One year of Big Big!
Time flies!
Little did I notice that it has been over a year since I started blogging in Big Big Trade. I wrote my first entry on March 1, 2006 about the property sector, please read
Property Sector
At that time the PSEi was trading at around 2,050 - 2,250 range. To date, I have written over a hundred entries and gotten numerous feedback (including criticisms) from my readers. The PSEi is currently trading at around 3,000 - 3,200 levels. Honestly, I am amazed with how fast I can convert thoughts to action ideas. I guess, I have my readers to thank, for inspiring me to do so.
Big big on the map.
There are several notable calls that I made and some "duds" along the way. Stocks that put Big Big Trade on the map are Philippine Stock Exchange (PSE - P650.0), Republic Cement (RCM - 5.80) and JG Summit (JGS - P12.75). These 3 stocks have returned an average of 350% since March 2006 compared to the 58% rise in the PSEi. As always, we have the market to thank for - and not ourselves, for bringing the stocks to its right value. I guess its not being right all the time but being right most of the time that counts.
One of the most common question from my readers is my investment philosophy.
Essentially, my investment principle is to find value. I usually look for stocks that are trading way below its "real" value, sit on it and harvest the returns when the market properly price the stock. As always, my favorite philosophy is to buy when the writings are on the wall rather than play hero. As my mentor would always remind me, " In the stock market, heroes are guillotined". I am not too worried about short term price swings for as long as I am confident about the value of the stock. Eventually, the market will finds its way to pay the right price for the stock. As for risk management, I always stick to my 25%-50%-25% rule. Instead of limiting my exposure to certain number of stocks, my strategy is to group the stocks into three baskets - patient, long term and speculative bets. Please read
Rule of Three
So what's up for the market in the coming months. I believe that the PSEi will trade at new highs within the year. Here's why:
1.) Mismatch in income growth and market capitalization. Since 1997, the country's GDP has expanded from US$62.0bn to around US$96.0bn in 2006. The close to 50% expansion in the country's GDP has not yet been captured by market. In dollar terms the PSEi is still trading 54% below its 1997 highs. Eventually, the market has to correct this discrepancy. So, seeing the PSEi rise further from current levels is very defensible. Assuming the market tracks the 1997 highs - in peso terms, this should bring the PSEi to 6,250. I am not saying that this will happen in the next 24 months. Long term - say 3 to 5 years, this can be the psychological target that the market is looking at.
2.) Price Earnings Ratio (PER) expansion. Moving forward, I expect an overall re-rating of the market. The market is currently trading at 15x PER. Excluding Ayala Land (ALI - P15.75) and SM Prime (SMPH - P11.0), the market is actually trading at mere 11x PER to 12/07 earnings. The key drivers to PER are earnings, earnings growth and discount rates. Higher earnings growth and lower discount rate will eventually lead to higher PER valuation. I do believe that discount rates on Philippine assets will go down to around 8% from the current 12% benchmark. This will likely expand PER to 15x - 16x. At those levels, the PSEi should be trading at around 3,800. Even with the recent market run-up, stalwarts like PLDT, Meralco, PNOC - EDC and Petron are trading at mere 10x-11x PER. Note that in 1997, the market was trading at a forward PER of 20x. So I guess, the PER target is doable based on past experience.
As we close the first quarter of 2007, i wish everyone a Big Big year ahead.
Little did I notice that it has been over a year since I started blogging in Big Big Trade. I wrote my first entry on March 1, 2006 about the property sector, please read
Property Sector
At that time the PSEi was trading at around 2,050 - 2,250 range. To date, I have written over a hundred entries and gotten numerous feedback (including criticisms) from my readers. The PSEi is currently trading at around 3,000 - 3,200 levels. Honestly, I am amazed with how fast I can convert thoughts to action ideas. I guess, I have my readers to thank, for inspiring me to do so.
Big big on the map.
There are several notable calls that I made and some "duds" along the way. Stocks that put Big Big Trade on the map are Philippine Stock Exchange (PSE - P650.0), Republic Cement (RCM - 5.80) and JG Summit (JGS - P12.75). These 3 stocks have returned an average of 350% since March 2006 compared to the 58% rise in the PSEi. As always, we have the market to thank for - and not ourselves, for bringing the stocks to its right value. I guess its not being right all the time but being right most of the time that counts.
One of the most common question from my readers is my investment philosophy.
Essentially, my investment principle is to find value. I usually look for stocks that are trading way below its "real" value, sit on it and harvest the returns when the market properly price the stock. As always, my favorite philosophy is to buy when the writings are on the wall rather than play hero. As my mentor would always remind me, " In the stock market, heroes are guillotined". I am not too worried about short term price swings for as long as I am confident about the value of the stock. Eventually, the market will finds its way to pay the right price for the stock. As for risk management, I always stick to my 25%-50%-25% rule. Instead of limiting my exposure to certain number of stocks, my strategy is to group the stocks into three baskets - patient, long term and speculative bets. Please read
Rule of Three
So what's up for the market in the coming months. I believe that the PSEi will trade at new highs within the year. Here's why:
1.) Mismatch in income growth and market capitalization. Since 1997, the country's GDP has expanded from US$62.0bn to around US$96.0bn in 2006. The close to 50% expansion in the country's GDP has not yet been captured by market. In dollar terms the PSEi is still trading 54% below its 1997 highs. Eventually, the market has to correct this discrepancy. So, seeing the PSEi rise further from current levels is very defensible. Assuming the market tracks the 1997 highs - in peso terms, this should bring the PSEi to 6,250. I am not saying that this will happen in the next 24 months. Long term - say 3 to 5 years, this can be the psychological target that the market is looking at.
2.) Price Earnings Ratio (PER) expansion. Moving forward, I expect an overall re-rating of the market. The market is currently trading at 15x PER. Excluding Ayala Land (ALI - P15.75) and SM Prime (SMPH - P11.0), the market is actually trading at mere 11x PER to 12/07 earnings. The key drivers to PER are earnings, earnings growth and discount rates. Higher earnings growth and lower discount rate will eventually lead to higher PER valuation. I do believe that discount rates on Philippine assets will go down to around 8% from the current 12% benchmark. This will likely expand PER to 15x - 16x. At those levels, the PSEi should be trading at around 3,800. Even with the recent market run-up, stalwarts like PLDT, Meralco, PNOC - EDC and Petron are trading at mere 10x-11x PER. Note that in 1997, the market was trading at a forward PER of 20x. So I guess, the PER target is doable based on past experience.
As we close the first quarter of 2007, i wish everyone a Big Big year ahead.
posted by jack galt at
12:56 PM
1 Comments:
Very Big Fan of yours. Keep up the very crisp easy to understand write-ups. Can we invite you to be one of the speakers of Finance Manila during one of our grand quarterly ebs? I will suggest this to Dragon the founder of FM. I noticed that your blog carries a link to FM. So you must know that we will have a grand eb on April 20. The next one will be in July. More power to you.
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Unknown, at 8:37 PM
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