Investing Beyond the Numbers

A myriad of investment evaluations are available today for us investors to study and analyze for our own portfolios. Normally this involves a lot of calculations and numbers which will really help you arrive to a logical and rational decision whether to take on a particular investment or not.

Rate of return, Discounted Cash flow analysis, charts, book values, 5-year performance tables, etc.

Then you also have to account for the economic state of the country you are investing in. Is their GDP growth OK? Is domestic consumption robust? Is the currency stable? Which industries are booming and not susceptible for a market bubble? Is the fiscal and monetary policy fine-tuned?

After all the countless hours doing these analyses, we must not take into account a factor that is easily overlooked by investors: investment behavior.

What will you do upon the thought that you might lose all your money on this investment? Will you cry because you invested money that you are not willing to lose? Or you take it as a lesson and move on? Can you sleep at night confident that your investments will be ok in the long term? Or you keep rolling in your bed getting so affected by the short term volatilities of the market?

This is where your analysis homework matters. First you must be confident enough to overcome the worry/panic behavior we usually see with investors. After this, the questions come in:

1. Am I using the least amount of time and effort to monitor my investments and still generate excellent returns?

2. Am I sleeping like a baby at night, not worrying about my portfolio’s performance?

3. Does my investment makes sense economically?

These 3 very simple guidelines/indicators is what I use to completely gauge if I have indeed invested correctly. One “NO” answer from this, and I pull out my investment right away (either capture short term gains/cut losses).

These guidelines matter to me because once I have invested on something, I don’t want to waste my time monitoring and worrying about it anymore. The more I worry, the more I tend to make terrible investment decisions. There were times during my younger days in the stock market, where I spend the nights thinking about tomorrow’s opening price for my favorite stock. The result? Bad morning due to lack of sleep, and the uncertainty of how your stock will perform on opening bell.

I don’t want to have a sleepless night and a stressful morning all in a span of 12 hours.

I believe that reward-to-effort ratio must be high. Otherwise, if you keep stressing yourself out and keep monitoring your investments just to make money, it is still considered “working for money”, and not “money works for you”. It pretty much defeats the purpose of investing.

Perhaps the most important investment guideline for me is if it makes sense economically. Being trained to be a long-term fundamental investor, I ensure that my investments are aligned with how the country is moving forward and if the demand for a particular product/service/sector is strong. This is what I need for my portfolio to weather the short term volatilities and perform well on the long-run.

Investing is a marathon, not a sprint.

At the end of the day, it’s every investor for himself. His preferences, his attitude, his style, his temperament and his financial goals will steer the direction of what kind of investments will he be in.

“The investor’s chief problem – and even his worst enemy – is likely to be himself.”

Benjamin Graham

Happy investing!

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WHAT REALLY MATTERS AT THE FINAL MOMENT

Dreams have its own way of changing our lives. I am a witness to this truth. I remember asking God for two gifts from our Life In The Spirit Seminar: Gift of Prophecy and Discernment.

What makes this combination so powerful is that God speaks to me through my dreams and often make things come to pass as I dreamt it. These dreams also include many realisations that my conscious mind wouldn’t even process.

Just today I had a grim dream. A purely psychological battle.

It is about the final moment of my life just before the higher power takes me. Before, I often dreamt of me being dead and seeing my dead body lying in an hospital bed. Nothing much to discern or figure out. I can’t even recognize how old I look then.

But this one is different. I am lying in a boat, sailing freely into the middle of the dark sea, with a dark statue of a hooded figure — Death himself. After him, is a sea without a horizon but a dark abyss waiting for me. Moments before I come across death, memories keep flashing in my head.

I kept crying but without tears. I am anxious but without fear. I am surrendering but without loss.

And what of the memories? They were the little but priceless memories: from my childhood games, my college graduation, the hugs, the goodbyes, the laughters, the pains, a gondola in Venice, a sweet little girl, family outings, snowball throwing, the nightly cuddle, my first grandchild, a last cry, and a surrender to God.

