By Francisco Liboro

Nine months into the year and we’re all still sitting and waiting for the promise of a market recovery to materialize. Like the mythical phoenix, we have been longing to see the Philippine Stock Exchange Index (PSEi) rise from the ashes of failed uptrend lines and multiple breakdowns and once again resume its stellar performance of just a year and a half ago. But this quixotic quest for market rejuvenation has been frustrating and downright irritating, to say the least.

Over the past nine months, the market has made numerous attempts (I count nine major ones) at breaking out of the downtrend that has gripped investors since October of last year. The first eight never had enough legs to sustain their respective rallies and eventually succumbed to investor cautiousness and profit taking. The present rally, which began in late June, appears to have enough steam and momentum to break free of the bear hug. It has already broken out of the major downtrend line last July 30, leading my brokerage institution’s research unit to advise our clients that the bottom may have already been hit.

Still, after months of frustration, I cannot so easily discard the cloak of gloom that has covered us all, analysts and investors alike. Notwithstanding improving technical indicators that confirm the momentum in the present rally, fundamental indicators remain in a state of flux, influenced largely by external factors such as the US economy, oil (and consequently fuel) prices, other commodity prices and the US dollar’s strength and/or weakness). After all, fundamentals such as these are what will guide analysts in arriving at their forecasts and subsequently their trading recommendations. These will in turn provide the basis for future market rallies or reversals.

But as the title of this column states, we are not going to analyze where the market is headed over the short or even long-term. Instead we ask the question on whether we hate 2008, market-wise of course (and only with regard the equities market, to be more specific). So do we?

There are a number of reasons why I, at least, do hate ’08 but I will dwell only with the more significant ones. For starters, of the nine months to date, only three months have posted Net Foreign Buying. From May to July, the market booked Net Foreign Buying of around P4.8B. Meanwhile, the other six months to date (January to June, and from September 1-8) have seen Net Foreign Selling of around P27B. For the entire period, therefore, the market has seen Net Foreign Selling of about P22.2B. If anyone wants to talk about a market that has been shunned, it might as well have been ours.

The fault does not fall squarely on the shoulders of the Philippines but largely, I would think, on the misconceptions of foreign fund managers on the real strengths of our economy and the market as well. Nevertheless, the sustained outflow of foreign portfolio investment from the market (and not necessarily from the country since our own analysis does not show any foreign capital outflows from the country’s banking system) has always overwhelmed local buying at its strongest and eventually leads to failures of previous rallies to break out of the major downtrend line.

Secondly, the fickle mindedness of US market investors is confusing. Early in the year, when oil spot prices spiked to $140, markets throughout the world posted major declines, led by the United States. As the oil price bubble began to burst at the seams, markets rejoiced and quickly staged their own respective recoveries. That sounds reasonable. However, recently, investors have begun to fear that falling oil prices are symptomatic of a weakening economy and as a result have now started to look at these as a negative. What gives? Are lower oil prices a positive or negative factor? How frustrating can this be? It’s almost become like a “damned if you do; damned if you don’t” type of analogy. I think investors in the Philippine market should not be swayed by how foreign investors see the effects of oil prices on other major economies but rather see how oil prices will affect specific markets, such as ours. After all, there’s only one way this factor will affect our economy, right?

At the end of the day, my main reason for abhorring 2008 is on what it did to the dreams that we all nurtured in 2007. The “blue sky” scenario we believed was in store for the market was actually playing itself out already before all these sub-prime and other problems external to the Philippines hit. Problems that injected fear and uncertainty into the hearts of investors in levels not seen since the mid-80’s. I hate ’08 for the fact that the growth in the Philippine stock market that was due us was robbed from us at a most inopportune time. We were recovering and had the rug pulled out from under us. It has been a year of frustrations and setbacks and I will not regret seeing the end of it come December 31.

