Let’s Meet by Accident

Let’s Meet by Accident

Meet by accident? … Accidents are not being planned, are they? Accidents happen by chance. Maybe they had been predestined, but the time and place and the circumstances by which they are going to happen are not known to the would-be participants.

So, how do total strangers “plan” to meet accidentally for the very first time? Well, they do not and they cannot. But they can prepare to meet a total stranger by accident if and when it actually happened. And why, you may ask, should we prepare to meet strangers by accident? The reasons are varied. It depends on where you are coming from. But the kind of meeting I am proposing here is the pleasant kind. Not the armed to the teeth, with guns blazing kind.

I thought of this idea while I was driving at snail’s pace along the South Luzon Expressway. Yep, “snail’s pace” and “Expressway” in the same sentence.South-Luzon-Expressway

Stay in the Southern part of Manila for two days and you will understand why seeing those words in the same sentence is a common occurrence here these days. But there were other reasons last Friday. The reasons being two minor accidents: both fender benders. And the incidents happened just about a hundred meters away from each other.

Normally, minor events like that do not merit being written in the papers or in the electronic media. Their rightful place is in some police blotter or court dockets – if the parties involved happened to be indefatigably troublesome.

I am spending precious time writing this because those two accidents are a study in contrast. Something that might save a poor soul somewhere should a driver or a car owner whose’ conscience is still recoverable happens to read about this.

The first incident involves two (2) SUVs of different brands and make. A brand new Fortuner, and a two year old Tucson (if I am not mistaken). Apparently, the former smacked the rear end of the latter (they are still positioned that way when I passed them by).

These SUVs are both driven by female drivers who both look professionals. Anybody passing them by cannot help but notice the amicable discussion they are having. They have to wait for a cop for a formal investigation (documentation) of the incident but you can see that they are already exchanging telephone numbers and other pertinent personal circumstances. Obviously, they are going about their business in a very civil manner. I wouldn’t be surprised if after everything has been settled, those two will end up as friends.

The other incident about a hundred meters away from them involved two cabbies from different companies. The drivers were not yet strangling each other but they are in a rather heated argument.

Given these contrasting images, where would you rather be?


Oh, I have a third scenario where I don’t think anyone but those who would like to have a kiss with death would rather be.

The third scenario which happened a few years ago here in Manila did not have any heated argument but neither was there an amicable discussion of differences. An armed driver who felt slighted when another vehicle overtook his SUV rather brusquely just pulled his gun from his waist and started firing at the vehicle that is now in front of him.

A number of those inside the other vehicle either died or were seriously wounded including an expectant mother who, at that time, was just days from giving birth.

I bet that gunslinger didn’t intend to hurt the unborn child and the mother, but because most drivers thought that everyone on the road is stupid or a moron, save himself, it is alright to annihilate everyone else so he can proceed in his trip.

Now, think of the possibilities those two professional ladies will be opening for each other after they have gone past being strangers…

In the meantime, can you guess if any of those two cab drivers will be spending a couple of nights (years?) in jail?




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Walk on water, anyone?

Walk on water, anyone?

I am not turning religious on you. I know this thing about walking on water has some biblical beginnings, but we are not going there. We are still talking about making money here. And we are not including the use of voodoo or any kind of magic.

Staying afloat (financially) in times of hyper inflation, contracting businesses, slowing economies, etc., though, is pretty much like walking on water, isn’t it? You need a lot of faith to be able to do it. I said “I am not turning religious on you” so, while I believe that there is an Omniscient Supreme being up there somewhere (or everywhere), let’s leave that discussion to others. Let’s focus on the faith in what we do – us human beings.

We shall avoid the terms: probability, variance and covariance, correlation, coefficient, standard deviation, etc. as much as possible. But we will look at Markowitz modern portfolio (theory) and see what we can find there. Never mind that his “modern portfolio” was theorized (conceived, in the 50’s) even before many of us were…well, conceived.

