LONG or SHORT

 

Whether you trade stocks directly (online) or invest in mutual funds, you pay commission, taxes, etc.. (every time you buy or sell stocks), and you pay sales load and exit fees (every time you invest in mutual funds) — As a small time investor, it becomes very costly if your  strategy is to go IN and OUT of the market very often (defined as hyperactive trading).

 

As a passive investor (meaning you have a regular job and you trade or make other people manage your funds), it is always advisable to go LONG. Always look at your investment in the long tern, this way you don’t have to pay high sales load, commissions, exits fees, taxes, etc. very often.

 

Those people who trade everyday are professional stock brokers. They are hyperactive, since they have to make a living (every time they execute a sale, they get paid, regardless if the investor earns or not)

 

After I read the book of Daniel Solin “the Smartest Investment Advice you’ll ever get”, it changed my perspective in trading. If you’ll be a hyperactive trader — the only person who’ll get rich is your broker (or online broker), since every single trade you perform, you pay them commissions, etc. (whether your stock picks earn or not) — and as a small investor (you buy only small lots due to capital constraints), it’s very expensive to be hyperactive.  Don’t get me wrong. I have nothing against brokers, and I have my deepest respect to such profession, but I guess at the end of the day, you’re best financial advisor is still that person you see every morning in the mirror.

 

Though, at times it’s inevitable to trade short (not just for the fun and excitement you derived from it), especially after picking the wrong stocks. If ever I’ll go short, I normally follow these guidelines..- set your buy price (after thoroughly studying the data)
- set your sell price (in my case, i feel comfortable with 10%-25% gain) — never be too greedy!
- as soon as you hit your desired sell price — then SELL and reap your reward, never think twice..

 

 

- if your paper loss amounts to -10%, then SELL and accept the fact that you made some lousy choices — don’t  ever look back.

 

After reading Warren Buffett’s biography, it gave me valuable insights about investing. When buying stocks, look at it just like buying a portion of the company.  A company which you believe will deliver and bring in valuable earnings in the long run. Look at the company’s fundamentals and see if the product they offer can withstand macroeconomic factors. Don’t invest because you predict that a stock price will rise in the future, but buy a company which will sell more of its goods year on year to ensure high revenue and profits. Never time the market. Never predict the market. Always buy at a discount. And when everyone is selling, it’s the best time to bargain hunt. Diversify only to at most 6 stocks (6 best companies you believe will give the best returns). If you will pick 20 or more stocks – then better invest in Index Funds, as it will mostly like yield the same results.

CITIBANK SHELL VISA

 A few days back, I saw in the papers a new citibank card — CITIBANK SHELL VISA.  Since, I’m a CITIBANK SHELL MASTERCARD holder, I emailed customer service to inquire about the new card, and here’s their reply…

We wish to inform you that upon renewal of your Citi Shell Mastercard,
it will already be replaced with the new Citi Shell Visa card. Please
note that benefits and features of the new card will be the same as your
existing card except for the rebates. Please see below:

5% Rebate on Shell Fuel Purchases  (previously 3%)
0.5% Rebate on Non-Fuel Purchases  (previously 1%)
Emergency Roadside Assistance (same as SCM, via 632 7000, international
SOS)
5% Discount on Shell Helix Plus Packages
10% discount on Shell Helix ULTRA Packages

Also, kindly note that prior to renewal of your card, you will
automatically enjoy the 5% Shell Fuel Rebates, 1% for non-fuel until May
31, 2008.  Effective June 20, 2008 the Rebates for Non-fuel purchases
will align at 0.5%.

With skyrocketing fuel prices, this is a blessing from the sky (at least better than nothing).

BUFFETT – Part 1

Recently, I got hold of a great book by Roger Lowenstein, Buffett: The Making of an American Capitalist, and the storytelling of Buffett’s lifestory is simply amazing.

So far, I’ve read 3 chapters, and I would like to share 2 tidbits, which I find simple yet profound …

“Leave off in time to pay your debts and save your credit, for that is better than money.” (I believe this applies for business – when things turn sour, be sure to save your credit)

 “You try to be greedy when others are fearful and you try to be fearful when others are greedy.” (I believe this is true for the Stock Market — remember, the psychology of stock trading goes beyond charts and data. As people can’t set apart emotions from objectivity, the herd mentality will always prevail as everyone wants to hit the jackpot everytime)

to be continued… (for more insights)

Also, check out “EIC – Warren Buffett Biography #1 to #7″ from MY VIDEOS. The documentary gives you a preview of the content of this book by Roger Lowenstein. (this is multimedia as its best!)

CITIBANK (ATM CARD)

 

Often times we complain about high ATM transactions fees, especially if you transact with other bank’s ATM. Of course, it is always advisable to transact with your bank’s machine to avoid transaction fees (withdrawal fee, balance inquiry fee, etc.), but often times you find yourself in need of cash, and your bank’s ATM is no where near the area.

