August 2007 Archives

Guess what? I'm already planning the long weekend holiday breaks in December and where the family will go when summer break comes. I know, I know, that’s like four months and eight months away, but planning hammers down costs compared with flying on a whim! Bohol looks promising… Of course, we are Boracay babies so that’s definitely still on the list… However, Pangasinan is closer and very appealing! We could try to be adventurous and bring our growing kids to Batanes! Its romantic, clean and something about its pristine beauty appeals to me. Then again, perhaps we will just go to the province and spend an idle weekend with the kalabaw and catching tutubi… But I'm not telling the hubby as he likes vacations to be spontaneous nyahaha (Wives really have to be creative, huh). (All photos courtesy of Michelle Morelos, as usual. Thanks Michelle!) I wasn’t like this years ago. In fact, I have been a Mabuhay Miles cardholder for ages but I used my miles to purchase a plane ticket only last year! So, guess where all my miles went? Philippine Airlines wiped out a lot of them! There I was, eagerly checking if I could bring the whole family to Bali or at least Palawan with my miles. I only saw points I hoarded for the last three years. For the years before that, none – nada – zip were credited to my account. Ouch! I don’t know if I was the last person on earth who remained clueless that air miles expire. If you don’t know yet, better check out if you have any expiring miles. Remember you’ve got only up to three years to use them. Suresh Nanoo, senior vice-president and deputy head of personal financial services at HSBC, says it is best to transfer rewards points from credit cards to miles once a year, right before they expire. This can buy you some time to enjoy them. If you decide to do this, though, make sure you’re more than OC in updating your calendar. Get all that expensive technology working for you by making sure you’re reminded by your Pocket PC and your mobile phone and your computer and your blackberry . Whatever you do, don’t miss the expiration date. HSBC on Wednesday launched a limited-time promo called FastFlights where Mabuhay Miles Visa cardholders can buy two miles, instead of one, for P1.25. That’s a 50% discount from August 26 to November 30. Suresh explains that the 50% discount is the only one that will end on November 30. FastFlights, this new scheme where cardholders who find that they lack just a little bit more to get that “free” ticket, can continue to buy the remaining miles for P1.25 per mile – charged to their Mabuhay Miles credit card of course. This is the cheapest one I’ve heard so far. Here’s a conversion list (only for Philippine Airlines): HSBC – P45 for one mile (P1.25 per mile for additional miles needed) American Express – P72 per mile Citibank – P90.75 for one mile BDO Platinum – P400 per mile (What's with BDO, huh? Data source: Mabuhay Miles website) East West Bank Mastercard – P55 per mile Diners Club International – P93.90 per mile Metrobank Credit Cards – P50 per mile Whew, just researching this list took me hours! Credit card companies don’t make it easy to compute the conversion rate. Grrr. Citibank has a P45 per mile program, but not for Philippine Airlines. It’s co-branding is with Cathay Pacific Airline. Furthermore, Citibank Gold cardholders who use their credit cards abroad only need P22.50 for every mile. American Express has P45 per mile programs with a long, list of airlines, but you will need to spend at least P45,000 to transfer your reward points to miles. I told Suresh during the interview that I doubt whether people really use their air miles. Suresh said a huge percentage of HSBC cardholders do. The HSBC statement has some figures: the average monthly spend for Mabuhay Miles Gold Visa is P35,000, 11 times more than the industry average. Cardholders redeemed some 187 million bonus points or miles last year, with a total of 334 million bonus points or miles redeemed since the beginning of the co-brand program. There are nearly 450,000 HSBC Mabuhay Miles credit cards out there. Whether these miles were redeemed on time or whether they expired, only PAL can tell, says Patrick Henry A. Carlos, vice-president for cards marketing. Patrick also says that lately, Filipinos go for short flights rather than the grand vacations they used to do in the past. Enticing, eh? Here's something to deflate that excitement a little bit. It's a baaaad idea to shop with your plastic just to get the miles. That’s an absolute recipe for slipping under the debt trap. Rewards, even those that are as tempting as free air miles, should still be treated as icing on the cake, not a reason to spend beyond your means. What am I saying? If you can’t afford the item, whether cash or at least on a three-month installment, don’t buy it even with a credit card. And definitely not for the free miles. But if a free ticket is your icing on the cake, well, go ahead and fly!

If you’re a small guy in the investment arena, you can’t expect the lead manager of your mutual fund to pick up the phone and ring you up when stocks started tumbling. But at least you should have received a text message or email from the sales guy who made you sign on the dotted line, right? From reader feedbacks INQUURER.net has been getting, it seems like most brokers, investment managers, bankers and sales agents have forgotten their clients in the midst of the market uncertainty. If you’re one of the few who received at least a group text message or email explaining what is happening, consider yourself lucky (and smart) for choosing the right company. Otherwise, you’re just like the rest of the small guys who are left holding the bag. From a macro perspective, this can be alarming. Many mutual fund investors, for example, are first-timers attracted by the fantastic returns the industry reported last year. Worse, if they were enticed to invest to chase those returns, they are probably the ones now making a beeline towards the exit. In his column today, Noet Ravalo calls this a sad commentary about our financial market. “Investor-level education and awareness remains wanting in many respects. Many savers who have crossed their bridge and became 'investors' feel left out after making the investment,” he says. Why is it that we will make time and effort to call the store that sold us a defective mobile phone or television set, but think twice before calling the agent or broker? Oh, I would burn the wires complaining to anyone unlucky enough to answer the store’s phone! But come to think of it, I haven’t even called my agent yet and no, I haven’t heard from her or the mutual fund company I invested in. Think I should shift? Noet also makes another interesting point: knowing when to say enough is enough.

Investing is not only about figuring out one’s risk profile and the corresponding suitable products. It is also about knowing when to say “when”. In the jargon of the market, we need to set our stop-loss limit in advance. This is the maximum loss we take at which point we pull out of our investments.

Remember Leo? He did this quite well. He made the call. I’m sure it was tough, but that allowed him to sleep well at night. Just worrying didn’t make sense for him. He made a choice. What I’m learning quickly from MoneySmarts is that investing decisions are very, very personal. Only the person making the choice will know if he made a good call or not. We’re all afraid of making mistakes and losing money. I don’t think there’s a single wealthy person on earth who made money in business and investing who has NEVER lost money in the market. In fact, those who have paid some very expensive tuition are sometimes those who in the end bring home the bacon.  Noet recommends setting a stop-loss limit in advance.

