First Metro Asset Management Inc

Lost Horizon?

6:30pm  Monday May 25, 2009   PSEi – 2334.62  PHP/$ 47.17

Today’s highlights were: the PHP breaking past 47 to trade at 46.95 only to close at 47.17, a sell off in FXTNs, and a continued broad-based buying of Philippine stocks.  I think the local central bank was buying dollars to keep further strengthening of the PHP.  With the US currency weakening worldwide, some investment funds have been deploying funds in PHP fixed income and equities.  Today was probably a good day to buy Philippine government bonds as the 1o year FXTN traded higher in yield by 9 basis points.  That’s about 60 cents decline in price terms.

Stocks were mostly up except for EDC and TEL.  It looks like further consolidation of EDC while TEL has not been exciting traders for sometime because it trades like an elephant – not nimble enough for day trades.

I had a brainstorming session with a colleague earlier, and I was saying that if my investment horizon was trained for the end of 2010, it would be a no brainer decision – buy now and wait for December 2010.  Come to think of it, if I were a mutual fund investor, I would do just that.  There is no doubt in my mind that the stock markets in Asia will be significantly higher 18 to 24 months from now.  But don’t forget, markets do not go on a straight line.  What is difficult for guys like me is that it’s my job to squeeze out maximum returns in a small market such as the Philippine stock market.

Having mentioned the term “horizon,” I’d like to explain that when you invest in the market, time horizon is probably the most important element.  People lose money in this market simply because they have no idea of what their time horizon will be.  Since the beginning of this year, I have bought stocks that went down the day after I bought them.  If my time horizon were one day, then I would just keep racking up losses.  If I am confident of a stock’s value, I am sure that even if it is down one or two days or even one week after I buy it, it will come back.  Why? Because I bought it for value that was not yet being reflected in its price.

Are there still stocks whose values are not yet in the price?  Well, I think TEL is cheap at 2210; MWC at 14 shows pretty good value.  FGEN at 19 will probably emerge higher in a few weeks.  The common reason – sustainable earnings.  PNB, for one may have irregular earnings growth; but, it is trading way below it’s book value and earnings are already picking up.

You see, it’s not really a matter of just thinking that prices will follow a trend.  It’s also a matter of the logic that will sustain the trend over a time horizon.  In my view, we are on the road to future growth anyway.  I don’t want to be greedy, but I don’t want to be afraid of taking a reasonable risk either.

Hoping for a good week!

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First Metro Asset Management Inc