible, and try to evaluate the stock market (based on what COL has presented last night on their 2012 Stock Market Outlook), and how, like I said before, we will try to see Solar Systems as possibly a profitable investment - or may be a safer investment than most stocks, using charts analysis.

A Personal Study of our Home's Meralco Bills

First-off, I'd like to state what I've said on my last post, wherein I have promised to give you a sort of a comparison between investing in Stocks and investing in a Solar system:

“On my next post, let’s try to see how a Solar Investment can perform better than most stocks – using stock charting and comparable technical analysis.”
- 4 Reasons why Solar Power is the Next Generation Investment in the Philippines

I haven’t forgotten this, in fact I am still currently reviewing the current stocks performance of our Philippine Stocks Market at this time – and also I will be going to the 2012 CitisecOnline (COL) Market Outlook: "Get a Grip on the Market Insanity" tonight to get more info, so I may present it better. This will give me a better outlook as to the current situation of our Philippine stocks.

For now, let me give you a private study that I just conducted, based on the monthly electricity bills that we’ve had at home over the years. Please read on.

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Sometimes, the most unsuspecting recurring charges that we incur from our monthly or utility bills are the ones that are costing us the biggest chunk of were we could get our passive income.

Let's take for example our electricity bills.

Imagine how much your electricity would cost in a few yrs. Let me give you a sample: I have here a rundown of our electricity bill at home since around 2007 (yeah, I know.. I am junkie. I happen to keep utility bills in a folder).


Date: Sept 2007
Total kWh: 339
Amount: P3,206.65
Amount / kWh: 9.46
Ave Usage for 12 mos:
392 kWh/mo
127.16/day

Date: Feb 2009
Total kWh: 339  

Amount: P3,186.85
Amount / kWh: 9.40
Ave Usage for 12 mos:
396 kWh/mo
125.63/day

Date: Apr 2009
Total kWh: 415  

Amount: P4,375.70
Amount / kWh: 10.54
Ave Usage for 12 mos:
396 kWh/mo
126.16/day

Date: May 2009
Total kWh: 485
Amount: P4,693.20
Amount / kWh: 9.68
Ave Usage for 12 mos:
398 kWh/mo
126.10/day

Date: Jun 2009
Total kWh: 543
Amount: P5,066.80
Amount / kWh: 9.33
Ave Usage for 12 mos:
409 kWh/mo
129.68/day

Date: Dec 2011
Total kWh: 198
Amount: P2,114.25
Amount / kWh: 10.68
Ave Usage for 12 mos:
354 kWh/mo
131.97/day


Here is a summary of all the rates in a spreadsheet format, showing the amount and total kWh per month, since Sept. 2007 until Dec. 2011, which are the bills that we have for now on our home files (it's incomplete, as I can't find the other bills that I've had placed in a folder).

Now, here is a summary of those rates in a Chart:

The yellow line on the graph shows the movement of the Rates or prices of Electricity per month.

Disclaimer:

This is a personal study. I am not a Statistics major, although I only know a few based on my experience as a Project Manager / Reports Specialist on my previous job. This may contain errors, but I tried to present the best way I can, as objective as I can, with the knowledge that I have. If anyone is willing to help or provide feedback especially on mistakes, please help me correct them so I may present better and more objective data. The truth is, all of these data came from our Meralco bills.

The data, I have to admit, is a bit inconclusive (primarily due to the incompleteness of data). I was hoping to see if the rate inflation is increasing at a steady rate, but if we base our findings from here… I find that the rates are a bit unpredictable!

Which is all the more frightening.

Because, the price is fluctuating every month for some reason. There's no uniformity. And we don't get to see it easily until we get a closer look. On some months, the rate is higher. On some months, it's lower. It's like the crazy circus oil price hikes that poor rats (sorry, it's just satiric play) like us are subjected to every now and then.


Now, I don’t know if what I did is correct – but I computed for the rates for the Amount per kWh, by getting the Amount (Amount on the Bill) and divide it by Total kWh.

Here is the basic formula (using basic math):

   Amount (Bill Amount)
---------------------------------     =    Amount per kWh
          Total kWh

Now, here is a computation of the average amount, as well as the total amount generated for at least 4 years.

Ave Amt: P4,249.07 

* This is our ave. monthly bill, based on the spreadsheet I've shown above.

Sample:

# years: 4

# months: 48

Total:

P203,955.20 

     * Ave. Amount x Number of Months

If we base it on the average expense of our home, which is P4,249.07 (say, from Sept 2007 until Sept 2011).. this means we’ve already summed up around P203,955.20 in just 4 years?

Wow.

So this is the price of electricity in modern Filipino times. And I didn’t even know or realize it. Absolutely - nothing is free. In just 4 years, we’ve consumed and spent 200k worth of electricity!