This limit needs to be agreed upon with your broker/financial manager. In fact, you should also set a limit as to how much paper gains you should accumulate before liquidating your position. Just as you protect yourself from further losses, you should also protect yourself from gains that may reverse if you don’t consolidate your position soon enough.

Food for thought worthy of dessert. :-)

You’ve all heard of the expression “know yourself.” Experts believe this should be the first baby step of people who want to successfully get off their little gerbil wheel of consumerism, where it is custumary to work like horses the whole week and spend everything on weekends. No matter what investing prowess we have achieved, or what superior knowledge about wealth accumulation we have attained, if we skip this process, there's a likelihood we may crash and burn and perhaps question whether financial independence is really an achievable goal. Thing is, facing reality is tough. Nevertheless, knowing our inner financial blueprint could bring us closer to financial happiness or hinder us from getting there. From the perspective of the financial planning professional, taking this route requires more work and dedication. Cookie-cutter financial plans will not work. A financial plan that folds in clients’ money personalities addresses their inner money demons and strengths, and hopefully builds on those strengths to create a more financially responsible and happy person. MoneySmarts has matched a couple and a yuppie with two financial planners who have committed to work with them for a year to show readers that financial independence is possible to attain. These volunteers are named Diego, Bianca and Sheldon in this blog, aliases that protect their identities. In a recent Money Makeover session, an experiment highlighted the need to understand this inner financial blueprint. (If this is your first time to visit MoneySmarts, you may read the background of Money Makeover here) To recap: financial planner Augustus J.V. Ferreria digs into the past of the volunteers and asks them to jot down every item they spend on for two weeks. (See previous post) Here are the results of the experiment: Multi-media artist and teacher Diego spends everything in his wallet from sunup to sundown, the main reason why he only receives allowance from Bianca. Diego walks into a mall and buys C2, water or soda. He smells Jamaican patty and he buys one. His eating adventures are stand-up ones, like a hot-dog stand, buko salad or a shawarma sandwich – a long running joke between the couple. “Whether he starts the day with P500 or P5,000, he will have nothing by midnight,” says Bianca, a lawyer. This is typical of persons who have experienced prolonged periods of deprivation, says Ferreria. Diego grew up in poverty but enjoyed his father’s reversed fortunes as a young adult and thus admits to having urges to splurge. Ferreria accurately guessed something that the couple had been dreaming about for quite some time: a restaurant with a unique concept, like an artiste’s eating place showcasing Diego’s artworks. The financial planner’s take: it’s the perfect business for Diego because it’s a “feeling” business and fits his personality. Moving on to Bianca. The lady loves fine dining. Her little spending diary is that of a mommy’s: food pasalubong for her daughter, ballet lessons, school supplies and similar items. Oh, of course parlor fees and gym memberships are there too! Who do you think spends more: Bianca or Diego? A Splash Money program shows that Diego’s below-P100 spending adventures are actually more expensive than Bianca’s. Despite being outspent by Diego the “walking eater”, Bianca did not get off the hook easily. “You are not an off-the-wall spender, but you have a tendency to be. You are a very emotional spender. You spend on anything if you feel your baby wants it. If you travel, you will spend a lot of money,” Ferreria tells her. “Women don’t buy things for themselves. If they spend two to three weeks in the US, look at their balikbayan boxes. Ninety percent are souvenirs for parents, brothers, sisters, nephews and nieces,” Ferreria explains. On the whole, Diego and Bianca realized they spent astronomical amounts in maintaining their two cars and parking fees for Bianca, who works in Makati. They were advised to think of retiring their oldest car, which is very expensive to maintain. Practical solutions for the couple: Diego should not leave home hungry and he should bring with him a bottle of water all the time. Ferreria taught Bianca to have a little fun money, with limits, and to program major spending items like vacations. They are to look into retiring their oldest car. Sheldon’s spending tally showed restraint considering his age. The yuppie said the most interesting revelation for him was the way he spent at night. “The highest I have ever spent is P3,500 a night. I also spend a lot on my mobile phone usage,” Sheldon says. He also realized that he loves to travel, but what a revelation his small notebook showed! He spent almost nothing during his recent trip to Boracay. (His plane fare was gratis. Boracay photo courtesy of Michelle Morelos.) “It’s very easy to spend money and buy trinkets off the shelf. But you have the financial discipline to keep spending low,” Ferreria tells Sheldon. Sheldon is worried about his telco bill. At P3,000 per month, it does not look bad at first glance. Multiplied by 12, it’s a major concern. “If you multiply it by 12, it can reach more than P40,000 a year. You can already go to Boracay with that amount of money,” Ferreria says. “It’s also important to look at the small stuff because a leaking faucet for example, is money in my hands,” he added. The financial planner advised looking at promos given by telcos, like a PLDT scheme that allows calls to other PLDT phones all over the country at P10 per call. “A lot of these promos are used to build the brand, but their consumer studies have already told them people will not use them. Take advantage of these promos,” Ferreria said. He counseled Sheldon to look more carefully at his expenses, and separate personal and business spending. “It may be too ambitious to target a 50% reduction in your mobile phone usage especially since you use it for work, so lets look at reducing your expenses without making you stop calling,” he explained. While Diego has the makings of a hands-on restaurateur, Ferreria again guessed accurately that Sheldon would prefer buying a franchise, paying someone to operate it, making it profitable and selling it after it has generated sufficient cash. Typical of his “racketeer” personality that helped him survive his father’s business failures. Practical solutions: Study telco promotions and take advantage of them, but most of all, to calm down and not worry too much. “When people spend money, we normally don’t relate it to our life that’s why we spend shamelessly. The answer is to put more quality into spending. I don’t want to turn you into misers, but remember that 80% of Filipinos make money but don’t know how to spend their money wisely,” Ferreria tells the volunteers. He explains that just having more money would not solve financial problems. Ferreria tells of a cigarette vendor who won the sweepstakes but after five years went back to selling cigarettes.

