So honored and blessed to be featuring a guest blogger whom I respect and admire so much. Efren and I have been friends for quite some time now and he remains to be a role model to me and many ways. More than a colleague, Efren is a great mentor. More than an investment expert, Efren is a genuine advocate who practices more than what he preaches.

In this installment, Efren puts some wisdom on stock market investing. With so much attention and curiosity in stock investing, Efren’s wisdom is so timely and his balanced view is something that he is really known for — I take his insights and advise very seriously. 

Efren will be featured in iCon 2013: The No Nonsense Investments Conference this June 22, 2013 at the SMX. He will tackle the very important topic of investment planning. Check out the conference HERE

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Some Commandments in Stock Investing

by Efren Ll. Cruz, RFP

Question:Are there any rulesthat I should strictly follow in stock investing?– via email

Answer:To be sure, there are many rules to follow.  But here are some that immediately come to mind.

1) Do not make money a graven image.  Money has always been and will always be just one of the tools to achieve the more important things in life. The same goes for stock investing. Don’t get me wrong though. Money and stock investing are important tools. Just don’t let your life revolve around them as if they were the reasons for being. And when you make money, don’t forget to whom the glory belongs.

2) Forget about buying at the bottom and selling at the peak. Your chances of buying at the lowest point and selling at the highest level is as slim as winning the 6/55 lotto (about one in nearly 29 million). Why? Because you will only know that a particular price is either the lowest or the highest after the fact. Worse, you may not have even placed your order before then.

3) You beta watch out, you beta not cry. Stock prices tend to move together.  It’s just that some move faster than others.  A way to measure this relative movement is to measure a stock’s beta.  Usually, a stock’s beta is measured against a broad market indicator like the Philippine Stock Exchange Composite Index or PSEi. Operationally, if a stock’s beta is 1.5, and the PSEi made a 2% return, that stock should make a 3% (i.e. 1.5 x 2%) return.

A higher beta would mean a stock with a more volatile and, therefore more risky behavior vis-à-vis the PSEi. This is not to say that stocks with high betas should be totally avoided.  You just need to match your risk tolerance with that of the stock you are buying. In other words, buy with eyes wide open. You don’t need to perform the computations for deriving beta as you can simply ask for them from your stock broker.

4) Investment decisions have manufactured and best before dates. Do not cry over spilled milk as they say.  If you are truly diligent in studying your options before investing, you would always make the best decisions given the information available to you at the time.  However, the only thing that is constant in life is change itself. Your investment decisions will have a shelf life as many factors can change with the underlying companies you bought.  So make it a habit to review your investments periodically.  Once a quarter should be good enough.

5) Do not covet your neighbor’s allocation. Even if someone comes up to you to brag about the tons of money he made from a certain investment allocation,that is his allocation and not yours.  You will need to come up with your own according to your own return objectives and risk preference.  How else will you be able to tell your own story?

6) Do not get too excited with breaking news. Stock investing is manic-depressive.  Keep your cool when you come across exciting news. In the first place, if it wereexciting news about a certain stock, it would already be a time to sell that stock and not to buy it. You are supposed to buy before the news breaks. More importantly, it is the long-term earnings and growth prospects of the underlying companies you boughtthat you should focus on.

There are much more stock investing commandments to write about.  But the foregoing should give you enough to chew on for a while.

Thanks to Randell for allowing me to post this guest blog.  More power to you my dear friend.

Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected].

Copyright 2013 Efren Ll. Cruz, RFP.  All rights reserved. This material should not be published, broadcast, rewritten or redistributed without the express written of the author. 

There is every reason why we should be celebrating Fitch’s recent credit upgrade of the Philippines. With the upgrade, we are now officially “investment-grade” which really means many things. An investment-grade status is a confirmation that the Philippines is a sound nation financially and that it has the capacity to pay off its debts.

President Aquino is obviously ecstatic with the upgrade; he said “this is an institutional affirmation of our sound good governance agenda” in a statement.

In a nutshell, the new status will effectively reduce the cost of our borrowings which when managed properly, can be used for key investments and infrastructure that will further spur economic growth. The upgrade will also usher the inflow of more institutional investments such as investment funds of other countries that usually require investment destinations to be ‘investment grade’. This move will even grow the local investment market which has been bullish in the last 3 years. The Philippine Stock Market already reflected a positive sentiment upon the news of the upgrade. It is more likely that the stock market will continue to ride on this upgrade, as well as other investment instruments like bonds.

