So I have found myself a new hobby, aside from accounting my family's expenses at the end of each month. That is, I will be reviewing my stock portfolio every month. Because of the nature of my job, I am not allowed to trade stocks on a high-frequency basis. I can only sell the stocks that I have bought 30 days later. I think this policy will actually save me from stress. That way, I do not have to worry on a day-to-day basis whether I need to sell my stocks or not.
I have decided to start investing in the Philippine stock market. Aside from my personal attachment to the Philippines (i.e., I am a Filipino), I have strong views on some segments of the economy that I would like to translate into an investment thesis. An economist might as well put her money where her mouth is!
My maiden/inaugural portfolio consists of 5 stocks: CEB, EDC, SMC, SSI, and URC. I have held this portfolio for a little over a week now and has earned 7.4%. It has even beaten the 3.1% increase in the PSEI since I bought these stocks (between 27 Jan and 5 Feb). If I get to maintain this record for a year (i.e. beat the average stock market return or still maintain positive returns during down times), I might as well start my own fund. Haha! Not that I can handle the stress of managing other people's (even my husband's) money.
Why these five stocks? I have four reasons.
First, five is a random number. There are at least 300 companies listed in the Philippine stock market. So to make my life easier, I decided to start investing with five stocks with more or less equal weights/value (stock price x no. of shares) in my portfolio. That way, I also need not have to think of how many shares I need to buy as I have already allocated 20% of my investment to a particular stock.
Second, I am risk-averse. I am afraid of losing a substantial portion of my initial investment. So I have to diversify my risk. That is, my portfolio should have a mix of blue-chip and non-blue-chip stocks. Blue chip stocks are those companies with solid reputations or are market leaders in their respective sectors. They are (relatively) safe bets as the companies behind these stocks are already seen as household names in the country and thus, have a very low chance of shutting down or even being unable to pay their loans. The price trend of these stocks are expected by many to rise steadily over time. Prices may drop in the short term, affected by broad-based negative sentiment stemming domestically or externally, but they are likely to maintain an upward trend in the medium to long term. These blue chip companies make up the Philippine stock exchange index (PSEI).
Then you have stocks that do not make the blue chip distinction and are viewed by many with relatively uncertain financial future. These may refer to those that are still at an early stage in the business and maybe perceived by some with substantial potential or these may be companies that have an unstable management, some history of loan defaults, among others. For these stocks, the upside risk may be substantial, but the downside can also be more than proportionately substantial. Just imagine the possibility of holding shares in a company that would eventually go bankrupt. But blue chip or not, bankruptcy risks remain. Take for example how much it would have hurt to hold shares of Lehman Brothers, a blue chip company, when it filed for bankruptcy in September 2008. The point is to manage the downside risks by putting relatively stable (blue chip) stocks in the portfolio and potentially increasing returns by adding some less stable stocks but with strong growth potential. And above all, only invest an amount that is less painful to part away with, in case severe downside risks materialize.
In my portfolio, I have three "safe" bets. These are SMC, URC, and EDC. My riskier bets are SSI and CEB.
Third, my stock picks basically reflect my view that the country's robust domestic demand - consumption and investments - will be sustained going forward. Strong private consumer spending is a pretty consensus view and that is why stock prices and earnings of URC and SM, among others, have grown over the past 5 years. But the market is still divided on the view that investment activity will catch up with private consumption. As for me, I believe investment activity will pick up in the country, even as real estate activities will slow down from higher interest rates. This is because investment activity will be driven by public sector capital spending. The current administration has that desire, despite difficulty to spend its annual budgets. And even if there is a lot of uncertainty with the next administration, I am in the camp that the next President would continue to spend more on infrastructure services (roads, bridges, power generation, etc) to make the country attractive for domestic and foreign investments which, in turn, could accelerate job creation and raise the incomes of many more Filipinos. After all, which rational country head would not do that when funding is not a problem?
In my portfolio, URC and SMC have clearly gained from robust domestic demand. As for EDC, I believe that robust domestic demand will translate into strong demand for electricity in that EDC will also benefit through higher earnings.
A leading retailer of international brands in the Philippines, I have long been meaning to buy SSI as I believe that the country's strong growth will eventually raise an average Filipino's income. Thus, an average Filipino will eventually expand its wardrobe from low-end to mid/high-end ones such as Bershka, Anne Klein, Kate Spade, to name some brands carried by SSI. Better earnings for SSI, in turn, would boost SSI's stock price.
My view on Cebu Air (CEB) has not worked to my favor thus far. CEB's price has been broadly steady since I bought it. I thought Cebu Air's revenues would gain pace from lower oil prices as they get more customers. At least in the stock market, this view has not played out well...yet. But I continue to believe this is likely to be the case and CEB's stock price is bound to rise going forward.
Fourth, the technicals of these stocks look favorable to me. By technicals, I look at how these stocks traded in recent years. If prices have steadily plunged over 2-3 years, I would see that stock as a good buy, provided it meets my macro view . For example, SSI's price has steadily plunged since it went public in October 2014. It's IPO price was Php7.50 per share but it had plummeted to Php2.45 when I bought on Jan 27. I may have bought at the bottom as its price has since risen 32.7% to Php3.25 per share as of Feb 5.
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| Did I just catch SSI's bottom? Source: Bloomberg |
Another metric to look at is the price-to-earnings (P/E) ratio, which gives a sense of whether the company is over- or undervalued. If P/E is still too high even if prices have already fallen, I would still not buy the stock. This was the case of a stock I have been wanting to buy because I strongly believe in the company. I am referring to MAXS (of Max's resto but also Pancake House, Yellow Cab, and Krispy Kreme), wherein its stock price has been on downward trend since last year but its PE ratio is still very high at 46x. So I have decided to forego buying MAXS shares for now.
My methods can be very simplistic but it serves my purpose as I do not intend to spend as much time in stock investing. But the earnings potential in the stock market is amazing! Imagine just spending an hour picking stocks every month and one could earn 5%. That is much better than annual deposit rates of less than 1%. Of course, there is no guarantee one would earn 5% (and I, 7% after 1 month). But definitely, the stock market could be one way to finance my holiday travels, eat outs, or remittances to family members.
I am happy to exchange views.
P.S. To be able to trade (buy and sell) in the stock market, one has to open an online brokerage account. There is a list of stock brokers in the Philippines here with their minimum investment and fees. My account is with COL Financial (formerly Citiseconline).
To open an account with COL Financial, follow the steps here (print and fill up the forms and send to COL). Make sure that you have your TIN (tax identification number) with you as it is one of the inputs in the form. COL will confirm your account through email. You will then have to fund your account by depositing in one of the banks stated in the link. In my case, I enrolled COL's account in my BPI account.
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