Posts Tagged ‘brokers’

13 Advantages of actively managing your money yourself

A friend of mine forwarded the article below to my email. It’s about managing your money on your own while not getting any help from financial managers or experts. I would like to share this to you as it may give you an idea on making decisions on how will you want your hard earned money be managed.

In my opinion, I will agree to some points of the author but it’s also good that we also have those fund managers or financial experts do the job in growing our money. I also have “some” of my money or investments handled or coursed through brokers or fund managers as I find their capabilities significant in my investing strategies. So far, I’m satisfied with the service, it’s just how you look for a good broker with less or minimal fees and of course, TRUST is important. These people already got the experience and  they know that their primary concern is giving you the best they could do. To make their client happy! If you think, they are helpful enough, I think, you might stick to them for “some” not all of your investments.

I’m definitely a NEWBIE! To start in this money endeavor, seeking help from those knowledgeable folks is a good option. If I find myself capable of doing it on my own, having mastered the strategy, then, I will be better to manage my own money already.  For now, learning from others and getting the best option from those financial experts is still my recommendation. Well, you may want to read the article. Read it below:

Most investors do not realise, but as a private investor managing his own money, he has got an immense advantage over a fund manager due to factors he may not even be aware of.

Sure it will take up some of your free time but it will probably be one of the most awarding activities you can invest your time in. We have all worked hard for the money we have saved and it would only be prudent to invest in the best way possible. With public pension systems crumbling around the world because of ageing populations, making the most of your savings had gotten much more important.

1. You can wait

As a private investor you can wait for attractive investment opportunities to present themselves. If you cannot find anything attractive you can stay in cash. Fund managers do not have this luxury.

They have to invest in whatever their investment area is irrespective of valuation. Holding cash in the fund management world is known as career risk as the fund manager runs the risk of falling behind his peers or his benchmark. The larger the cash position the higher the career risk.

The best example of career risk I have read is value fund managers losing their jobs because they refused to buy internet shares during the internet bubble.

2. You can invest anywhere and everywhere

As a private investor you can invest in any type of asset in any country that offers an attractive risk return trade-off, be it corporate bonds, equities, options, real estate etc.

Fund managers have to stay within the fund’s investment area. Additionally complying with regulations, even further limits their investment choices. You can argue that you can change to a fund in another investment area but that is also actively managing your money.

3. You can invest in any size

This is similar to the investing anywhere and everywhere as you have the freedom of investing in small or large companies whatever is most attractively priced.

I was recently astounded when I heard of a value fund manager that had to invest in companies that have a high weighting in a particular share index because he had institutional investors (read large investors) that would withdraw their funds should his performance deviate too much from the market.

This is ludicrous, why invest with a value manager if you really want market index performance? You want a value manager to do what he does best, search for undervalued companies.

4. You have no benchmark

As a private investor I only have one goal in mind, to grow my investment portfolio each year irrespective of what the market does.

I do not consider it a good year if I have lost 25% while the market has lost 40%.

I am sure your goal is the same.

Fund managers only have one goal, beating his benchmark irrespective of absolute return. I cannot remember how many times I have heard a fund manager say that he has to remain fully invested in his investment area as that is what his investors expect of him.

Just think of what happened to investors in technology funds as the internet bubble deflated.

5. You can focus and ignore

Studying, understanding and applying what has worked in investing is all you need to do to be wildly successful as a private investor. You can only focus on a few things and ignore the market noise, you only have to spend relatively little time to be successful.

Fund managers have to have an opinion on a lot of different investment areas because they have to appear competent in company and client meetings. It is tough for them to have to say I do not know.

I do not watch financial television, its complete rubbish and a waste of time.

Mainly yo-yo news i.e. what went up and down.

I have my investment criteria, I look for companies that falls within it and I study only that. The rest does not interest me and that saves a lot of time.

6. No conflict of interest

This is a big one. You only have your best interests at heart. In other words all your decisions are in your best interest.

Fund managers have to think of keeping their jobs, increasing their assets under management and keeping clients happy. All this means is that their investment performance is not the most important thing on their minds.

Also fund managers in companies what also offer investment banking services may be pressurised to buy securities of investment banking clients irrespective of investment attractiveness.

7. You can have a long view

According to a study by the New York Stock Exchange the average holding period of shares held by investors have declined from five to six years in the 1950’s to 11 months. That means that the average investor has an investment horizon shorter than one financial year.

It is unlikely that a company with problems, as undervalued investment inevitably have, can sort them out in such a short period of time.

As a private investor you can follow the company over many years and realise the gains when the company gets revalued by the market. This may be the largest competitive advantage you have.

