How to judge whether a company is worth investing in

by Cathy Rose A. Garcia, ABS-CBNnews.com

MANILA, Philippines - Investor Warren Buffett is the fourth richest man in the world according to Forbes magazine, with a net worth of $53.5 billion. The so-called "Oracle of Omaha" didn't become a billionaire through sheer luck, but by following the strategy of value investing".

Buffett is perhaps one of the most famous proponents of value investing, which he learned from the "father of value investing" Benjamin Graham at Columbia Business School.

With Buffett's success in value investing, one would think many more would be following his lead.

But Vandermir Say, a chartered financial analyst and a value investor, said it's not widely practiced in most markets, including the Philippines.

"Perhaps because it entails analysis of a lot of annual reports. From the Philippine perspective, when you go out and ask market participants if they read annual reports, most of them will say they don't," he said in an interview on ANC's On The Money.

Say emphasized the importance of reading annual reports of companies before investing in them.

"Reading annual reports is just like taking a blood test. If you want to look into someone's health, you have to take a look into the body and look at the records and numbers to see how he's doing. If you're not digging into a company, the business the numbers or figures, whether it has debt or not, it's hard to tell whether the business is good or not," he said.

Say said investors should look at a company's financial performance in the last five or 10 years.
"How would you know what's the cashflow of a business or will be? Essentially, the only way you can do that is looking through annual reports. Looking at the history, like PLDT, Meralco, you can see their income figures in the last 10 years. These would be very good indicators of how they're going to perform in the future," he said.

Value investors pay close attention to the income and cashflows. "We look at the past historical records to show us what they have done and from there we can understand what they can offer in the future," Say added.

Another important detail that value investors keep an eye on is the company's debt. Say noted that if you look a two companies' stock price, everything make look the same, but if you flip through the annual reports, you will see which one has debt.

Value investors are in it for the long term when making any investment. Say noted value investors like to say: "In the short term, the value of the market is a voting machine. In the long-term, it's a weighing machine."

"It's like voting - more buyers, the market goes up. More sellers, the market goes down. We don't play that game. In the long run, it's a weighing machine, it depends on the business. Does the business have good values, good cash flows, sustainable business model, competitive advantages - those are what lasts and determines the value of the stock in the long run," Say said.

http://www.abs-cbnnews.com/business/03/28/13/how-judge-whether-company-worth-investing

21 Ways Rich People Think Differently

From Steve Siebold, author of "How Rich People Think."

1.  Average people think MONEY is the root of all evil. Rich people believe POVERTY is the root of all evil.

"The average person has been brainwashed to believe rich people are lucky or dishonest," Siebold writes.

That's why there's a certain shame that comes along with "getting rich" in lower-income communities.

"The world class knows that while having money doesn't guarantee happiness, it does make your life easier and more enjoyable." 

2.  Average people think selfishness is a vice. Rich people think selfishness is a virtue.

"The rich go out there and try to make themselves happy. They don't try to pretend to save the world," Siebold told Business Insider. 

The problem is that middle class people see that as a negative––and it's keeping them poor, he writes.

"If you're not taking care of you, you're not in a position to help anyone else. You can't give what you don't have."

3.  Average people have a lottery mentality. Rich people have an action mentality.

"While the masses are waiting to pick the right numbers and praying for prosperity, the great ones are solving problems," Siebold writes.

"The hero [middle class people] are waiting for may be God, government, their boss or their spouse. It's the average person's level of thinking that breeds this approach to life and living while the clock keeps ticking away." 

4. Average people think the road to riches is paved with formal education. Rich people believe in acquiring specific knowledge.

"Many world-class performers have little formal education, and have amassed their wealth through the acquisition and subsequent sale of specific knowledge," he writes. 

"Meanwhile, the masses are convinced that master's degrees and doctorates are the way to wealth, mostly because they are trapped in the linear line of thought that holds them back from higher levels of consciousness...The wealthy aren't interested in the means, only the end."

5.  Average people long for the good old days. Rich people dream of the future.

"Self-made millionaires get rich because they're willing to bet on themselves and project their dreams, goals and ideas into an unknown future," Siebold writes. 

"People who believe their best days are behind them rarely get rich, and often struggle with unhappiness and depression."

6.  Average people see money through the eyes of emotion. Rich people think about money logically.

"An ordinarily smart, well-educated and otherwise successful person can be instantly transformed into a fear-based, scarcity driven thinker whose greatest financial aspiration is to retire comfortably," he writes.

"The world class sees money for what it is and what it's not, through the eyes of logic. The great ones know money is a critical tool that presents options and opportunities." 

7.  Average people earn money doing things they don't love. Rich people follow their passion.

"To the average person, it looks like the rich are working all the time," Siebold says. "But one of the smartest strategies of the world class is doing what they love and finding a way to get paid for it."