“The background and psychology make-up determines a person’s success. It determines how he will react to stimuli. The poor will remain poor unless someone sits down with them or they educate themselves. Otherwise, they will just live out their frustrations through money. How many livelihood programs failed because beneficiaries were not taught financial literacy? That taxi livelihood program failed because the beneficiaries ate the principal,” Ferreria explains.

To Diego, Bianca and Sheldon, Ferreria says with a twinkle in his eye: “You are redeemable people. You have financial insanity from time to time (an observation that elicited laughs across the table), but that’s okay. You are influenced by your ancestry, but you don’t have psychological problems. I am comforted by the patterns in your spending. If you don’t have a pattern, I would be worried.” “You (Sheldon), manage the money. You (Diego) manage the hunger.” Till the next meeting :-) .

A very wise man wrote that money is more about the mind, more than the math. I tend to agree, considering the results of recent Money Makeover sessions with volunteers Diego and Bianca, and Sheldon. As I recounted in this post, financial planner Augustus J.V. Ferreria began his Money Makeover sessions by asking our three volunteers about their childhood, parents, siblings and major milestones in their lives. During that meeting, several initial analyses came out. Diego was deprived as a child, having grown up in poverty as the eldest among his siblings. His father’s sudden business success during his teen years flipped the situation over and allowed him to enjoy the comforts of financial security – a generous allowance, a good car, and an expensive course (Fine Arts in UP Diliman). The initial analysis: Diego may have difficulty curbing his spending appetite because of his past. A history of deprivation raises the risk of splurging and uncontrolled spending to feed unresolved longings. Bianca grew up in a rather well-to-do family. Her father had a major position in a company and loves to shower his family with material things. Bianca’s mother, on the other hand, grew up in poverty and would tell stories about how she and her siblings would suffer whenever floods typical in their area would affect their little home. This story, however, is blighted by her father’s gambling problem, a sore topic that Bianca as a child often heard her parents argue about. Asked how she was with money, Bianca said she loved to spend but always felt guilty afterwards. The initial analysis: Bianca has absorbed both personalities of her parents, being a heavy spender like her father but weighed down with the guilt that her mother would feel for spending too much. Guilt that her mother also tried to make her father feel.  Sheldon’s story is Diego's life in reverse. He grew up in comfort but midway through his young life just when he was going through teenage angst, he had to adjust to poverty when all of his father’s businesses crashed. Sheldon recounted how his mom made ends meet quietly and efficiently and shared how he still feels responsible for expenses at home because “my father failed to invest in the future.” The initial analysis: Sheldon’s tough childhood has developed in him a sense of responsibility and an inner need to provide for his future. You can imagine how the depth of this session could not be sufficiently written in a short blog post and it was understood that these might be oversimplified explanations for our client’s histories. However, the activity became even more interesting after our volunteers were asked to monitor their spending for a few weeks. Ferreria asked them to bring a small notebook wherever they went, jot down everything they spend on (from candies and gums to hotel accommodations) to the exact time they paid for these items. Interestingly, Ferreria told them to spend as they normally would. (Results of this experiment coming up in the next post.)

It’s a tag party and I’ve been invited “PF” style :-) . Thanks Digerati Life  for including me in your tag list. What a great community of personal finance bloggers! I’ve found quite a number that should be included in my daily reading regimen. It’s comical how this question has hounded me over the weekend. I thought about it while writing about other things, while walking to the mall, while preparing lessons for kids, while I was getting ready for bed! If I were asked to give just one -- just one personal finance advice -- what would it be? Here goes: Enjoy your money! But use a plan and stick to it. No, I am not telling people to spend like there’s no tomorrow. I’m talking about shopping without feeling guilty. The way to do this is to plan your spending, including the specifics of up to how much, when, and where. Setting aside funds for “fun money” is crucial for financial sanity. It allows us to get rid of impulse buying. You don’t have to spend a lot of money to do this. Reward yourself with something as nice as a vacation ... (idyllic isn't it?.)     ...or something as simple as a new pen.    (Photos courtesy of Michelle Morelos). Doing this removes the sting from saving and investing, and thus helps us to stick to our savings plan and to building our nest egg with more zest, verve and commitment. It helps us to develop the wisdom of balancing between enjoying life now and saving for the future. After more than 10 years of writing about personal finance, I cannot quite remember how many financial experts I have interviewed. There are a lot of self-help books and great personal finance blogs out there steeped with passion for building wealth and financial literacy. Media (international media, that is), has covered this topic extensively converting a lot of people into do-it-yourselfers. Some experts raise their eyebrows at do-it-yourselfers but what else can they expect? The world of financial advisory is not designed to reach the persons who need them the most – those who either don’t have money or have made huge money mistakes that has sunk their financial position. Media and books plug this gap. In the real world, setting aside fun money is the “most fun” wealth-building advice I have come across. Oh, and reading personal finance blogs, of course :-D. Fun is good because experienced financial advisors say when it gets too painful and difficult to do, people quit. Here’s a background on the tag party, in case you would like to join. The technical term is “meme.” A blog called Moolanomy started My One Money Advice last August 18 and has collected an impressive number from many of the most well-written personal finance blogs in the blog universe. Here’s the list so far. Now I have to tag three buddies who, I hope, will join the party. OGJ Wealth Trigonomics Moolah Matters Reflections of a Biz-driven Life As Digerati Life would say in Filipino, “taya!”