 

A typical withdrawal or balance inquiry may cost you from Php8 to Php12 per transaction. And since it’s not your bank’s machine, it would only allow you to withdraw a max amount of Php4000-Php5000 per transaction. What if you need to withdraw Php20,000? Then that would be 4-5 transactions multiplied by the amount of the transaction fee (wow, instant hold-up!)

 

If you’re tired of all these exorbitant bank transaction fees, did you know that there is a bank which offers an ATM card and charges NO transaction fees? Yes, you heard it right… NO transaction fees, even if you transact with other bank’s machine (Bancnet, Megalink, or ExpressNet)..Thanks to CITIBANK ATM Card.

 

Though, to open an account with Citibank may require higher amount, but if you look at it in the long run, this is much savings (if you regularly transact with other bank’s machine). Citibank is different from Citibank Savings (just like HSBC and HSBC Savings). Though, both are offering the same perks, Citibank Savings Bank allows you to open an account with less amount compared to Citibank which requires 100K to open a savings account.

 

Hmmmm… I have not opened an account with Citibank yet, but this is an offer hard to resist. What do you think?

 

 

Citibank Savings Citicard (ATM card)

 Enjoy the benefits of your Citibank Savings Citicard (ATM Card) that comes with your Savings, Checking or U.S. Dollar account:

• No transaction fees at over 6,500 BancNet, MegaLink and Expressnet ATMs in the Philippines.
• Access your money at over 860,000 ATMs worldwide.*
• Withdraw U.S. Dollars from your U.S. Dollar account at any Citibank Savings ATM.
• High daily ATM withdrawable limit.
• Cashless shopping with BancNet Point-of-Sale System in over 200 establishments in the Philippines.

SAL and PSIE

STATEMENT OF ASSETS AND LIABILITIES (SAL)

PERSONAL STATEMENT OF INCOME AND EXPENSES (PSIE)

 

They say in school, you have grades, report cards, and class cards. But, when you start living the real life, your report card becomes your SAL or PSIE — Statement of Assets and Liabilities (SAL) and Personal Statement of Income and Expenses (PSIE).  Below are examples of those statements, with some little explanation per line item for easy guidance.

 

Other people say, only the rich people keep track of their SAL and PSIE – and with my measly salary as an ordinary employee, why bother create my SAL and PSIE — WRONG!!!!

 

Whether you have millions or just a couple thousands, it is important to keep track of your finances, that way you’ll know if you have enough for your family and enough for your future plans. It will be a tangible reminder if you’re on the right track.  Always remember, for you to have 1 Million, it will always start with the 1 peso. If you can’t track your 1 peso, it will never reach 1 Million.

 

In personal finance, ignorance is forgivable (if you don’t know it now, read and learn), but stubbornness is stupidity.

 

In SAL, it itemizes your Assets and Liabilities. To obtain your Net Worth, just subtract your Liabilities from your Assets.

 

ASSETS minus LIABILITIES equals NET WORTH.

 

Accounting Principles may have different criteria in identifying Assets and Liabilities, but to simply it, I just follow these simple guidelines.

 

ASSET = anything that puts MONEY in your pocket

LIABILITIES = anything that takes MONEY out from your pocket

 

 

 

	STATEMENT OF ASSETS AND LIABILITIES (SAL)
	JUAN DELA CRUZ in PHP
	As of January 1, 2008
	ASSETS
1	Personal Assets			950,000.00
2	House and Lot			500,000.00
3	Car			300,000.00
4	Appliances/Electronics			100,000.00
5	Others			50,000.00
6	Savings & Investments	Units	Value	270,570.70
7	Payroll SAVINGS ACCT (PHP)			30,000.00
8	Personal SAVINGS ACCT (PHP)			30,000.00
9	Personal CURRENT ACCT (PHP)			10,000.00
10	Personal SAVINGS ACCT (USD)	1000	41.8000	41,800.00
11	Time Deposit			50,000.00
12	Stocks			25,000.00
13	Mutual Funds	3000	11.2569	33,770.70
14	UITF	500	100.0000	50,000.00
15	TOTAL ASSETS				1,220,570.70
	LIABILITIES
16	Personal Debt			750,000.00
17	Salary Loan			50,000.00
18	Housing Loan			400,000.00
19	Car Loan			300,000.00
20	TOTAL LIABILITIES				750,000.00
21	PERSONAL NETWORTH				470,570.70
22	TOTAL LIABILITIES and NETWORTH				1,220,570.70

 

 

Now, let’s define each item…

 

1 – 5 (Personal Assets) = in our definition above, we mentioned ASSET as something that puts money in our pocket. How will items 2-5 put money in our pocket. I still classified them as assets coz these are hard properties, that when push goes to shove, you can liquidate them (sell them), and that will put money in your pocket J But be sure, you declare the rightful depreciated/appreciated value of these properties coz most of these items depreciate in time.