To quote his theory; “Market Portfolio is the portfolio that includes all risky assets, not only local common stocks but includes non-local stocks, bonds, options, real estate, coins, stamps, art, or antiques…”

I am a newbie, and I cannot afford an extensive portfolio like that (which in my mind would require my own minting plant to acquire) so, I’ll just pick up a thing or two. I’ll go for the bonds and maybe some real estate (then I’ll turn a bit religious in my own private thoughts and pray that they keep me from drowning).

Stocks and bonds move in opposite directions and that is why I am taking bonds during economic down turns. That is not to say that I will not take bonds when my stocks are earning. If I can afford both, I will buy both, anytime, but with a heavier weight on what is favored by current economic trends.

Let me try to pare some more “Greek” words from that statement. Of those two investment instruments, stocks beat bonds by a mile when economic conditions are good. So when everyone is singing praises about “how wonderful our economy is”, I will try to position with more stocks. When the economy sucks, I will dump the stocks in favor of bonds. But there is a nice way of doing this and it is not as simple as it sounds (you have to know how and when to dump the stocks and when and how to buy the bonds).

Moving on…
As already stated, you go for stocks in good economic conditions because it gives you more earnings compared to bonds. Your bonds are also giving you a profit during good times but it pales in comparison with what stocks can deliver.

In the office, we do believe that any percentage of zero (0) is – Zero! Now, our office do not deal with numbers (it is something that almost everybody tries to avoid there – like plague) so chances are that we are wrong. But no matter how we try, we cannot get a number higher than zero by extracting any percentage from zero. It is always zilch!

In bad times, when zip is all the profit you get from your stock market investments, those anemic percentiles that bond issuers brag about during good times don’t look that bland at all. In fact, that’s where many scared people go to every time the road to stock market heaven starts to get bumpy.

If you are able keep your eyes and your ears open during market downturns, and your senses (and innards) are not paralyzed by fear, or you are not too busy panicking, you’ll notice that bond prices are climbing uphill while stock prices are sliding downhill.

Believe it or not, nothing beats having a good idea on how the stocks and bonds and everything else work if you are not too chicken to find your money this way. Don’t depend one hundred percent, on anyone, to tell you how to make that money. Exercise your eyeballs. Get the hints, take the advices, but on top of those, READ!

And to be able to keep your head above water in times of crisis, read about bonds. Learn how to make a good yield.

Among the things that you need to know is why, unlike stocks, you make less money from bonds when its prices go up and earn more when its prices go down.

It might likewise be nice to know why some of those bonds that claim to give you higher yields are the ones that might not give you anything at all, and may even take your capital away.



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Why Invest at all?

Why Invest at all?

If you are earning a US $100,000.00 annually, it’s probably easy to understand why you would not bother to invest. A person who is earning that much always has the possibility of earning even more. So, if you are like the guy who had seen his income progressed from say, US$40k to US$1-M annually, within a period of five (5) years, you probably have the right to think that your income will continue to grow substantially in the coming years.

That is, unless you committed a fatal mistake and got fired midway on the sixth (6th) year. What happens now, if the mistake you committed caused you to lose your credibility to do the job you are so good at that they are willing to pay you up to seven figures?

Well, it’s back to the gutters again isn’t it? But none of the high flying, nose thumbing, Ivy leaguers who climbed up the corporate ladder fast would think that their feet will be touching earth again any time soon. Maybe they are right. Maybe they are not so right.

A former New York Stock Exchange president, Richard Whitney, went bankrupt and even went to prison. Charles Schwab, former president of the largest US Steel company died a pauper. Now, did I hear anybody say that his future is guaranteed?

Oh, of course, there are people out there who have so much money they don’t even feel that the prices – of practically everything – are rising. But how many of us are like them? Okay, you’d say: “sure, we cannot all be Rockefellers, or Rothschilds, or Gettys but why not just save or stash away the money in a safe place? Why invest at all and put your money at risk?

Maybe putting your money at risk makes more sense if you still don’t have a barn full of them. But while they may differ a bit, the reasons why you have to invest your money are almost practically the same whether you have a hundred tons of them or just a few pounds of them. You have to keep your money growing. Otherwise, you are bound to lose them.