Augustus “Joe” Ferreria (Joe F. in this article) has all the trappings of a high-profile job. A big corner office in the Makati financial district, a nationwide sales team, and the solid name of the SM Group of Companies and Generali Pilipinas behind him. As senior executive vice-president of Generali Pilipinas, Joe F. is the revenue guy. In the first five months of 2007 alone, sales clocked in a 75% growth compared with the same period a year ago to P974 million. That amount may seem tiny compared with Philamlife’s P14.5 billion in 2006, but not if you realize that Generali began operations in the Philippines only in 2000. Joe grew the company from a P400 million company to P2 billion in one year after he joined the firm in 2004. As an upstart in the insurance industry, Generali is playing a quick catch-up game. It’s a fast-paced and pressure-filled job, but on top of it, Joe has agreed to mentor a volunteer couple from MoneySmarts who are just starting out on financial planning and learning the keys to building wealth. When he says mentoring, Joe means it. He doesn’t just churn out financial statements or cash flow statements. Joe takes time to understand his clients from MoneySmarts, visits them at home, talks to th em about how they grew up, helped them open a bank account, and on Tuesday next week, will bring them to Madame Auring to introduce them to the world of investing. His reason? Joe says he wants to “pay it forward.” Joe is a Registered Financial Planner and a fellow of the Life Underwriting Training Council but has stopped taking personal financial advisory clients. For Money Makeover, he said he would make an exemption. Anyway, it’s pro bono. “There were people who helped me to get to where I am now. I just want to pay it forward,” he says. Where he is now is obvious. Where he came from, however, is in itself a lesson in personal finance. Joe grew up almost like an orphan, having lost his father to death when he was only a year old and his mother when she remarried. “I grew up like a basketball, dribbled from place to place. I know what it feels like to have nothing,” he recalled. Perhaps it was this deprivation of material things that fueled his ambition. Fresh from college at 19, he wanted to become a millionaire by age 35. Realizing that his clerical position could not help him reach his dream, he left, dabbled in journalism and advertising, and finally found his calling in selling insurance products. When he entered the life insurance industry, it was a time when agents were chased by dogs and sold their policies like used-car salesmen. Through self-study and by observing those who claimed benefits, Joe decided insurance products were huge nuggets in a gold mine that were not handled by agents properly. “I came to the conclusion that this is a wonderful financial product and all that should be fixed is the way by which it was being sold,” Joe said. To cut a long, interesting story short, he used the financial planning approach to make people realize why they need protection. He found out what his clients lives were, their families, their birthdays, their financial needs. They became friends. By word of mouth, Joe was contracted to do remedial banking, meaning helping bankrupt persons regain their financial footing. “It was a marvelous experience. As I worked with these people, I realized what real wealth meant. It’s not just about money,” he said. Joe believes that building wealth cannot be taught by talking only about personal income statements or cash flow. “Way back I talked about nonsense, goofy stuff to my clients like looking at their personal finance worksheets. But I discovered that the experiential type of advisory is a better approach than technical training, as long as these were founded upon financial principles,” Joe said. He calls this the heuristics approach, which uses techniques akin to behavioral psychology. He goes deep into why his clients spend the way they spend, or invest the way they do. “I cannot teach you how to save until you understand how you spend. I can give you the formula, but you will be bored stiff and when it gets technical and difficult, you won’t stick with the program,” Joe said. At the end of the day, experience can indeed be the best teacher. Watch out for the first month checkup next week of Joe mentoring session with our volunteer couple Diego and Bianca.  

Today, Noet Ravalo answers a greenie in stock market investing who wondered what would happen to the IPO shares he bought earlier this year when everything was bright and sunny in the stock market and talks of it reaching the 4,400 level next year was rife. The reader asked:

At what point will my shares be considered of no value. Say if bought at P5 per share and value goes down, at what price level will my share be considered lost and gone?

Answer: Look inside yourself to find out. How’s that for an answer?  He didn’t answer it quite that way, of course, but here’s what he said:

…all these go back to the intrinsic value of the pie. That part is the most absolute concept you will get: YOU deem it either good to buy, passable to hold (just in case) or bad enough to dispose.

That’s only if you are buying shares to become a part owner. If you’re buying to trade, it’s a different story.

If you intend to trade stocks (rather than be an owner) then the views of analysts, commentators and the media count only because these views move markets. The views aren’t always fair but unfortunately it’s the market’s handle of reality unless new views prove otherwise.

Noet, being a teacher at heart, pushes readers to digest more than just read. He’s not going to give you the answers on a platter.  Digesting… Has the recent stock market turmoil cut short what looked to be a full year of IPO fever? Ron Nathan said it almost like an afterthought in his column Quo Vadis. Obviously, companies will be scared now to do an IPO and many will be deferred. When Asian traders went back to work early this morning, perhaps it was already clear to them that stock markets in the region will consolidate today, and they did. The Philippine stock market closed lower at 3,139.46, off the day’s low really. We are not seeing huge swings anymore, though. For mutual fund investors, visit the ICAP website and get a pleasant surprise! The new NAVps table looks so much better. I particularly like the part where you can search for the NAVps of a fund within any period that you like. This has more value to me when I want to find out how funds perform during volatile periods because I can see the daily movement in NAVps, compared with the traditional mutual fund table that only shows the 1-year, 3-year and 5-year returns that smoothen out the returns. Just click on “History.” In more interesting news, this 39-year old hedge fund manager in London did not realize his Maserati has been impounded for three months, intent as he was on roiling stock market. That’s a $160,000 sports car, dude! He paid thousands of pounds in fees just to get back the car. Read about the forgetful fund manager here. Happy long weekend again everyone. August 27 is a special non-working holiday.

I don’t know if keeping money matters among adults is unique to Filipinos, or even Asians. Time and again, I have seen parents send children away when talking about financial matters. It’s not just that we don’t want our children to worry. It’s just that not many Filipino parents are comfortable telling their children how much they really earn. However, trusting children with cash is at the heart of teaching financial literacy in the home. If we want them to understand money, we have to let them handle money. More importantly, we have to truly empower them to decide, after we have taught them the right principles behind money management. I know of a mother who was widowed and had to feed and clothe four children alone. Gainful employment was hard to find because she was a homemaker before her husband died. It was very tough for the whole family. She decided to be honest with her children and in a family council showed them all the money that she had. There on the table was a small little heap of bills and coins. Can you imagine what went on that little room? For sure, it was a gamble on her part. It could have gone bad – children losing hope is heartbreaking. But since that time, none of her children complained that they were getting less allowance than a sibling, or had no new shoes, or need more of this and that. Instead of eating snacks in school, they ignored their grumbling stomach to eat at home. Most of the children are now very successful, with their own cars, good careers, and have their own families. The money lessons they learned were not imposed, but obtained from a mother who trusted in their ability to choose the right. I have a tendency to hover like a mother bee, control-freak that I am J. I have been known to overindulge in un-gentle persuasion. This never did my daughter any good. You might ask: What if they make mistakes? Let them. This way, the money they will burn is small. You’ll avoid forest fires if they make these mistakes when they are older and married. Check out the following resources on talking to kids about money. MyVesta PDF file US Treasury Website Let’s go eat some ice cream!