On the other hand, middle class take jobs they don't enjoy "because they need the money and they've been trained in school and conditioned by society to live in a linear thinking world that equates earning money with physical or mental effort."

8.  Average people set low expectations so they're never disappointed. Rich people are up for the challenge.

"Psychologists and other mental health experts often advise people to set low expectations for their life to ensure they are not disappointed," Siebold writes.

"No one would ever strike it rich and live their dreams without huge expectations." 

9.  Average people believe you have to DO something to get rich. Rich people believe you have to BE something to get rich.

"That's why people like Donald Trump go from millionaire to nine billion dollars in debt and come back richer than ever," he writes. 

"While the masses are fixated on the doing and the immediate results of their actions, the great ones are learning and growing from every experience, whether it's a success or a failure, knowing their true reward is becoming a human success machine that eventually produces outstanding results."

10. Average people believe you need money to make money. Rich people use other people's money.

Linear thought might tell people to make money in order to earn more, but Siebold says the rich aren't afraid to fund their future from other people's pockets.

"Rich people know not being solvent enough to personally afford something is not relevant. The real question is, 'Is this worth buying, investing in, or pursuing?'" he writes. 

11. Average people believe the markets are driven by logic and strategy. Rich people know they're driven by emotion and greed.

Investing successfully in the stock market isn't just about a fancy math formula.

"The rich know that the primary emotions that drive financial markets are fear and greed, and they factor this into all trades and trends they observe," Siebold writes.

"This knowledge of human nature and its overlapping impact on trading give them strategic advantage in building greater wealth through leverage."

12. Average people live beyond their means. Rich people live below theirs.

"Here's how to live below your means and tap into the secret wealthy people have used for centuries: Get rich so you can afford to," he writes.  

"The rich live below their means, not because they're so savvy, but because they make so much money that they can afford to live like royalty while still having a king's ransom socked away for the future." 

13. Average people teach their children how to survive. Rich people teach their kids to get rich.

Rich parents teach their kids from an early age about the world of "haves" and "have-nots," Siebold says. Even he admits many people have argued that he's supporting the idea of elitism. 

He disagrees.

"[People] say parents are teaching their kids to look down on the masses because they're poor. This isn't true," he writes. "What they're teaching their kids is to see the world through the eyes of objective reality––the way society really is." 

If children understand wealth early on, they'll be more likely to strive for it later in life.

14. Average people let money stress them out. Rich people find peace of mind in wealth.

The reason wealthy people earn more wealth is that they're not afraid to admit that money can solve most problems, Siebold says.

"[The middle class] sees money as a never-ending necessary evil that must be endured as part of life. The world class sees money as the great liberator, and with enough of it, they are able to purchase financial peace of mind."

15. Average people would rather be entertained than educated. Rich people would rather be educated than entertained.

While the rich don't put much stock in furthering wealth through formal education, they appreciate the power of learning long after college is over, Siebold says.

"Walk into a wealthy person's home and one of the first things you'll see is an extensive library of books they've used to educate themselves on how to become more successful," he writes.

"The middle class reads novels, tabloids and entertainment magazines." 

16. Average people think rich people are snobs. Rich people just want to surround themselves with like-minded people.

The negative money mentality poisoning the middle class is what keeps the rich hanging out with the rich, he says.

"[Rich people] can't afford the messages of doom and gloom," he writes. "This is often misinterpreted by the masses as snobbery.

Labeling the world class as snobs is another way the middle class finds to feel better bout themselves and their chosen path of mediocrity."

17. Average people focus on saving. Rich people focus on earning.

Siebold theorizes that the wealthy focus on what they'll gain by taking risks, rather than how to save what they have.

"The masses are so focused on clipping coupons and living frugally they miss major opportunities," he writes.

"Even in the midst of a cash flow crisis, the rich reject the nickle and dime thinking of the masses. They are the masters of focusing their mental energy where it belongs: on the big money." 

18. Average people play it safe with money. Rich people know when to take risks.

"Leverage is the watchword of the rich," Siebold writes. 

"Every investor loses money on occasion, but the world class knows no matter what happens, they will aways be able to earn more." 

19. Average people love to be comfortable. Rich people find comfort in uncertainty.

For the most part, it takes guts to take the risks necessary to make it as a millionaire––a challenge most middle class thinkers aren't comfortable living with.

"Physical, psychological, and emotional comfort is the primary goal of the middle class mindset," Siebold writes.

World class thinkers learn early on that becoming a millionaire isn't easy and the need for comfort can be devastating. They learn to be comfortable while operating in a state of ongoing uncertainty." 

20. Average people never make the connection between money and health. Rich people know money can save your life.

While the middle class squabbles over the virtues of Obamacare and their company's health plan, the super wealthy are enrolled in a super elite "boutique medical care" association, Siebold says.