Why? Because of this word: Inflation.

If you are like me whose first mental picture of that word (inflation) the first time I heard it was a big blank wall, let me try to change that picture. Imagine that you built a wooden house in a farm where the soil was not treated with chemicals used to kill insects. If you look at your house immediately after it was built, you will see a house that is sturdy, maybe even magnificent, and you are sure that it will stand the test of time.

Maybe you built it so strong that no matter how many cyclones and hurricanes visited it, it will remain standing. And maybe it can really withstand even the worst of whatever the ever changing climate cast on it – at least until the Termites move in.
Termites, in this little portrait of ours, would be the pesky “inflation.” The sturdy house would be the money (no matter how much or how little) you have. Inflation, like termites, never sleeps. They just keep gnawing away, sometimes in tiny microscopic bites, at times in bigger chunks. Well, okay, they always bite teeny weenie bit small but keep ignoring what they are doing and you’ll soon see how big a destruction they make.

Termites, to our “techy” friends who may not have had the chance to see them in real-life (due to the proliferation of insecticides and construction of concrete buildings) are like some of those computer viruses that erase your files bit by bit that, as of yet, has no known cure. In fact, it is worse than that. In a matter of months or even weeks anti-virus companies usually come up with a program that can delete, if not repair, a file that has been infected with the worst kind of malwares.

Whereas, inflation has been there since time immemorial and it is still there. Strong and well, alive and kicking, nibbling away…the value of our hard earned money.

How do we fight inflation? I’m not sure we can if by fighting we mean that, after we have defeated it, it will not longer pester us. It will continue to affect our finances for as long as we live – and even after that.

The only thing we can do is to deal with it.

We cannot deal with it by just putting our money in some savings account in a bank. That would be like trying to avoid being run-over by a bullet train by lying across its railways. Okay, I don’t mean to be gory but… banks just pay too little interests and, worse, the government gets the first crack of whatever you make there in the form of taxes!

Some studies have shown that during normal times, inflation averages around 3.5% annually. If your money is not earning that much, after tax, in a savings account, in normal times, you are actually not saving money. You are losing it to inflation. Now, consider a time when the price of oil and other commodities are racing towards the other galaxies! Inflation would be what, 6.5% to 7% annually?

And don’t even think that is the worst inflation can do. In some countries, depending on their political and economic conditions, inflation figures are the ones shooting thru the roofs! Some real horror stories tell of a situation wherein you need a cartwheel load of money to buy a tiny loaf of bread. What if we are caught in that kind of situation and we don’t have a cartwheel load of money?

Oh darn, I almost forget, a cartwheel load of money can only buy a tiny loaf of bread… once!!!



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Money and the YOU factor

Money and the YOU factor

You may call it luck, deductive, intuitive or whatever power you may possess to see the future, but the “you” factor is an important ingredient, along with professional advises, in arriving at the right decision on what to do with your money – especially if you want it to grow.

To elucidate, let us go back to the latter end of 2007. The setting was an auditorium in a campus inside the Global City in Makati, Philippines where I and some 37 other participants (which include employees of Thomson Financials, lawyers, brokers, and a whole gamut of other professionals) were attending a seminar.

The lecturer is a renowned economics professor who teaches in the country’s leading institutions. At this particular instance, he was talking about macro-economics and the discussion went from the Subprime mess in the U.S. to OFW remittances and the weakening U.S. dollar.

He spent a good portion of his time talking about the reasons why the value of the U.S. Dollar is falling vis-à-vis the Philippine Peso and other currencies and why this is good for the real estate sector of the country.

He was so convinced of the gathering strength of the Philippine currency that he suggested that if any of the participants has a substantial dollar based holdings, that participant should start considering converting that asset into something else – preferably, Philippine Peso based.

From P56 to $1 sometime in 2006, the peso has already appreciated to about P44 to $1 at this time. Big US financial institutions, even the UK’s HSBC were projecting the Peso to breach P40 = $1 exchange rate. That, plus the fact that the U.S. Federal Reserve was highly anticipated to cut down rates to fight an impending U.S. economic recession, convinced everyone that it was indeed a good time to think of divesting U.S. Dollar based assets. At least, lighten up the load.