The Philippines’ main stock market index closed sharply higher today, ending at its biggest single-day gain in seven years. The same relief rally is seen all over Asia, and even the dollar firmed against the yen in Asian markets. The central bank is probably saying “I told you so” since it predicted a market relief after the Fed’s 50 basis point surprise cut in its discount rate on Friday. Is the stock market rout finally over? There’s a little bit of a Greek theater-like drama playing here. At its core, the economy hasn't really changed and yet Philippine financial markets gyrated wildly after the subprime mortgage problem in the US blew up in recent weeks. Now, the problem hasn’t really gone away and might take even up to 2008 to pan out and yet the market scores a huge single-day gain. It’s clearly an exaggerated dead cat’s bounce helped in a big way by the Fed’s move. You know, that old expression that says even a dead cat will bounce if dropped from a great height. So yes, I agree with some that we should still prepare for some more months of rolling with the punches. Ricky Carandang in his blog said investing especially in the Philippine market is more about liquidity and psychology. That’s so true when trading for quick or even short-term to medium-term profits. If you’re in your 20s and 30s, however, the most logical thing to do is to stick with fundamentals when finding good value stocks for your long-term investment needs, like retirement. Fundamental analysis means you look for value, growth and good income possibilities in a company. Efren Ll. Cruz, a Registered Financial Planner who has more than 15 years experience in investing, said markets tend to exaggerate, whether during boom or bust periods. “In periods like these, fundamentals are thrown out the window and are replaced by emotions,” he told MoneySmarts.

“Don’t fall in love with your investment because it will surely not love you back,” he said.

It’s interesting that Cruz also says if there is reason to doubt the integrity of your investment’s fundamentals, it is best to face your problem calmly and squarely and cut losses.

“Let that loss be a scar to remind you of the need to review your investment well before committing. If you do you will be wiser the next time around. But if you panic, you’ll probably do something that will make you hate yourself in the morning,” Cruz said.

Most financial planning experts agree that it’s best to start early when teaching children about money. If there’s one thing that Filipinos can do now to raise the country’s savings rate in the future, this is it. One child at a time. Allowance appears to be the most popular tool to do this. INQUIRER.net’s personal finance article today says money management is conspicuously absent from most school curricula, which means lessons on financial literacy should begin at home. Citibank answers this question from a reader:

My husband and I set the allowance for our eldest child, now in 2nd year high school.  We wanted her to have enough money so she won't go hungry during the day, but not too much that she can buy anything on sight. Just one month after school started, our daughter is complaining that her allowance is "too small".   Now, we're thinking maybe she should just bring "baon" and we'll cut her allowance.  What do you suggest? – Benny C.

The article says finding the right level of allowance is crucial. So is not missing out on children’s “pay day”. Be consistent. Teach them about the ground rules on what to buy, what is the ideal amount to save, and how to track their expenses. Most of all learn how to be flexible. When it comes to whether paying children for doing chores, on the other hand, there are different schools of thought. Some say that’s bribery; others believe that’s letting them experience reward for hard work. Teaching children how to work hard cannot be done with talkies. They have to experience it, they have to get their hands all dirty and sweaty to learn the lesson. This is a life value that we all want our children to have in their genes. Why not take the path in the middle? There are chores that they should do because they care about the family. These are done out of love and not because they would get paid. These might include washing the dishes, cleaning their rooms, straightening the closets, or taking out the trash. Designate which chores they can do to earn a salary. Say, repainting a portion of the house (please use child-friendly paint!), restoring wood furniture, or doing a major garden clean-up. Perhaps the rule should be chores that keep the money in the family instead of paying someone else to do it. Keep in mind the golden lessons they should learn: responsibility, the value of hard work, that money is a limited resource and should thus be handled wisely, and when they do handle it wisely, it can bring happiness :-).

When I was in my early 20s, I longed to retire at 30. Now that I have reached that marvelous age (plus several years), I realize I need more time. Besides, I can’t imagine not doing what I’m doing now. I would probably be lost without my writing that constantly defines and affirms every day who I am and what are the little things I can do to leave my little mark in this world. A retirement survey by HSBC called The Future of Retirement in fact showed that many Filipinos would like to work even after they retire. Boy Javier, an advertising executive, on the other hand, decided to get off the train early. And he is having the time of his life, according to this MoneySense article in the personal finance section of INQUIRER.net.

When I “retired,” I stopped wearing a watch and abandoned most things attached to it. An hour or a day or a week is totally irrelevant. Now is important. Now is forever. Now I am reading a book. Now I am playing with my three granddaughters, cooking pasta, diving in Anilao, putting for my fifth bogey in the front nine. Now I am free! When I set my watch aside, I did not “retire.” I went off the train and took the bike into the unknown. It’s been eight years since I retired. That bike has taken me to dreamland – to islands in the Visayas and Mindanao, some so small they could not be found on ordinary maps; to a farm in Lipa where there is always fruit in season and a hammock and a beer for listening to music with; to cheap bookstores so I could renew ties with Sufi and Zen masters, pundits of Wall Street and corporate America and journeymen of the sports and spiritual varieties; to hospitals where I awaited the wondrous births of my three granddaughters, made vigil over my wife’s thyroid operation, and anguished over my mother’s long and fatal battle with a stroke; to the kitchen where I experimented with pasta, meat, and seafood; to Palawan...to Boracay...to Thailand. Have you ever been held by border police while crossing Juarez into Texas?

It all sounds so…I don’t know…ideal? Romantic? Is this what I want with my retirement too? Then should I do everything to retire by 40? 50? I want to feel this way now. I don’t want to wait till I’m 40 or 50, or even formally retired from work. I don’t think the age and the formal status matters. Filipinos need to do the work that they love so that it doesn’t feel like work. (Easier said than done, I know). Yet if we do find that Holy Grail, then perhaps we all don’t have to formally cross that “retirement” line.