"They pay a substantial yearly membership fee that guarantees them 24-hour access to a private physician who only serves a small group of members," he writes.

"Some wealthy neighborhoods have implemented this strategy and even require the physician to live in the neighborhood."

21. Average people believe they must choose between a great family and being rich. Rich people know you can have it all.

The idea the wealth must come at the expense of family time is nothing but a "cop-out", Siebold says.

"The masses have been brainwashed to believe it's an either/or equation," he writes. "The rich know you can have anything you want if you approach the challenge with a mindset rooted in love and abundance."

http://www.businessinsider.com/how-rich-people-think-differently-from-the-poor-2012-8?op=1#ixzz2OXVpZ5Ug

Should I sell all my stocks now?

By Henry Ong
Philippine Daily Inquirer

Q: The stock market has started to move sideways last week after registering an all-time high at 6,800 points recently. I wonder if this is a good time to take profits now as many stocks are already expensive, but I also worry that I might regret it later if the market resumes its uptrend and goes up further. I want to maximize my profits from stocks. Can you advise me? – Evan De Vera by e-mail

A: The reason you hesitate to sell your stocks now is you have the feeling of greed that comes with the anticipation that the market will further go up. The feeling of greed tells you to hold on to your stocks and wait for it to go higher as everyone expects the stock market to break the 7,000 target soon.  There is a feeling of denial within you every time you see the market falling because you don’t want to hurt your ego by accepting the possibility that you may be wrong about your expectations.

Yes, there is no doubt that the market will go up again and possibly set another record high but every time the market goes up, the risk of losing also gets bigger. Considering the rocket speed and steep rise of the PSE index, which rose by 18 percent in less than three months, it is not hard to see that the stock market may soon be due for massive correction.

It may not necessarily be a sharp fall unless there is a reason for the market to panic but it may decline slowly on choppy fashion. Speculators will trade less as buying slows down.  Traders take a back seat and assess where the market stands fundamentally. Some may fear that the market has topped already. Others think that since the Philippine stock market is already trading at scary valuations, many stocks are now ripe for the harvest.

This may be the best time for you to cash in on your gains while the opportunity to sell at a good price is still there.  You may have missed out selling it at the highest price but at least you will be able to sell it at a nice profit before it is too late. You will never know where the market will go next. It may recover soon or stay sluggish for some time. When you sell it now, you can have that peace of mind that you can always buy it back later when it falls further.

If you are holding on to shares that are still trading at paper loss, you can sell it at best price possible. It doesn’t have to go above your cost. If you think that the stock has nothing good to offer and it is not going anywhere amidst the  bullish market environment, then make a decision to cut your losses and minimize the damage.

As a rule of thumb, cut your losses when your investment has already lost 7 to 8 percent from your purchase price. If you cut your losses at 15 percent, you will need the stock to recover by 18% to break even.  If you sell your stock at 50 percent loss, you will need the stock to recover by 100 percent  just to break even.

There are growing risks that indicate that the market may be on its way to correct soon.  

Because of so much money that is flowing into the market brought about by lower interest rates, investing in Philippine stocks has been more of liquidity driven rather than fundamentals driven.  

The excess liquidity in the system has been propelling the market to euphoric levels.  Market players have turned into speculators from investors. When people start to ignore high P/E valuations and buy up stocks like crazy, trouble is not far behind. Sooner or later, this market bubble is going to burst and many people will be rushing to get out of the market.

As we approach the end of the first quarter, it will be interesting to see how the quarterly earnings results will turn out next month. A quick sampling of the top index stocks with at least 20x P/E and above shows that the average expected earnings growth rate this year is 23 percent. Will the first quarter earnings results align with market expectations? That is something to watch out for. If the results turn out to be disappointing, then expect the market to fall. Share prices will be falling until market adjusts to a lower P/E target.

Another risk to look out for is inflation. Declining inflation from 4.6 percent in 2011 to 3.1 percent last year helped push stock prices up. The low inflation environment is a  key factor that makes the market willing to pay a premium for market P/E  because there is a perception of quality in earnings growth. The growth that is not artificially caused by inflation, because it is low but by real demand.

In  February, the inflation rate has started to pick up and rose to 3.4 percent, the fastest in four months. Although this is still low by any comparison,  there is a probability that this trend will carry on. With so much money circulating in the system, increased consumer spending that will support our growing economy this year will likely drive inflation higher. Also, we have the forthcoming national elections when a lot of money will change hands. When inflation increases, the premium on market P/E declines.

Sell now while it feels good. Look for the opportunity to sell your stocks at a good price. Selling on strength every time the market makes rally is a good strategy to get out.

Henry Ong is registered financial planner of RFP Philippines. To learn more about financial planning and how to become RFP, attend a free personal finance talk on April 4, 7 p.m. at PSE Center, Ortigas. To reserve, e-mail at info@rfp.ph or visit www.rfp.ph