By Efren Cruz

The inflation rate for July 2008 was reported at 12.2% p.a., the highest the country has experienced in 17 years. With inflation rate that high, consumers will definitely go through rough times. Even before the inflation number was reported, telltale signs were already present like gasoline pump prices reaching over P60/liter, commercial rice hitting as high as P50/kilo, dressed chicken at the wet market hovering at P150/kilo and many others. But in times like these, is the average consumer already doomed? Is his future already bleak?

I am reminded of a quotation lifted liberally from that instant movie classic, “Kung Fu Panda” (and yes I still watch cartoons): “The past is history. The future is mystery. Today is a gift. That’s why they call it the present.” I have always believed that we are not thrown challenges we are not equipped to handle. I myself have gone through some very tough times. And yet, I have managed to survive and come out stronger each and every time. So in the spirit of this optimism, I offer five tips on handling financial situations when your back is seemingly against the wall. Mind you, this is not a comprehensive list of tips.

1.    Take a deep breath and smile I have written about this before. Smile, not so much as to deny the existence of a problem, but more to conjure up the strength and resolve to attack it. In medical terms, smile with your zygomatic major (mouth) and orbicularis oculi (eye) muscles. Smiling allows us to calm our emotions and think clearer. And smile with your whole being. This profuse smile, especially when bundled with laughter, will help produce endorphins, the body’s muscle relaxant, and will put you in the proper physical and mental disposition to tackle your financial situation. Not smiling fully has a direct correlation with your emotions. Did you know that Mona Lisa was found by the University of Amsterdam, through their breakthrough emotion recognition software, to have been only 83% happy while being 9% disgusted, 6% fearful and 2% angry? This was because she was not smiling fully!

2.    Assess your situation Look at your finances as an entrepreneur would his business. All you need is a simple income statement. There can only be two major causes for your financial stress: either there is too little income or there are too many expenses. If you need help, there is a new breed of trained financial planners holding the title of RFP (Registered Financial Planner). They can help you assess your financial situation.

3.    Cut costs In terms of expenses, see if they are due to discretionary or non-discretionary spending. If they are due to discretionary spending, then the obvious thing to do is to cut back. If they are due to non-discretionary spending (like loan repayments or children’s tuition), then see if you could restructure such expenses by negotiating to pay off such expenses over a longer period of time. Longer-term refinancing is an option provided the terms are better for you. However, we can never zero out our expenses. This is why you should consider the next tip.

4.    Boost income The better way to solve your financial problem is to boost your income by finding a better or second job or going intoa sideline business. Just remember not to kill the goose that lays the golden egg, which is your current job.

5. Save Each family should have an emergency fund, the amount of which should be equivalent to anywhere from three to six months of expenses. This is the fund that you will rely on for major emergencies including financial stress. Put the fund in an earning but liquid instrument like a time deposit, money market mutual fund or UITF. And save a fixed amount, come hell or high water. This is why the formula for a balanced budget, as financial planners point out, should be income less fixed savings equals expenses. Savings should be prioritized.

As a final word, surround yourself with people who are also keen on keeping their finances balanced. If you can’t join a group physically, you can join an e-group. There are lots of them on the Internet. If you want one that tackles personal finance topics in the Philippine setting, try joining my website at www.income-tacts.com.

By Salve Duplito

Deep in the fridge, there are three pints of ice cream in flavors that my three children love. But the secret weapon really is the cute little container of candy sprinklers that I know will earn plenty of hugs for me – the one sugary treat I bought for them during my latest grocery sortie!

As we ended dinner, my dulcet tones announced the surprise as I walked to the corner of the kitchen. “Who would like to have his favorite ice cream dessert?”

The chorus of “Yipee!” was heard all the way to the neighbors’ houses. The kids had crazy fun arranging delectable bowls of ice cream with candy, slices of banana and mangoes, fudge, and crushed nuts.

While the kids were giving me their warm and sticky hugs, I noticed my husband looking on and gasped. I made him his favorite vanilla ice cream with sliced mangoes on top, true, but what right did I have to tell the kids “Nanay” had planned and schemed to get this treat for them?