That would have been a franchise fee for a Bayad Center or a reputable Foodcart business.

If we only knew, saving electricity and using less power consumption, then investing this amount of money in stocks, mutual funds or in a business would have gone a loooooong way.

Which is the next topic I am going to talk about, as I have promised before.

Stay tuned for my next post, which is using stock charts & graphs to see if a Solar System as an investment could outperform or is at par with the stocks in the Philippine Stock Market.

An Advice from a Mrs. Ferrer

I was waiting for a jeepney ride, standing on a waiting shed in front of Ateneo. I just came from a mtg with my  business partners, discussing about Solar.

It was starting to rain hard. To make matters worse, I forgot that I don't have an  umbrella with me. Poor me, I left it at home.

A lady was there beside me, waiting for a taxi together with her grandson, whom I presume is studying or going to prep school at Ateneo.

When a taxi finally came, she found it hard  to carry her grandson's backpack / stroller  into the taxi. So I naturally helped her as  she looked at me like she was asking for  assistance.

I wasn't asking for a return of the favor.  But she begged me na sumakay na rin daw ako  sa taxi. Kasi daw inalalayan ko sya sa  pgsakay nung bag ng apo nya, that it's just  ryt kung maisakay nya ko and then along the  way ibaba nya ko kung saan ang sakayan ko. I  thankfully accepted the invitation.

We had a short chat. She asked if i working  daw. I said i just came from a bisnes mtg.  She asked wat my business was, and I replied  with a smile. I told her we have a Real  Estate cmpy, as well as other businesses like  Solar Energy. But i said I am still starting  as an entrepreneur. She said nasa Real Estate  rin daw sya, but not in the usual way - she  said she owns & rents out apartments in the  University belt. She said ngpaayos daw sya ng  kotse nya kaya ngayon ngtaxi muna sila. I was  amazed that at her age, sinusundo p nya  grandson nya. Around 50's na cgro sya.

She asked me what's the state of Real Estate  and i replied it's booming now, pero marami  kumpetensya. We had quite a chat about  business, about wat we both do for a living.  Then she asked, "u know wat the best business there is?" She said, simply, it's "Food business."

I asked why. She said, with no hesitation,  "becoz everybody eats." Hindi pwede d k  kakain. Tinanong p nya yung taxi driver, "d b  mamang driver.. D pwede d ka pwede  magstopover minsan at d kakain?" Kaya daw  kahit mga maliliit na carinderia lang  kumikita p rin kahit papano. Above average  profits p nga daw kadalasan.

Come to think of it. It makes real sense.
U can make good bisness with a product that  ppol rly needs, that ppol are rly using or  consuming everday.

This gave me an "A-ha!" moment and shed light   into one of my businesses, which is my  prepaid loading business with Vmobile (and  the Solar Energy business). It feels right,  and i felt like God is answering my prayers  to continue on serving & working on the  businesses that i bliv in.

After that i had to go down at Philcoa. I  gave her my calling card, and she said her  name is Mrs. Ferrer.

I braved the rain. Basang-basa ako pero sakto  rin sa me babaan ko, me bilihan ng payong. I  felt like I was put there for a reason. That  all that just happened meant something, and  that there r no coincidences. That God may be  telling me, he answers all my prayers, for me  to be brave. To be strong. That he has given  me a message.

God bless u, Mrs. Ferrer. Kahit d ko po kyo  kilala, u gave me somthing to ponder on. Some  bits of street-smart wisdom from a fine &  typical Filipino Lady of her age.

:)

What have I done today that's related to Business or Investing?

A Business Journal Entry

I met with Layla (not her real name, for security reasons) today and discussed about the prospect and the possibility of doing business or "partnering" with her on her Solar business. We met at 3pm earlier.. I originally asked to meet her at 2:30, but I came in late - how shameful of me - because I went to BPI Bank to withdraw some cash, but surprisingly I met Mac (who was my office-mate and best friend) there. Plus, an amazing thing happened - the BPI guard whom I regularly chat with whenever I go to their bank, asked about my conversation with Mac (which was totally unintentional). He overheard us talking about our cellphone loading business, and so I had to chat with them (good business!) even if I am already running late on my appointment with Layla.

The great thing is that I finally discussed with her the SOLAR aspect of the business "empire" that I dreamed of building. (Apart from the Real Estate corp that I co-partnered and built with some friends, I could adopt or feature a GREEN advocacy towards my business or businesses - which I've always thought of as the righteous thing to do or what people should be doing to care for the environment. And yes, I'm a big dreamer - I'm afraid my mom would knock at my head and bring me back to "reality" when she hears me -- well, I love my mom!). But would it really matter if you tried and failed - but deep inside you only had good intentions and good dreams (the "save-our-mankind" type of thing) for yourself and others?