 

6 (Savings and Investments) = according to a study, a typical Filipino owns a cellular phone / ipod / or psp first, before he opens his first personal bank account. Sad, but it’s true. Most people view savings as something in excess from their monthly salary. Start the habit of SAVING and INVESTING. You don’t have to be a millionaire to start saving and investing.

 

7 (Payroll Savings Account) = if you’re employed, most likely you’ll have this. Other people keep this as their personal savings account as one. I don’t agree. Payroll accounts have waived monthly maintenance (negotiated by your company), therefore this money will never earn any interest. My practice, I withdraw all the money in my payroll account very month (that way, I can keep track how much money comes in every payday), transfer it to my personal savings account.

 

8 (Personal Savings Account) = if your Payroll Acct has no chance of earning any interest, at least your personal savings account can give you from 0.75% to 1.00% per annum interest rate (better than nothing). Also, this gives you the convenience of online banking – funding checks, paying bills online, etc. Always take advantage of all the technological perks, it saves you time, money, and energy, and best of all you’re your commercial bank gives you those services for free, so long as you maintain an account with them.

 

9 (Personal Current Account) = or what they call checking account. Another fallacy, most people thought that you have to be rich to open a checking account – WRONG! You only need 5,000 or 10,000 pesos to maintain a Current Account. This gives you the convenience of drawing checks to pay for your monthly amortizations or loans (car, housing, etc.). But be careful; never draw checks if you can’t fund it. Bouncing check is a crime (Estafa) – better be responsible, or jail time awaits you.

 

 

10 (Personal Savings Account –USD) = if you have OFW family, it pays to maintain a dollar account. But, if you don’t intend to migrate to another country which uses such currency, I suggest you maintain a minimum amount, just enough for emergency purposes. It comes handy if you travel abroad for business, office functions, or leisure purposes. Other people use it to hedge currency (though USD has been down, most people are shifting to EUR – Euro or AUZ – Australian Dollars), it really depends on your goal for maintaining such account.

 

11 (Time Deposit) = if you have saved for your emergency fund, it would be better if you can put it in an instrument that can earn you higher than a typical savings account (1%) can earn you, and time deposit can be an option. In my opinion, I prefer opening a Time Deposit in a Rural Bank since the offer higher interest rates than Commercial Banks. Though, many argue that it’s not safe to park your money in rural banks, but so long as you pick a good bank, and it’s PDIC insured, open an account under your name, and don’t exceed the 250K PDIC insured amount, I personally don’t think you should worry.

12 – 14 (Stocks, Mutual Fund, UITF) = after saving for your emergency fund, any money in excess should be invested to earn higher returns. For inexperienced investors, or those who don’t have the knowledge and the time to monitor their investment, coz either they’re gainfully employed or running their own business, you can always pay other people to manage your investment. The cheapest way to do it is invest in Mutual Funds. I can discuss mutual funds in a separate blog, but in a nutshell, you don’t have to be filthy rich to invest in stocks or other money market instruments. Mutual Funds are created for small investors (you can open an account for as small as 5K), and it pools all the small investors’ money. The mutual fund company in turn invests the amount either in stocks, bonds, and bills just like those rich investors do.

 

15 (TOTAL ASSETS) = if you add up all your personal assets, savings, and investment, you’ll get your total assets. If you want to see that amount to constantly increase year after year, make sure you save as much as you can. Make it a habit to pay yourself first before anything else. My basic principle – SAVE SAVE SAVE — if you have saved a comfortable amount, then.. INVEST INVEST INVEST — make your money work for you, and make other people work for your money to work for you… if you have invested more than enough, and would like to take some calculated risks.. CAPITALIZE CAPITALIZE CAPITALIZE – now it’s time to run your own business and reap the highest return

 

16-19 (Personal Debt) = either a housing loan, car loan, or salary loan, so long as you’re responsible in paying your monthly amortization, and even before entering such loans, you have carefully calculated that your monthly take home pay allows you to pay-off your debt, then it’s OK. Don’t be afraid to take on loans. Most people don’t have the outright cash to pay for their house and cars, that is why loans are invested to help people, and not bury them alive with skyrocketing debts.

 

20 (TOTAL LIABILITIES) = add up all the money you owe, you get your TOTAL LIABILITIES. Year on year, you should be seeing this amount to go lower and lower as you religiously pay-off your debt. If you see it otherwise, then it means your not paying your debts or you’re incurring more debts than your can afford.

 

21 (PERSONAL NET WORTH) = this is your final score/grade. Subtract your total liabilities from your total assets, and you’ll get your personal net worth. It is desired to have a positive net worth than negative. Positive net worth signals that you have more assets than liabilities, meaning you have been saving and investing more than you’re spending. Otherwise, a negative network means you owe more than what you own. If bad things happen to you today, you’ll be in bad shape.