See, my husband brings home the much bigger bacon, and slaves at the office to provide clothing, shelter, and yes, grocery money. He made the painful switch from freelancer to a regular job so that I could stay at home with the kids and not be saddled with writing projects that I don’t like. As a result, I can write to my heart’s content right in my own home. But while the treats technically come from him, it just occurred to me that he hardly gets the brownie points for them.

I realize that in a manner of speaking, the hand that does the grocery more or less rules the world at home. No matter where the money comes from, it’s the parent who plans the grocery, who actually chooses and goes through the whole exercise that gets to claim he or she went the extra mile to find just the right treat for the kids. The parent who’s stuck with the “unseen” chores like paying the mortgage, utilities, and credit card bills hardly becomes the hero. No fair.

My husband hardly complains. In fact, I’m not even sure if he noticed. But something has got to give. I also realize that I’m probably lucky. In some households, this could lead to tension and misgivings and even more serious problems like financial dishonesty.

“Nak, your Papa bought you this cereal with such a cool toy. Do you like it?” I ask. “Go and give him a hug.” Give credit where credit is due. While it can be tempting to hog the limelight, a little transparency can go a long way.

Financial literacy is not just about numbers. It’s all about mind set.
By Francisco Colayco

Money management starts with understanding what money means to us. In a market-driven economy like ours, money is indispensable. It is the means to live the lifestyle we choose and to share what we have acquired.

To each according to his deeds. This is the fundamental principle we live by. We are responsible and accountable for our own future. We exist for a purpose and part of that purpose is to enrich our lives and the lives of others. To achieve this goal, we must first secure our own individual wellness. We cannot share what we do not have. In the end, it’s all about building financial and spiritual wealth over our lifetime.

When is one wealthy?

Depending on how one views assets and money, the concept and obligation to build wealth appears to be lost to a great majority of income earners. Most are focused on the amount of money to be earned and spent (almost as quickly as it is earned). Only a few specifically plan and measure wealth in terms of assets and money relative to the amount of their time left in this world and to their other life goals e.g. sharing their bounty with their community.

Professionals, especially those occupying finance-related managerial positions know every detail about their company’s finances and plans for growing their employer’s wealth. Unfortunately, many of these professionals hardly pay attention to their own personal financial situation. They focus on what they personally earn and forget that such income may not be sustainable. They get lulled into thinking that their employers will always be there to provide: good income when they are actively employed and enough pension benefits when they retire. But the sad part is that there is no guarantee to this. The greater part of employees (at all levels) will need to augment their pension benefits so that they can sustain their chosen lifestyle after retirement.

For those who are thinking of their future, there is one important economic question to ask: “How long will you be able to sustain your chosen lifestyle, if you stop actively working for money today?” But is there a one right answer to this question? Is it 10 years? Is it 20 years? A 20-year-old professional may be able to sustain his lifestyle for 5 years without working. Is he then wealthy? How about a 90 year old whose net worth may also sustain him for another 5 years? Is he wealthy? Clearly, the right answer is unique for every individual. His age, his lifestyle, his net worth and his earning power will determine whether his is wealthy or not. It is the individual’s values that will ultimately determine when he has achieved the wealthy status.

Some live with the philosophy to live rich and die rich. Some believe otherwise. They are quite happy to live as richly as they can so that when they die, they die poor. This group puts a premium on sharing their wealth while they live. They measure their worth by the number of lives they touch with their resources. They accept their mortality and their responsibility as stewards of their assets while active in this world. They realize that they don’t have use for money when they are gone.

Whichever philosophy we live by will determine our personal financial strategy. Quite obviously, the financial behavior and related investment decisions of such individuals will be radically different. Is one then wrong and the other right?

Common principles
Whatever the belief, the reality is there are two roles for every economic being: active entrepreneurship and passive entrepreneurship. Thus, in our financial lives, the active income generating strategies and passive income generating strategies must be distinct and time-bound.