The presentation was so compelling that nobody dared to question his facts. Everybody was intently listening and to a point, hanging by his every word. He already has everyone’s attention, but perhaps to make the discussion even more fascinating, he posed one tricky question, he asked: “If your company has a long term US Dollar loan, given the present economic trends, will you borrow Philippine money to pay-off your long term dollar loan or will you just continue to service the loan until it matures?”

If you are a mathematical genius, or an economist, or a Harvard business graduate or whatever kind of higher form of animal that eats, drinks, dreams and breaths numbers, it will probably be easy to be confident about giving your answer. No wonder, nobody even squeaked.

Noticing that all the participants became very silent, the professor presumed that everyone was in agreement with him. Then, he said: “Exactly! Who in his right mind would think of retiring a long term dollar denominated loan at this point?” Well, apparently, nobody. Except for one guy who didn’t quite get that part where the economic professor referred to “his right mind.”

So, just as the professor was finishing his statement, in a very silent auditorium, this moronic guy blurted out, “I WOULD!” And it was rather loud, too.

The professor was, naturally, aghast at the gall of the participant who obviously does not know anything about economics but had the temerity to oppose his views. He was walking towards the other direction while he was speaking, so he turned around to see where the offending voice came from…

Without wishing for it, the guy was suddenly the focus of everyone’s attention! “Please mister, tell us why you would do that,” the professor asked. (The guy has an answer. He wasn’t really sure how low the dollar will fall against the peso, and if it did fall really low, he is not sure how long it will stay that low. The loan is long term, after all.)

But blushing profusely (after realizing that the question was actually negative – he thought the question was only: “who among you would retire a long term dollar denominated loan at this point?”), the guy mumbled in response some incoherent words that only seemed to prove his ignorance of the current economic conditions.

All of the participants paid dearly to attend that seminar so, after proving to all and sundry that he is still the one in control of the discussion, the professor let the guy off the hook immediately.

But the guy still looked so stupid because everybody at that time thinks that the peso will appreciate to about P38=$1.

Back in his office, this guy imparted to his superiors what he had just learned. He recommended to them to lessen their dollar loads and to perhaps go a bit heavier on the Euro.

As most recommendations go, his went unheeded and the dollar, over time, went down to P39=$1. As 2008 ushers in, the most senior of his superiors who was present during that office discussion was complaining that he already lost the equivalent amount of a decent brand new car because of the strengthening peso.

By this time, however, he can no longer follow the recommendation because he already lost a lot. He figured that his best bet would be to keep the dollar, let it sit for as long as it takes, so he can recover some of its lost value. He knew he cannot recoup all the losses, and he knew he will lose some more on the cost of keeping his money idle and maybe a few more cents on the dollar that will be eaten by inflation, but at least he will still have some recovery.

And true enough, by around April of this year (2008) the US Dollar is already inching on the way to recovery. It still has not gotten back to where it was in 2006, and it probably will not recover fully to that level, but the senior officer is already feeling good that just a few days ago the dollar has rebounded back to P43=$1.

What did this make of the “moronic guy” then? Well, none of his co-participants will probably realize it, or even remember of the incident, but had he decided to pay the dollar denominated loan at the time that he said he would, he’d possibly ended up paying it at the point where the exchange rate was at P39=$1 and he would have saved his company a lot of money.

If you summarize this story, you would notice that both the “moronic guy” and his most senior superior received the same advice. The guy was given the “advice” not to pay the “loan” because the dollar was going down, and the superior was given the “advice” to lessen his dollar portfolio.

Both of them acted as they see fit; both of them were wrong and yet, in the end, both of them were right.



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Making Money Upside Down

Making Money Upside Down

First, a warning: The way the preceding discourse is going to be presented may look like a desperate attempt to sound funny. The presentation is reflective of the way the author, at times, perceive things around him. But the money that you will make, if you are able to put the ideas into proper perspective, is real. Now, consider yourself warned.