As these memories gushed in like a river, I told death that I lived a good and happy life. I told him to tell my children these important realisations:

 

At the closing stages of our lives, what matters will be the simple yet meaningful memories you spent with your loved ones, friends, and family. You will never think about how much money you made or how many investments you put up. 

What matters is how many people you have served, not how many people you command. 

What matters is the smile from your child’s face, not the dress being worn. 

What matters is appreciation, not expectation. 

What matters is inspiration, not achievement.

What matters is being able to love wholeheartedly, not being loved with demands and guidelines.

What matters is dying a happy man, not a rich man.

At that closing moment, just when I am about to fall into the deep nothing, I found the boat rushing back to a river where the sun shone brightly. I saw leaves fall on an autumn sky, and I heard children laughing drawing close to me.

I closed my eyes and thanked God for giving me a second chance.

–end.

 

The Hidden Cost of Active Trading

I have been in the Philippine stock market for almost a year now. The reason why I put my money in the stock market is obviously to make money out of my already existing money that isn’t enough to re-invest again on real estate (OK fine, I call it play money, the money I am quite willing to lose). So I understood all the costs to trade: commissions, VAT, fees, etc. and their impact on my overall returns.

For the first 2 months, I am an active trader. Following some simple guidelines from Truly Rich Club’s stock recommendations, I also tried picking stocks of my own. Call it excitement or over-eagerness, I find myself staring at the monitor during trade hours, compromising my productivity at work. As if it’s not enough, I spend my weeknights practicing my charting skills, just to figure out whether this stock will go upwards or downwards, whatever.

Countless nights passed by and I realized that the more effort I put in charting and monitoring, the results aren’t that spectacular. You know why? Because the more trades I do, there’s only 1 who gains from it: the broker. Frequent trading has destroyed my returns. I have only helped my broker get revenues, that’s it.

Are you familiar with Law of Diminishing Returns? This is it.

At this point you may realize that the hidden cost is the commissions and the fees. Well, they are not.

TIME IS THE MOST VALUABLE COMMODITY

My financial mentor always tell me, “Time is the most important commodity, use it wisely.” I realized that for that couple of months trading, I have wasted a lot of my time. Imagine, 4-1/2 trading hours, + 2-3 hours of charting every weekday. That’s 6-7 hours daily, 30-35 hours a week. My returns-to-efforts ratio is in serious waste.

Then I chose to read The Intelligent Investor by Benjamin Graham, the father of value investing and the mentor of the greatest American investor Warren Buffet. This book has changed my whole perception in stocks, and I owe my success and knowledge in stocks now to “them”.

I focused on the fundamental approach of stock investing: buying stocks below its intrinsic value, backed by solid balance sheet numbers and good economic probability and “moat”. I learned to pick fantastic companies at a sensible price. It taught me to become a stock investor from a businessman’s point of view.

This kind of investing made me do all my homework before I actually buy the security. So that after that, I don’t have to worry about it anymore — as long as I bought it at a decent price (below its intrinsic value) with minimal downside and exceptional margin of safety. The homework itself is daunting, but I have learned a lot browsing through hundred pages of financial reports and balance sheets. Endless Excel spreadsheets are used to calculate all the financial ratios I need to know for a particular security. In return, I gained knowledge that I will never learn by spending those nights charting.

The result: I now spend less than an hour per week checking my stock holdings/portfolio. Compare that to 30 hours of week and I get 97% more time to do more productive things. True enough, for the past 8 months, I have finished several books and online courses about leadership, accounting, corporate finance, economics, business/entrepreneurship, investments, etc.

Had I continued my trading path, I won’t have time to do these.

Even better, I was able to free up time to resume my workout activities, and quality time with friends and loved ones. I am also able to make time for a couple of business startups that me and my fellow investors are venturing now.

REWARDS-TO-EFFORT RATIO

How about my rewards? Since I have already picked up stocks from great and established companies, I am already in the “leave it and forget it” mode. The returns YTD are quite decent (since I have bought them at a very good price, not to mention the dividends). I was able to do it with 97% less time and less risk (through margin of safety). The effort (if measured in time spent per day) is also minimal as I only do my homework quarterly. Does this mean fundamentalists are lazy investors? No. There’s nothing lazy about studying balance sheets over and over again. They just get the job done at the right amount of time.