Whew, I don't know about you but I need a break from watching the market. This Lego doll knows how to relax! hehe... Photo from Agence France-Presse with caption: NETHERLANDS, Zandvoort : A huge Lego-doll of about 2,5 meters is seen at the beach of Zandvoort, 07 August 2007. Owners of a beachpub discovered the toy this morning. Nobody knows where the toy comes from, the Danish Legoland says they do not miss the Lego piece. These kids know how to take a break too... L-R: Demi Downing , 10, Nick Gutierrez, 12, and Jimmy Holmes, 8, dress up like music legend Elvis Presley, 14 August 2007, outside a hotel in Memphis, Tennessee. Fans are gathering to mark the 30th anniversary of the entertainers' death on 16 August. Elvis earns $40 million a year until now! Not bad for a dead celebrity, eh? One big part of the equation when building wealth is income. I say don't be too harsh on yourself if you still don't have a good-sized nest egg, investment portfolio or are still in debt if you have a good job and earning relatively well -- even if its not as high as Elvis'. There's always time to start over. Err..unless you're already retired. If you think your financial life can be described by the word "blah", perhaps you need to think out of the box to improve it. Are you in the right job? Are you maximizing benefits from your job? Should you set up your own business on the side? Should you leave your company to jump into entrepreneurship? What kind of business should you get into? Hmm...tough tough questions. How's this for thinking out of the box? ALLEMAGNE, Lieschow : An aerial view of the outline of a pig cut in to a corn field can be seen near Lieschow on the north-eastern German island of Ruegen 05 August 2007. The farmer used a GPS controlled shredder to cut the shape of a pig in the 37 000 square metre large corn field. The pig has become a tourist attraction with many people stopping to walk through the new maze. Aliw no? :-) Have a great weekend!

I haven’t. Honestly. Is that good or bad? :-) There is a lot of things in my reading list right now that includes updates on local and global financial news. I’m sure I will be a nervous wreck when I’m done reading. Media can do that to you! (Ouch, is that you INQUIRER.net?) Trying to keep a good perspective here, though. I chose the funds I would invest in carefully. I know that my mutual fund is invested in blue chips and not speculative and risky stocks. The fund managers are experts in their fields and have performed well in volatile periods. I think I made a good asset play and I’m saving for the long-term anyway. I have no individual stock investments, that is why stock picking is not a particular headache for a small player like me. The best thing to do for me is to stay my course. I spent the whole morning collecting data on the stock market so I can show everyone the historical returns of the Philippine composite index. Special thanks to Efren Cruz, chairman and president of Personal Finance Advisers Phils. Corp. for sharing his data. Bloomberg is also another source for PSEi year-end closing figures. Note that the lowest point of the index after the 1997 crisis is still a gain over 1987 levels. If you invested in US equities, here’s a very helpful table from MyMoneyBlog . The Digerati Life, meanwhile, asks whether a weak dollar is a good or bad thing? I hope he will also talk about his observations from the ground on how the subprime credit problem is affecting OFWs in the US. This will give us very important clues on how the crisis will pan out. This article from Wall Street Journal for example talks about one family’s journey into the subprime credit trap. I found this portion very revealing on how the American economy might react to the entire thing:

The couple now eat out once or twice a month, instead of once or twice a week before they bought the house. They have yet to visit a nearby jazz club they had hoped to frequent. The trips they used to take to Lake Tahoe now are out of the question. To bring in a bit more income, Mr. Montes two weeks ago found a weekend job as a bartender for a catering company. He says he might be able to take on a third job. "Bottom line, it's our little home," Mrs. Montes told a visitor one evening in April as tears welled in her eyes. "We're going to keep it. Hopefully, we won't go down and if we do, we're going to go down with a fight."

I’m bracing myself for possible market depression for quite some time. Unsurprisingly, everyone’s trying to move away from emerging markets precisely because they are trying to reassess their risk profile. Yesterday, our local bourse sank 6%, today it dropped another 2%. No, I'm still not checking my portfolio, not even a peek :-).

Are all schemes premised on multiple investors fraudulent? Chew on that one. Noet Ravalo tackles this question from one of INQUIRER.net’s readers. The reader also asked if there is a way to set up a legitimate business that can fight the stigma that Francswiss created. Read the article here. Here are my favorite parts:

The real issue boils down to where we draw the line between a scam, a dream that is otherwise not viable and an untapped business opportunity. This is where the regulatory framework comes in. Financial regulations exist to tell us what is allowed and not allowed. Some of these rules may be a “constraint” to the business opportunity but by and large I am convinced that these rules are needed to protect the great majority who need them the most. Why do we need protection? In the scheme of things, investors are at the bottom of the information chain. Since we do not run the business day-to-day, we are farthest in the chain and would therefore miss out on important details or know of these on a delayed basis. For this reason, investor protection is a central tenet in securities regulation worldwide.

While on my daily reading regimen, I saw more discussions on message boards that showed people thought Francswiss, Deutchfrancs, SMFund.com and the likes were smart to escape regulatory control. I see how that can be attractive strategy to some Filipino investors. Unfortunately, a company that gets its strength from being able to operate under the government’s radar, as opposed to one that is attractive because of its sound business plan, marketing strategy and good product, is built on a foundation that easily crumbles. It won’t stand the test of time. But then again, most of the investors were not after a sound investment. They were after a quick buck…ok, I get it, I get it. Now, what about people who want to set up a legitimate business? As Noet puts it: “What should legitimate “dreamers” do to avail of the benefits of the capital market?”

Proponents need to comply with the prudential norms. This is the bare comfort they must give to would-be investors. This means registering with the SEC and complying with all other provisions outlined in the Corporation Code, the SRC or meeting requirements by the Bangko Sentral ng Pilipinas or the Insurance Commission as the case may be. Beyond that, how the business proposal will generate the investments should be thoroughly discussed with an underwriter (if issuing securities), a banker (for loans) or with a broker (for equity listing). The choice will ultimately depend on the projected cash flows of the business and what the proponents can give up, i.e, coupon payments, interest payments or dividends. This is a structuring issue and it would be unfair to give a generic recommendation without due consideration of the specific business initiative.

Can other more “exotic” financing routes be used? Well, yes (private placements, joint venture etc) but still all of these are “mainstream” products that are covered by existing regulations. If other modes of financing are resorted to especially if the jurisprudence is not well defined, as a would-be investor, I will take that as a red flag. It does not have to be illegal to be flagged. The investor in me is just saying I don’t know enough of this investment mode and prudence tells me to stay away.

Prudence is a good word for investors.

A reader wrote:

Just wanna ask if Pryce Plans is still existing. My sister was paying last week and the bank teller said: “The account number no longer exists”. I have been paying for more than five years now…Gosh, I need your advice guys…Thank you!