There are reasons why a neophyte investor cannot help but scratch his head or guffaw at the thoughts flashing in his mind (of course, what is funny to one may not be funny to others) while digesting the lessons gleaned from the vast repository of knowledge of veteran financial advisors and gurus.

Let us start with the richest of them all – Warren Buffet. He has a set of rules for making money. Rule Number 1. is never lose money. Rule Number 2. is never forget rule Number 1.

Now, if that does not make you smile I suppose the other lessons won’t either.

But let’s go on as we are reaching the point where I believe there will be some head scratching… Again, a word of wisdom from Mr. Buffet: “Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.”

John Templeton suggests that one should: “Invest at the point of maximum pessimism.” While George Soros thinks it is fine to commit mistakes. He says: “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

I don’t know if you are already scratching your head, but when I first ventured into this business I began scratching mine even before I encountered those words. (Say, what?) Well, you know, I kinda prefer seeing the solutions even before I recognize the problems.

Let’s try to put all that into the context of this discussion. If you subscribe to fresh studies that say that the modern man has retained survival as his primary instinct, how do you expect him to follow John Templeton’s suggestion to: “Invest at the point of maximum pessimism”?

That statement conjures an image wherein everybody is scampering for cover. In that situation, our primary instinct would tell us to run! Get as far away as possible from whatever is causing that “extreme pessimism.” The market is crashing down, so you better find the door fast and get your hides out of there in half a shake!

Yet, while it may sound inconsistent with Warren Buffet’s Rule No. 1, you may actually have to stay there, follow John Templeton’s advice, grit your teeth and keep breathing Buffet’s Rule No.2.

Uhh…how’s that again?
Well, see, that is why in treading the trading floor of the securities market you sometimes have to walk with you hands, feet and butt up, and your face kept a good distance from the ground. Doing what everyone else is doing can make you forget Buffet’s Rule No. 2 and lose you a lot of money.

If you still have doubts about what you should do in that kind of situation, let’s pluck one more wisdom from the World’s Richest man (Buffet). He said: “A public-opinion poll is no substitute for thought.”

Would you expect a man who thinks like that to go with the crowd?

Nope. Once in a while, in this world of upright and stiff moneyed individuals, you have to look at things upside down. Buy when everybody is dying to sell – and sell when everybody is killing to buy.

Logic would be easier to come by if you just stop for a minute and think who would be your buyer – if you sell when everybody is selling (and nobody is buying). While on the other hand, think how much you would be forced to pay if you buy when everybody is buying (and only a few are willing to sell).

If you’ve got that, let’s move on to the next.

Our first situation above presupposes an extreme condition when the market is on a free-fall with the bottom practically taken out – meaning, nowhere in site. (Scary stuff)

The next situation is a condition wherein the market is so fickle-minded it can’t decide which way it is going. One day it is up, the next day it is down. And sometimes, it is making wild fluctuations (moving up and down several times) all in the same day. An unacquainted trader can easily get rattled in the frequent “mood swings” that he might actually be swept away by the on-going trend!

Then, he would be violating Buffet’s dictum on market fluctuations: “Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.”

The biggest folly, of course, will be finding ourselves buying high and selling low. Better not make an enemy of the market fluctuations.

To remain friends with the market’s vacillation (volatility), it might be a good idea to imbibe George Soros’ maxim: “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

Or you may want to consider a thought from John Bogle: “Time is your friend; impulse is your enemy.”




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Bourse, NOT Horse!

Bourse, NOT Horse!

In a country where less than one percent (1%) of the population invests in the capital market, it is not uncommon for people to think that investing is pretty much like gambling. You know, like betting on a horse or going to a casino. But reading about people who are jumping out of building windows due to stock market losses makes one wonder if investors in more developed countries know any better.

It must be my “cranial capacity”, but quite frankly, I could not see the similarities between a bourse and a horse! Or, maybe I need to be a rocket scientist to see that a “game room” is the same as the trading floor?