That extra time gave me enough information about economics and the reason why I was able to successfully “sidestep” my stock holdings into safer havens just before that big market correction started by Chinese stock market. Most didn’t see it coming that fast. As Warren Buffet always say, “Games are won by players who focus on the playing field, not the ones looking at the scoreboard.”

After the bloodshed, I was one of the most excited investors to go shopping for stocks with bargain prices. That’s what I call being defensively smart with your investments. I can forget about big gains if my downside safety is being compromised.

You see,  more time for productive things means acquiring more learnings and more value to your skillbase. Thinking long term, this is the kind of time you and I want to have going further.

MONEY MUST WORK FOR YOU, NOT VICE VERSA

By staying away from active trading, I have successfully let my money work for me. One friend asked me “But isn’t investing itself already means money works for you?”  I answered her in the nicest way possible:

“If you need to monitor your stocks the whole day just to create returns, you are still actually working for money.”

I can remember my mutual fund back in 2009. I rarely check on it but you can just imagine its fund return 6 years later. That’s what I call no sweat returns (I am not promoting mutual funds here by the way). That is money working for me without  the need to look at my NAVPS update everyday.

DIFFERENT STROKES FOR DIFFERENT FOLKS

I am not against active trading, as I believe that people can still get rich with that. Fact is, each one has his/her investing style and principles. One is advised to study their craft and plan their investment moves very well. Most of my investor friends are very good stock market technical operators with awesome charting skills, and I am happy for their spectacular returns.

At the end of the day, it’s all about your risk appetite/tolerance and time available to do the thing not just for the present, but also in the future. In my case, I see myself running businesses / companies and the last thing I want to do is to spend the whole morning and afternoon doing 5-min charts just to pick up gains. Not that it’s a bad thing but I have other plans in my mind.  Instead, I can simply buy preferred stocks from very good companies and receive my quarterly dividends. Who knows, I may have one of my companies enter into an IPO — and that’s the big! Now those traders will be going for the stocks owned by my company.

So much for the 97% more time I had in my hands and used it well. So much for the hidden, intangible cost that I am able to save in the long run. Wisdom is looking at the bigger picture and figuring out the overall risk-reward you are willing to give for a successful venture.

Happy investing!

How increased inefficiency explains falling oil prices

Our Finite World

Since about 2001, several sectors of the economy have become increasingly inefficient, in the sense that it takes more resources to produce a given output, such as 1000 barrels of oil. I believe that this growing inefficiency explains both slowing world economic growth and the sharp recent drop in prices of many commodities, including oil.

The mechanism at work is what I would call the crowding out effect. As more resources are required for the increasingly inefficient sectors of the economy, fewer resources are available to the rest of the economy. As a result, wages stagnate or decline. Central banks find it necessary lower interest rates, to keep the economy going.

Unfortunately, with stagnant or lower wages, consumers find that goods from the increasingly inefficiently sectors are increasingly unaffordable, especially if prices rise to cover the resource requirements of these inefficient sectors. For most periods in the past, commodities prices…

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Of Wishes and Blessings

I grew up as a less-than-average kid —  with dreams as small as my height, and wishes as many as my rants.

But I never forgot to pray. Most of the time, the things I wish the most are the things left unspoken in prayer. God knows it anyway.

When I was young, I wished to be taller, but obviously He didn’t answer.

Instead, He taught me how to reach for the things others are too arrogant to reach.

I wished for a very big house,

Instead He gave me a home with a very loving family to take care of me as I grow up.

I wished to be a Valedictorian, and everyone knows I am not.

Because He gave me the wisdom and knowledge that I need to know what I need to know, to see things from a better perspective, and to understand life that many people made so complicated.

I wished to become one of the richest kids on our village.

Instead He taught me that life’s riches is more than just having the most money.