The ability to look at a company solely on valuation and keep it as long as it is undervalued.

8. No peer pressure

Accept if you discuss your investment with friends or family you will have no peer pressure to buy or sell any investments. I have gotten to the point that I am reluctant to discuss my investments because the response I get is either, “never heard of it” or “what, you must be mad, don’t you read the newspaper?”

Fund managers have a different problem. The funds they manage get compared to benchmark indices and other funds, including the individual fund holdings.

Should you stand out in any way invites questions. Should the performance be worse than the peer group or benchmark career risk increases.

If you manage your own money you have none of these problems.

9. You decide

You make the final decision after you have done the analysis. You may be wrong but at least you make the calls either way. A lot of funds are managed where committees decide what is bought and sold.

Apart from the problems of group-think investment committees are staffed with people throughout the organisation with different investment approaches, not all of which has shown good historical results.

Furthermore it may be difficult to tell your boss that his investment idea stinks if you have your bonus evaluation later that day. This leads to suboptimal and sometimes completely dysfunctional decision making.

10. You can concentrate

If you find a really compelling idea you can choose to invest as large a part of your capital as you feel comfortable with.

With 80% of non-market risk diversified away with as few as 15 positions you can determine what your optimal number of investments are.

Mine is 30 as I feel comfortable with the weighting of each position in my portfolio and I can easily keep track of the investments.

When I see funds with 100 or more investments my first thoughts are that they must not have much conviction in any of their ideas. Also with so many positions you may as well buy the market itself through an inexpensive exchange traded fund.

11. You control the costs

Controlling costs and fees, or the friction of investing, is a very important part of part of realising superior long term results.

Using a discount broker I can buy and sell most shares for around 1% brokerage.

If I hold a position for three years that equates to 0.33% per year plus a 0.25% custody fee. That is a lot lower than funds that charge 1% to 1.5% per year on top of a 5% initial fee and other expenses.

Calculated over a period of 20 to 30 years keeping costs low makes a huge difference.

12. Down years are more bearable

This goes along with the point on making your own decisions. Should you have a bad year at least you know you made the decisions, can learn from your mistakes and make adjustments to your investment strategy.

13. You can be fully invested

Should you find a large number of attractive investments you can be fully invested and remain so even if the markets declined and you are still convinced of the investment case of each investment.

With a fund manager this is unfortunately not the case. When markets fall they are bound to get redemptions. In order meet the redemptions they must either have cash available or sell investments. But when markets are falling liquidity drops as well. That means that because investments have to be sold liquid investments are sold first.

This selling pressure puts pressure on share prices leading the markets to fall further thus triggering more redemptions. You get the picture.

Some fund managers plan for such eventualities be keeping a certain amount of liquid investments or by keeping at least a small amount of cash on hand. This as mentioned in one of the points above leads to suboptimal investments not necessarily the managers best ideas.

Luckily as a private investor you do not have this problem. I always keep a cash reserve of one years living expenses aside to ensure that I do not have any pressure to sell investments should the market decline unexpectedly. Also a large cash reserve gives me the peace of mind and opportunity to focus on investing for the long term.

There are of course a few funds where the drawbacks mentioned below do not apply but they are in the minority. The large bulk of fund management companies are focused on growing the amount of money they manage, where maximizing the returns to investors come a distant last.

Entry Credits: www.eurosharelab.com

You have read the article already. In the end, it’s your decision whether you manage you money or get a fund manager for you. As what I’ve said, I’m a NEWBIE, I need help from the experts. I invested in mutual funds which are managed by fund managers. I see my money is growing and so far, satisfied with the service. I’m happy. That’s important. Now, what’s your take? wbpitfe5qk

Meralco’s Rise and fall

Rise and fall of Meralco: Your questions answered
PHILEQUITY CORNER By Valentino Sy (The Philippine Star) Updated August 03, 2009 12:00 AM

We have received many queries on the recent price action of Meralco. Many are still befuddled on the steep rise and the equally sharp fall of its stock price. Last week, market watchers have been asking why Meralco shares have gone up to a closing price of P205 per share. They commented that at P205 per share it was already overpriced.

However, after Meralco reached P302.50 per share this week, the same people are questioning why it dropped when in fact it closed at P229 per share, which is 12 percent higher than the previous week’s close.

Because of the many queries of our readers and investors, we are changing the format of our column today to a question and answer (Q&A) type.

1) Why did Meralco’s share price zoom to astronomical levels these past few weeks?

In our article Turf Wars (see July 13, 2009 issue of The Philippine Star), we said that Meralco’s price action continues to defy gravity because the battle for control, given the limited free float circulating, is exerting upward pressure on the share price.