 

 

 

Inorder to see your SAL growing, you have to keep track of your cashflow. Maintaining a Personal Statement of Income and Expenses (PSIE) itemizes your income, and shows how you’re spending it.

 

In PSIE, you have to list down all your INCOME, and all your EXPENSES.

 

The idea is for you to have enough INCOME to cover your monthly EXPENSES. Below is a sample statement.

 

 

	PERSONAL STATEMENT OF INCOME & EXPENSES (PSIE)
	JUAN DELA CRUZ in PHP
	GROSS PAY = Php 30,000
	INCOME				40,000.00	100%
1	ACTIVE:
2	Salary			30,000.00
3	Sideline			10,000.00
4	PASSIVE:
5	Interest Income			0.00
6	Other Income			0.00
	EXPENSES (for Savings and Investment)				8,000.00	20%
7	Mutual Funds / UITF			3,000.00
8	Stocks			2,000.00
9	Time Deposit			3,000.00
	EXPENSES (for Monthly Living)				32,000.00	80%
10	TAXES			8,000.00
11	Food/Grocery			4,000.00
12	Cable/Internet			1,000.00
13	Car Maintenance/Gas			2,000.00
14	Utilities			2,000.00
15	Insurance			1,000.00
16	Car Amortization			7,000.00
17	House Amortization			5,000.00
18	Personal Loan			1,500.00
19	*Charity			500.00
20	Movies			0.00
21	Clothes/Personal			0.00
22	Miscellaneous			0.00
23	EXPENSES (TOTAL)				40,000.00	100%
24	Net CASH AVAILABLE for Addtn’l Investments OR Expenses				0.00	0%

 

 

Now, let’s define each item…

 

1 – 6 (INCOME) = you have 2 types of Income; Active Income and Passive Income. Active Income is defined as income derived from labor – doing something, and you get paid for it. Normally, you get it from being gainfully employed or you take advantage of your skills, and do some sideline jobs (during weekends perhaps), while keeping your day job.  Here, declare your Gross Pay – INCOME before taxes (and not your take home pay)

 

7 – 9 (EXPENSES – Savings) = as I mentioned earlier, most people don’t save coz they view it a something in excess and most often than not, their monthly income is not even enough to cover their monthly expenses. Not unless you pay yourself first, you can never start saving. Since SAVING is an act of paying yourself first, then consider it as part of your expenses, a money that you immediately set aside and consider spent already. There is no prescribed amount for you to set aside, depending on your level of comfort, but I suggest you peg an exact amount every month, let’s say 20% of your gross pay. When you have committed 20% for savings monthly, then make sure you can religiously comply with your commitment. For most single people, if you can save more than 20%, then much better. When we say saving, it doesn’t necessarily mean keeping your money in the bank. You can tap several instruments to achieve higher returns such as, time deposits, mutual funds, and stocks.

 

10 – 22 (EXPENSES – Monthly Living) = After setting aside your savings, then we can itemize your monthly expenses. First in the list is TAX – your service to your nation. Since most of us are employed, and tax is withheld every paycheck whether we like it or not, it is one of the monthly expenses we spend for every month (since you consider it a monthly expense, the reason I asked you to declare your Gross INCOME, and not Net). After which, expenses like rent, amortization, utilities, gas, food, etc should be part of your list. This portion of PSIE is something that is not cast in stone, so you can always change or adjust some items based on your monthly needs.

 

23 (TOTAL EXPENSES) = add up your saving expenses and your monthly living expenses, then you’ll come up with your total monthly expenses. The idea, you should not be spending more than you’re earning. EXPENSES should be less than or equal to your INCOME. Otherwise, if you’re spending more than you’re earning, then you have to revisit your lifestyle and financial decisions – your habits might be setting you for more debt and not financial freedom.

 

23 (NET CASH AVAILABLE FOR ADDITIONAL SAVINGS OR EXPENSES) = If your Expenses are less than your Income, then every month you’ll have some spare cash. Either you allocate such cash for additional savings or investments or allocate them for additional expenses (those miscellaneous items which are not covered by your PSIE). If you’ll ask me, I’d rather put such money in savings and investments – I’m sure, you know why. If you come up with NEGATIVE Net Cash, then you have to revisit your monthly expenses and set realistic goals.  Reduce your SAVINGS – NO!!!!! Adjust your Living Expenses, possibly you’re living a lifestyle more than you can afford.

 

 

Though, it’s time consuming to keep track of your SAL and PSIE. But as they say… NO PAIN, NO GAIN. Do yourself a service, pay yourself first by adding savings to your monthly expenses, keep track of your expenses (live a lifestyle within your capacity), and explore instruments that will make your money work for you.  START NOW!