I wished to have the sexiest and prettiest girlfriend,

Somehow He did, and so much more. He gave me the girl that completes me with her love.

Lastly, I have always wished for a better life.

Instead, He taught me that every waking day of my life is the best my life can be at that moment, at that point in time. Life must be appreciated everyday, that life is not a matter of it being better yesterday or tomorrow — but on how I live my life to the fullest today.

He taught me that my life is a gift from Him, every second, every minute, every hour of the day. Who am I to ask for something better?

Just now I asked Him to let me sleep earlier, but instead He made me stay up until 1:30 AM writing this.

And upon writing this I wished I become a very good writer/blogger, I know I am not.

Instead, he just taught me to write from my heart, and it’s all that I need after all.

The Speedboat Effect: Finding the Right Balance in Relationships

Imagine you have a relationship problem now, and you thought of sharing it to your trusted friends. Some will say “Follow your heart” and some “Use your brain”. Opinions are divided into these two schools of thought.

The debate never ends. Here is my take on relationships:

Being in a relationship is like running a speedboat. The speedboat needs two things for it to go to wherever it needs to go: Propeller and Steering mechanism. The heart is the propeller and the mind is the steering mechanism.

Our feelings, how real and sincere it may seem, will propel us very fast — and that is good. But we can’t just propel our way to somewhere without steering into the right direction. That “bahala na” thinking sounds poetic and nice but it will only give you a false sense of security and excitement. This is where many relationships fail: they just keep on propelling and propelling and find themselves in the middle of the sea – in the middle of nowhere. Stuck on a stalemate, they eventually give it up and call it quits. Some also find themselves losing fuel because they just keep on speeding on without a particular place to go. Oh yes you can get away from the world and lose yourselves in your arms, but hey, you will want to land somewhere, won’t you?

Even relationships need a touch of strategy to balance everything. Feelings will help you move on, and the proper planning and strategy will give you the much needed direction that a relationship needs. Relationship is a combination of love, lust, companionship and understanding. Balance everything and you will get to where you want to go. You and your partner must have teamwork in every little thing that you do as a couple. Do stuff that will “refuel” your love. Every now and then you take each other on a dinner date and do the things that you used to do on your first years together. Talk about your future and make sure your plans turn into action. On an argument, think things over and argue things with a sense of teamwork – it’s not who wins the argument, but on how sincere you are with your shortcomings and strive for making things better in the future. These are the sort of things you do when you learn to balance the logic and feelings together. Respect, trust and love will work in clock-wise fashion when this balance is achieved.

The heart and mind must work together, not beat each other.

Project #Sky2012: Completed

Five years in the making. Seven months of extensive planning. Numbers can’t describe what this project has been for me.

Take risks. Get out of my comfort zone. This is not the usual me. For once in my life, I had jumped into something that I cannot control. Planning can only get me so far. The Gantt Charts, financial plans and job market forecasts I did are nothing but mere precursors to a bigger concern: do I really have what it takes to go all the way?

The hard work has finally paid off, but not without major glitches. Laptop breaking down and only a single word file to work on, I slowly crawled back and defied the odds. I already came to a point of initializing my Plan B already. Then the calls came in and the break that I have been waiting for came through. It may have taken longer than my peers, but I sealed the deal anyway. Good things indeed come to those who wait.

Not only did I get a job (that’s what Sky2012 is all about after all) but also I got closer to my family, friends and God. I am spiritually, emotionally and mentally stronger now. I am starting to believe that God  gave me two months to strengthen my foundations first, before He gave me this sign that I am ready for another chapter in my life.

And the best things are yet to come. I’ll claim it. I’ll take it anytime of the day.

Yesterday, I had a chance to get some “me time” around the East Coast. Along the shore I sat and contemplated on what has transpired in my life. I have nothing but gratitude to Him. A hundred thank you’s won’t suffice what He has done for me. I talked to Him as if I am just beside Him. Events in my life are like waves approaching the shore, you will never know which wave gets into my feet.

I thank Him for giving me the biggest waves. It made me stronger and tougher. It made me realize that I can be a better person that I think I am.