Pryce Plans declared funding problems in 2005 and has not been allowed by the Securities and Exchange Commission to sell new products. The company still exists but only to service claims. After I read Beth’s question, I called up the company and the person at the other end of the line candidly admitted that because of the company’s funding problems, some releases are delayed, but claimed that these would be serviced. Beth, if your sister paid through Equitable PCI bank account, that account number has already been replaced due to the bank’s merger with Banco de Oro. Please email me. To wastedbrain who complained that he couldn’t claim benefits from his father’s insurance policy with Pryce Plans, I have a name and contact number for you in Cagayan de Oro. Email me. When buying pre-need products, don’t take the agent’s word on the financial health of the company. With all due respect to agents, and there are many good ones, that's like asking a criminal if he did the crime. Always do your own research on the financial health, management expertise, track record, reputation, ability to service claims, and quality of customer service of the company. It will take quite a bit of time on your part, but you are preparing for your future after all. The Securities and Exchange Commission’s website is very helpful (www.sec.gov.ph) in finding information about pre-need companies. In your analysis and due diligence, however, always be prepared for Factor X. That’s MoneySmarts linggo for unexpected things that happen even to good companies. The reality is, extensive research may do a lot of things to protect the ordinary investor, but it is not a fail-safe protection against Factor X :-). Don’t ask me to explain. I think that’s just how the cosmos was made: bad things happen even to good people. Bad things happen even to good companies. There are good things that can come out of that, but that “something” cannot be explained by peso signs or stock market tickers. Guess what it is…Oh wait, that’s off-topic! :-)

A couple shows a unique way of celebrating getting out of debt. Uhh…I’m not really sure if you should try this at home, but it sure is amazing to see. :-)

We all should be. The main reason is not because it could wipe out our investments, but because many others are getting scared and their jittery actions could rock the boat thereby affecting everyone else. Imagine a big room full of nervous people running for the exit all at the same time. Think of the confusion during such a pandemonium. People can get hurt whether or not the stampede is running away from a tiny mouse or a huge elephant. That’s how a financial market turmoil can feel like. On Monday, fears about the US subprime problem triggered losses in markets across the globe. What does that mean for individual Filipino investors? Let me see if I can keep satisfying one reader, who said she reads MoneySmarts because doing so helps her understand business without getting dizzy. If you are a “prime” borrower, banks run after you to lend you money. You have never missed payments, you have a good job and everything just looks peachy. Sub-prime borrowers are your opposite. In the Philippines, one bounced check and a botched credit card history gives you a permanent scar that’s all but impossible to erase. In the US mortgage market, lenders flush with money coming in from different parts of the world said, “Why not lend to the sub-prime market even if they are risky?” They could charge higher interest from these borrowers and earn more! Unfortunately, good things sometimes come to an end. The sub-prime mortgage market started to unravel. Borrowers started defaulting on payments and lenders got squeezed. Other financial institutions that invested in assets riding on these subprime mortgage loans understandably started wobbling. In the past few weeks, the ripple of effects of this continued unraveling reached overseas markets. The US equities market seesawed from all-time highs to bloodbath levels in a few days. Asian central banks tried to insulate the region’s markets by injecting money or sending a signal that they are ready to use their war chest of reserves to support the markets. Japan released $5.1 billion into the country’s banking system on Tuesday, South Korea and Malaysia stood ready with their cash. More central banks are expected to inject liquidity into the staggering markets. As a result, the peso and the won recovered but remained uneasy, oil prices were up and Bangko Sentral ng Pilipinas governor Amando “Say” Tetangco met with reporters to say the local banking sector is not directly exposed to the US' subprime problems. The Economist says these “Frankenstein-finance” vehicles have caused panic to grip the market. CNNMoney wonders out loud if Fed Chair Ben Bernanke will save the day? However, MarketWatch’s market snapshot quotes economists who say new retail sales figures indicate that Americans are out there shopping and are not having a credit crunch – just about the only upbeat article I have seen so far. BusinessWeek paints a gloomy picture with words like “around the world, small-time investors take a beating.” Bloomberg says Bernanke was wrong in saying the US government has contained its sub-prime market woes. “It’s spreading,” says Bloomberg. I caught Nouriel Roubini on Bloomberg TV last weekend. Much of what he said and more are in his blog over at RGE Global Economics. He is saying this could be the worst credit crunch in US history and that liquidity injections from central banks will lead to moral hazards, meaning reckless investors will expect to be bailed out. What does this all mean for the Filipino individual investor? Jose Arnulfo “Wick” Veloso, HSBC treasurer and head of global markets (and one of the most experienced bank treasurer in the market today) told MoneySmarts that the first thing investors should do is not to panic. He noted however that although Asia has decoupled a bit from US markets, it might get worse even here before it gets better. Translation: brace yourself because the ride will get bumpy.

“If you are invested in dollar-denominated assets, talk to your private bankers immediately to determine whether the credit spreads you got at the time you invested can withstand the volatility,” he said.

He advises staying with short-term cash instruments while markets are still volatile. “It’s a lot better to be spectators while all of these volatility is going on,” Veloso said. Likewise, the Wall Street Journal, Barrons, Nouriel Roubini are all saying go for safer investments while the American economy tries to avoid a hard landing. Ron Nathan thinks so too. Veloso observed that some recommend buying while markets are down. These include Jeremy Siegel, who has been nicknamed the Wizard of Wharton and a well-known market commentator and Bill Barker of the Motley Fool, who says this might be the best buying opportunity in the past 12 years “There’s no such thing as a one-way market. There are profits to be made left and right, so you can make quick guerilla moves to try and make profit from the uncertainty. But remember that even those whose job from eight to five is watching the market still lose money,” Veloso said. In short, experts are saying your choices are to stay low and liquid, or stay invested but be prepared to ride out the market volatility, which might stretch for nobody knows how long. If you’re going to shift, remember that a cheap stock is not necessarily a good buy. I know what you’re wishing. A crystal ball that will tell you what will happen to the big bad wolf – and how long you have to wait for it to happen. Me, too. What I know for sure, though, is this. Crises come and go. Bubbles build up and burst. Then markets pick up again. Along the way, people either get hurt or benefit from it. That's what it all comes down to, doesn't it? I know what Pinoy Investor will say. Magtayo na lang kasi tayo ng negosyo! Hehe.