Let’s try this with a wee bit less of scorn.

Talking to a number of officemates who heard a story or two about people who got burned in the securities market, I had to scramble for some analogies that might help me explain why I suddenly became so “suicidal” (that I am willing to gamble away whatever little money I have saved or “allocated”).

I told them that I could be miles and miles off the mark, but here is how I see the difference between the casino and the stock market: In the casino, it is in the interest of the gambling house that the bettors lose – so the house can win. In the casino, you are betting on deck of cards and contraptions that may or may not be rigged. In the casino, you are just betting plainly against the odds. In short, in the casino, nothing works in your favor aside from the occasional luck.

In the stock market, you don’t have to lose for the exchange to win. In fact, the more you win the more money the stock market makes. In the stock market, you are betting on companies that employ thousands of workers and executives whose common objective is to make a lot of money for those companies. And since your bet in the stock market comes in the form of shares, the more money those companies make, the more money you make. So, what similarities are we discussing again?

Oh, of course, people make money and lose money in the stock market. It is like gambling, remember? Except, in the stock market the odds are in favor of the bettors winning – not losing.

From what I have personally seen so far, you are most likely to lose money in the stock market if: 1. you treat it like you treat gambling, (meaning, you just go in there and place your bet without studying the stocks you are buying); 2. you don’t allow your money to grow, (meaning, you have a very short investing horizon – which further means that the money you are using in your investments is probably the same money that you will immediately need); 3. you are too greedy, (this means, that the stock has already ran its course and you still want more from it) 4. you are too scared to take the risks, ( which means, you are too quick on the sell button).
Studying the stocks you are going to buy may sound a bit too daunting. I will not argue the point that this job is probably better left with the experts, but a bit of a layman’s exercise of cognitive power will not hurt either.

If you frequent the mall and you noticed a restaurant that is always filled with customers because of good food, good service, good ambience and affordable prices, and you heard that they are going public thru an Initial Public Offering (IPO) so they can build more branches, and your broker asked you if you would like to buy their shares, would you buy them?

Suppose the shares that your broker is asking you to buy is that of another restaurant which has a good sounding name, not so good food, very expensive ambience with rather expensive prices and a service that is a bit snobbish. Let’s say this restaurant has already been there awhile with a good number of branches all over the country but whose tables are almost always empty. Would you buy their shares instead?

It seems like I don’t run out of confessions to make, so let me make another one here: At the risk of sounding too simplistic, I am trying my darn best not to sound like a professor or an expert (both of which, I am not) in my posts. My undying wish is to be able to bring down the level of discussion on investing to “chat-room” level in the hope that I will be able to encourage more investors among those who, more than anyone else, need to learn how to invest.

That having said, let’s try to go into the electronics business. Using the same standards on popularity (except, of course, you cannot eat cell phones and gadgets) as applied in an electronic “thingy” plus maybe ease of use and after-sales service, durability, dependability and nice designs, would you rather buy the stocks of a least known competitor whose products are, say, half as bad as the company we just described?

Or, in the case of mobile phone service provider, will you buy shares from a company which services are known more for causing more expletives (due to drop calls and limited coverage) from coming out of our mouths than for singing praises? Or would you go for that company that already has a respectable reach and area of coverage, yet still continue to build cell sites to further improve its services?

Okay, to accountants, economists, mathematical gurus, and financial analysts (who may, or may not be very comfortable with math and related disciplines) numbers is still the universal language. They will be checking out ratios of one company as compared to the next or as compared to industry standards (and all that dance) and I’ll say all of that are important (maybe one of these days we may even learn how to judge whether the financial statement we are studying is not done by unscrupulous people like those that figured in the world famous WorldCom scandal) but in the meantime, let’s start with the signs that are visible to our naked eyes.

We are pushed closer to the losing end if we cannot recognize things for what they are.

We eventually have to learn everything we need to learn (to a certain degree) to make the securities market a safer place (for us) to make money, but while taking our “baby-steps” there are things that we can do (initially) to make certain that we are investing in a bourse and not betting on a horse.


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