Reality also dictates that it is an obligation to learn to be a knowledgeable investor, to become a passive entrepreneur. After all, we can only be an active entrepreneur for a part of our lives. But we can be a passive entrepreneur for our entire life. This is the fundamental principle behind the need for financial planning at all stages of our financial and physical lives.

Time is of the essence. Growing wealth is based on time and compounding of earnings and interest. Success is better ensured when we start early.

Managing your finances is much like riding a bike
By Efren Ll. Cruz, RFP® FPA®-Member

Have you ever wondered what keeps you upright when riding a bicycle? A bike remains upright when it is steered. Please note, also, that the faster the bike is moving forward, the smaller the steering inputs need to be in order to balance the bike.

Applying sound personal finance is much the same as riding and balancing a bike. In life, we want to get from point A, say a situation where money is scarce, to point B where the abundance of money allows us to focus on the more important things in life.

For a safe ride, however, you need to know how to balance your bike in much the same way as you balance your finances. Things like unnecessary spending, low income, poor saving habits, wrong investments, bad advice, greed, and fear can throw us off balance much like stones, potholes, dogs, cars, and pedestrians would the cyclist. It is, therefore, critical to maintain that financial balance.

One way to make it easier to do that is to have forward motion, just like with a bicycle. And what is the most practical way of attaining enough of this forward and sustainable motion? The answer is by investing. My apologies to Cebu Pacific for paraphrasing their slogan, “It’s time every Juan flies.” But, indeed, it is high time that every Juan invests as well.

Before we continue, let me make it clear that investing is not all about making money. Investing is all about making the future more affordable, of attaining that forward and sustainable motion.  In fact, if you relate investing to corporate activity, no corporation has stated “making money” its mission or vision. The same should be true for the individual.

Suppose you are 40 years old now and you want to enjoy a 20-year retirement period upon reaching the age of 60. Let’s also assume that your total retirement expenses will amount to P500,000 per year using today’s pesos. With an inflation rate of 6% p.a., the total future value cost of your 20-year retirement would be over P64 million. If you have only P1 million in savings at the present time, you would need to save roughly P263,000 a month for the next 240 months ([60 years old – 40 years] x 12 months in a year) to arrive at your P64 million at age 60.  However, if you were to rely solely on your P1million by investing it now, you would need to make it earn just over 23% p.a. Add P10,000 a month to your investments for the next 240 months and your required return goes down to 18.5% p.a.

Of course, earning 18.5% p.a. is very tough, especially in this current era of low interest rates.  This is why investing in non-guaranteed investments like bonds, stocks, and even your own business makes all the more sense. The risk is higher, but so are the returns. To a certain extent, putting your money in more risky investments becomes a necessity. You may want the safety of ordinary bank products like time deposits. But, if the net return to you of these products is lower than the inflation rate, you are better off consuming than saving or investing.

Yet, how can you mitigate the risks with non-guaranteed investments? Simple. Just observe the following rules of investing:

1.    Assess your risk and return preference.
2.    Do an inventory of your resources, which include Size of funds, Expertise and Time or what I would call the SET rule.
3.    Search for investments and/or businesses that will match your answers to #s 1 and 2.
4.    Form a portfolio of investments and/or businesses (don’t just put all of your eggs in one basket).
5.    Monitor and review your performance regularly.

Just as an added note, if under the SET rule, you find that you don’t have much money to invest, you may opt for pooled funds like mutual funds and unit investment trust funds. With a mutual fund, for example, all you need is P5,000 or $100 to open an account. If you have the money but lack the expertise or the time, you may opt to hire financial advisers. If you have all of the requirements under the SET rule, then you can go straight to the markets and do your investing yourself.

Going back to the humble bicycle, we know that once we learn that skill of riding a bike, it would be difficult to forget it. Similarly, learn personal finance. Once you get the hang of it, you will remember it for the rest of your life. Cheers to you, Juan.