Anyway, back to my story. Layla and I talked for about an hour and a half. Layla was a bit sad when talking about her sister who just got recently diagnosed with a severe illness. I really feel guilty for somewhat pushing her to talk to about our business, despite her condition. I just thought that this is also for her, and that I really wanted to help, in a way. It's just sad - for anyone to go through a situation like hers. She had to take care of her sister because, as she has said - she's the only one in her family who isn't into office work but into business. I felt relieved though when our talk shifted onto business. Pretty soon, our talk was lively, exciting, and filled with hope. Our minds met immediately and "in sync" with the thought of the great ideas relating to business. I made sure I listened with full attention, and being intent on getting all ideas to sink in with the small time that we both had. Our meeting was a very fruitful one.

Finally, after my walk at the mall (I had errands to do), I had a short (or was it actually lengthy?) talk with my cousin Tonton, who's currently living with us for the time being. I really enjoy listening, chatting, and learning from this promising young man! He's very passionate in learning a lot about his work. He shares and tells stories with great zest and appeal, and talks convincingly - and with such integrity - that I feel like I want to buy anything that he offers to me, even if he is just relating to me his experiences at work. One very good thing about him is that he is a MAN of ACTION. He's very much driven to succeed. He's filled with sincerity, humility, and willingness to share and learn everything about his job. He is purpose-driven. He's hard-working and very much contented with his work at a local sales / advertising company.

If I am to be successful at the company we built, I should emulate him. Even at his young age, I could learn a lot about his efforts and his perseverance.

I even felt a bit ashamed of myself, or maybe envious, or mesmerized - at how he learns so fast, how he embraces the very hard challenges and pressures that comes with his work - even if it's hard for him. (I should know! I worked as a insurance & book salesman before and found it really hard - I decided then that Sales was not for me. I learned the hard way that it was actually the way I should go if I really want to be successful in life and reach my dreams.) He relates to me all the he has experienced, all the hard work that he does. He shares to me in vivid details how he approaches his prospects or clients, how he goes to a building armed only with sheer determination and faith. The astonishing part here is that he does COLD-SELLING! Can you believe how hard would that be? It's not even telemarketing where you are hidden behind a headset, where your clients can't see you. Although I have to admit, their products are great. If you have such a great product to sell, with great benefits, you should always forge ahead and be not afraid. Sometimes, I even feel like joining him at his work - just to LEARN firsthand more about sales, get on through with their rigid training, learn about their brand of strategy in marketing. The experience, the hardships, the learning -- all these would be INVALUABLE!! As the saying goes... "Pressure creates diamond out of stone." My only problem is that it's gonna be a full time job. Although I will really get to learn a lot, learn first-hand how to sell to strangers, how to market in odd circumstances, be forced to do things outside my comfort zone, be driven to succeed. To get REAL TRAINING on how to sell, to advertise, to market. I'd love to try that if I have the time. (But who says I can't try it with my businesses? I have my mentors and books. I have to admit though, there's can be no substitute for experience - direct TRAINING is still very much different.)

It's a good thing that Ton is still young, his mind is still very much focused on learning and growing at his professional career, and that he has a great attitude towards work and his humbling conditions and beginnings (he is the breadwinner for his family - his father died a few years ago).

At a very young age, after all that he's gone through - Tonton remains humble, kind & generous, child-like, and very much determined. I could absolutely say he has the RIGHT MINDSET. And that is why I'm proud of my cousin.

I should learn from him. And so it is, too, with Layla - who works very hard establishing her business. I should surround myself with people like them who has pure heart. Who has uncorrupted minds. Who has unbelievable character.

These people are simply LOVABLE. Who wouldn't want to like them? I should emulate them. Just like how the nurses at St. Luke's Hospital treats visitors and patients - in a great great manner, with such an amazing politeness and tact - and a extremely friendly and comforting smile! You wouldn't even feel like you are in a hospital. Or, rather, you would be amazed to think - "there's a hospital her in the Philippines like this?" It feels like home. It feels horribly like heaven in there that you'd want to stay sick. Everyone wants to be treated genuinely with respect and love.

This is exactly what our country needs.

Well, I would love to talk more. But I have to rest and sleep now. God bless all the people I've met and talked to today. God really has his ways of answering prayers. He answers you directly and straightforward. He talks through the pure hearts of the people who cared to have a genuine chat with you. If only you would listen - but listen carefully, both with your mind and with your heart.

So it's a good thing - even in business, not just in your social life, to have an open mind and to share the abundance and the blessings.

God bless!

May you have a prosperous New Year ahead - as well as a business or an investment (invest in your financial literacy first!) that would be a blessing not only to YOU, but to all whom that your heart may touch through all the SUCCESS that I wish you would have!

Jeng
1/4/2012