We mentioned the possible scenarios:

a) That the PLDT Group or the SMC group may be buying in the market to get a majority stake,

b) That fund managers sympathetic to either side may be accumulating

c) That a risk arbitrageur may be gobbling up the free float with the intention of selling the shares to the highest bidder

d) That maybe all of them are doing the buying at the same time.

Note that buying in the market is less costly than for one party to buy the other out which would trigger a tender offer for all the shares.

2) Why did it reach a staggering level of P302.50 per share?

It appeared that the race to own 50-percent stake + one share was decided by “photo finish”. Therefore that last one or two percent — which matter the most — commanded a huge premium. Buying two percent of the company at P300 per share to gain control is actually cheap.

Morover, many fail to realize that the bulk of the stakes of PLDT Group and SMC Group are priced at P90 per share (in SMC’s case it is even less because it is payable in three years).Thus, even if the winning bidder paid P300 per share for the last two percent, the average cost would just be a little over P90 per share.

3) Why did the Meralco drop sharply after reaching P300 per share?

To the experienced eye or seasoned investors, the block of shares that was crossed at P300 per share last Wednesday was a clear signal that the game was over. It was clear at that instance that one party sold and that the other party bought the deciding block.

It did not really matter which party won. It was apparent that when the fight for control was over, the demand for the shares and the buying frenzy would no longer continue.

4) Why is that block of shares traded on Wednesday a game-changer?

It was a game-changer because that block of shares represents nearly two percent of Meralco. Therefore it meant minus two percent for one side and plus two percent for the other side – a swing of around four percent.

5) So, who eventually got control of Meralco?

A quick look at the PSE quotation report last Wednesday showed a net foreign buying of P2.03 billion. A foreign broker known to be used by the PLDT Group and foreign funds sympathetic to PLDT crossed 6.7 million shares last Wednesday. Meanwhile, a local broker which represented one of the local funds sympathetic to the SMC Group crossed six million shares.

Apparently the funds that are allies to SMC Group flipped and sold to the highest bidder. Obviously, the PLDT Group now owns the majority of Meralco.

6) Why is getting control of Meralco important for PLDT?

The PLDT group sees real synergies between Meralco and PLDT. The company mentioned eight specific areas where they can work together, namely: powerline broadband, fiber optic backbone network, electric power poles, easements and rights of way, prepaid electricity service, business offices, ICT or data center, bill statement printing & enveloping and access to subscriber base.

Moreover, losing Meralco at this point, when it has already invested billions of pesos, would be disastrous for PLDT. In fact, PLDT’s share price has lagged the market during the battle for control of Meralco but when it was clear that PLDT maintained control, the stock price went up.

7) What do we do now with Meralco?

For those who have a short-term perspective, especially the punters, the answer was clear. If the fight for control is over, they have no choice but to sell.

For those with a long-term view, PLDT Group’s entry in Meralco brings many opportunities. Manny Pangilinan’s track record of turning companies around, cost-cutting and creating synergies to optimise profits and enhance shareholder value is definitely a positive for the stock. MVP has proven this in PLDT with its shareholder value and stock price steadily increasing since he has taken over.

While Meralco’s stock price has gone up too fast too soon, the company has a strong franchise, a good business model and sound fundamentals.

Is the turf war over?

As far as the fight for control of Meralco is concerned, the game is over. But in other battle turfs, the war would probably continue as both parties are involved in telecommunications, infrastructure and other businesses in the Philippines.

Lessons learned

The meteoric rise in the share price of Meralco and the sharp drop afterwards provide valuable lessons for investors.

1) One important lesson is that you should do your own research rather than following without thought what your brokers are doing. In Meralco’s case, most brokerage houses had recommended a SELL on Meralco when it first reached P90 per share. Their recommendation may have been based on fundamentals, not considering the battle for control.

But if you did your homework and realized that there was a battle for control and limited free float circulating, you would have known that the rich valuations were justified.

In the same manner, when the race to get majority is over, you should recognize that valuations will revert back to fundamentals.

2) Another lesson is that you should follow strictly your investment profile. If you are a short-term trader, you should be alert and nimble because while profit potential is high, volatility at the turn will be wild.

If you are a retail punter, it is important to do your homework rather than following blindly what bigger brokers or investors are doing. In this case, the block sale of Meralco may have triggered an immediate change in view from these investors. Instead of being buyers, they may have become sellers.

Finally, if you are a long-term investor, you should buy when the price is being offered at a bargain or as Warren Buffet and Benjamin Graham put it “you should buy when the price of a stock offers a huge margin of safety.”