It is important to note that while Fitch is a very reputable rating organization, the other two rating organizations namely Standard & Poor’s and Moody’s must also upgrade the status of Philippines to confirm our being truly ‘investment-grade’.

I believe that the upgrades merely affirmed what the market has already known as showed by how the Philippine investments have been faring, particularly our sovereign debt. For some time now, the Philippine sovereign issues (ROPs) have been trading with yields much lower than other nations with the same credit rating; in fact, the Yield-to-Maturity (YTM) of our ROPs are even lower than the debts of other nations who are rated as ‘investment-grade.’ Returns are always an indication of the risks involved so when the market makes our debts trade with lower yields, it also means that the market views us as low risk as well.

I asked some of my friends about what the benefits of the upgrade means to them and to the nation as a whole. I’m also proud to say that these friends of mine are experts in their own fields as well – I am blessed with awesome friends right? This is what they say:

“We deserve the upgrade, but remember that a credit rating is just a confirmation of what is already present in a debt issue, the debt security issuer and the economy as a whole. In other words, we and not the rating agency made ourselves investment grade. So upgrade or not, the country is indeed on its way to becoming an economic force in the world arena. We just need to learn how to spread wealth better.”

— Efren Ll. Cruz, RFP- President of Personal Finance Advisers Corp., best-selling finance author, columnist, investments expert

“This is definitely the seal and proof that Philippines is a good country to invest in and supports my bullishness in the Philippines. This will open up our markets to more investors who were not allowed to participate before. Increased Investments will surely open up better opportunities for the ordinary Filipino. I definitely recommend that Filipinos participate in this growth opportunity by investing as well.”

— Marvin Fausto – Chief Investment Officer of Banco de Oro Universal Bank

“The investment upgrade will propel our stock market even further as it will allow more foreign funds to invest in the Philippines. It will also help our economy as it will allow our government to borrow cheap, build more infrastructures, and allow businessmen to expand their businesses further. To the common Filipino, it would give them an opportunity to take housing and car loans cheaper. This upgrade has triggered a signal to the world that – ‘Hey! The Philippines exists and is now a safe haven for your money!’ This is such a great time to be a Filipino.

— Marvin Germo, RFP – Stock Market expert and investments speaker

“Investment Grade is not an end objective. It is a recognition that a country has graduated from a condition of doubt to a reasonable level of investment risk. The Philippines graduating to that is an expectation this year – the only thing uncertain was when. Fitch’s ratings upgrade to the Philippines is a validation of the core improvement in the country’s international credit and investment status. This upgrade means that the Philippines has to do its homework. It has leveled up in the eyes of the investment community globally. The upgrade actually does not necessarily translate to immediate economic betterment as being investment grade simply means that one can borrow at cheaper rates in the international market. Borrowing is something we do not need to do now as the country is very liquid – both the government and the private sector. Local interest rates are in their historic lows already. What the investment grade is telling us is that ‘we believe in your country to be able to institute the needed structural reforms to translate our trust into productive pursuits.’ Finally, it is important that the two other larger ratings agencies – S&P and Moody’s should affirm the same soon to consolidate and cement this trust.”

— Dr. Alvin P. Ang – Economist and President of the Philippine Economic Society

“Companies that would not otherwise invest in the Philippines as they require investment grade status would now do so. Our borrowing costs would also go down. This means more jobs and a stronger economy as money goes towards industries, infrastructure, etc. In the near term the peso is likely to appreciate though, which could pose problems for OFW families.”

— Rizalina Mantaring – President & CEO, Sun Life Philippines

The above views are from the experts; I will post another blog about the views of ordinary Filipinos (who are experts in their own rights) which I solicited through social media.

We are very excited with the nation as a whole and while there is much work to be done, I believe we are in the right path. We must also never forget where all these blessings are coming from and knowing our responsibilities for such blessings, lest all these gains will be for nothing.

Blessed is the nation whose God is the LORD, the people he chose for his inheritance. – Psalm 33:12, NIV

Catch the biggest youth finance event of the year featuring friends that I respect and admire: Dennis Sy, Efren Cruz, Miriam Quiambao, Fausto Brothers, etc.