Mixing investments and fun sounds…err…fun, but how is this done exactly? This article from our content partner MoneySense tells you how:

You may want to give the world of collectibles a try like card games, action-figures, comic books, and assorted movie paraphernalia. The past decade has seen a huge growth in the number of people who actively trade and invest in these things. Aided greatly by the Internet, people are buying, selling, and making large profits from stuff that were once thought of as children’s toys.

Confession: I like fun. I love to do fun things. But I must admit I’m a bit chary here. I’ve been rolling my eyes for the longest time at my husband’s collection of X-men and Marvel trading cards and the time he invested in making and updating a sortable database of his “stocks”. There is another reason, though. There’s a “speculative” aspect to it. The X-men trading cards database, for example, has an indication of the future price of certain special cards. “We will earn quite a lot of money from these,” my husband gleefully chortled one time. You guessed it. I just smiled indulgently. (I have long ago learned to enjoy the quirks of living with a 34-year-old kid. :-) ) Oh well, its not as if there’s no speculative play when investing in stocks, foreign exchange, mutual funds, properties, businesses. Nothing is certain in this world after all. Might as well have fun!

What do you do when you need money in a hurry?

This guy had it easy. A smudge of driveway sealant that resembled the face of Jesus Christ was found on in his garage, and he sold it on eBay for…$1,525.69. Yep, P70,181.74 for a slab of concrete that doesn’t even cry, change expression or something.

(Photos again courtesy of Michelle Morelos.)

One of my weirdest habits is collecting flyers of “quick sources of cash” and taking note of advertisements on walls and posters. Here are some of the most common:

• Personal loans from universal and thrift banks and other financial institutions
• Car loans (where you leave your car with the company as collateral)
• Pawnshops
• Credit card cash advances

Some extreme ideas for finding cash in a flash:

• One man’s junk can be another man’s treasure. Meaning, do a garage sale. And be sure to use catchy ads to drum up interest. Like this! hehe

• OK…or sell something via eBay (I know someone who has already sold stuff and said it really is a breeze).
• Hopefully, you won't have to sell your pet! (Isn't Michelle's wabbit a cutie?)

• Your junk can also be literally turned into cash. I know a very frugal mommy friend who makes an effort to segregate the family’s trash and earns up to P500 a month from newspapers, soda cans, PET bottles, steel odds and ends around the house. She then uses the money to treat the maids and drivers with either e-load or snacks. Her maids have stayed with her for years.
• Tutor, babysit or do some other service for someone in the neighborhood

Money in a hurry always carries high interest rates or pressure to do some extreme ideas. That is why it is important to build up an emergency fund of anywhere from three months of living expenses to six months. I would do this even while paying for insurance policies and saving for education and retirement. Once done, the next step could be getting your own home and investing more aggressively.

Why in this order? As I said in a previous post, liquidity is the twin of opportunity. Investing with no buffer fund makes it difficult to take advantage of market trends. Let’s say, the market’s down and you have decided to ride it out. Suddenly, someone gets sick and you don’t have the buffer fund to pay for the additional expenses. You will have to liquidate your earnings and translate paper loss to real loss. Sayang.

Femaad’s experience on accidentally stumbling upon a townhouse on rush sale is a perfect opportunity to start a discussion on home-buying tips, especially now that Filipinos are buying houses both for investment and for old age. (Photo courtesy of Michelle Morelos). It also illustrates how liquidity is the twin of opportunity. This is what she shared:

My husband and I have been renting since we got married in 2000. Medyo mahal rent namin - P30,000 a month. Before reading on financial independence, okay kami with that rent. Afterwards, we decided to downgrade and look for a cheaper place na comfortable, nice-looking naman, and secure. In the process of looking for a place to rent, we came across a townhouse for sale. Wala pa sanang planong bumili, but the corner unit’s price was a good deal, considering it was within town (hindi outskirts), about 500 meters from a jeepney line, with adequate water, good neighbors. It had three toilets and baths, four bedrooms, and a two-car garage. Nearby units were selling at P1 million to P2 million more. Cash kasi gusto ng nagbebenta kaya mas mura. Even my brother who’s a realtor and his friend, the head of chamber of commerce in our place, said we might not come across such a deal again.

So, we bought the place -- but, in the process, we had to exchange all our saved foreign currency; had to sell all stocks at PSE - buti na lang matataas prices in March; sold some shares I held at a hospital I am affiliated with; and we owed a little from the bank for our renovation since the interiors were not to our taste. Philequity shares na lang naiwan, pero konti lang yon.

Our architect-friend scraped off all paint outside & inside, waterproofed, then repainted; changed all trusses to metal; treated all metal works with anti-rust; reinforced the floors; used anti-bacterial paint; changed all lavatories/sinks; recomputed electrical power needs, and rewired; fixed all leaks…etc etc…had to owe a little more for renovation costs

We now have our own place, which we are so happy about. But, we only have a months’ worth of emergency money left (nakaka-insecure); and I have just gone back to buying stocks again, pero konti lang.

Start from scratch ulit, pero we all have to start, di ba? Honestly, sometimes we feel we made a mistake, since our plan was to get our own place in five years’ time pa; but then, when opportunity knocks, open the door, di ba? What do you guys think?

Some have been known to profit from investing using borrowed money, but that’s always an “iffy” proposition. That’s something that should have a “proceed at your own risk” sign in big bold letters. Remember the mantra “high-risk, high return” is often repeated without the most important word in the catchphrase – probability. I'm not saying it can't be done. I'm saying it's best done based on rigorous study -- not on a whim. However, those who have their backs covered with ample cash can easily gain from unexpected good buys or good investment opportunities. Advice from Orly Javier, whose advocacy is called Wealth Trigonomics, and JC were both sound and sensible. But I believe the tone would have been different if the house had been bought on credit and if the transaction endangered all rainy day funds and income opportunities for the couple. Liquidity was your family’s best friend, femaad :-) . Now, the best thing to do is to ramp up your savings again. (Filipinos would do well to learn from ants' successful technique in preparing for the rainy day -- just keep on doing it!)

As a young reporter, I used to write all the time about the budget deficit and how the government was (it still is) up to its neck in debt and almost bankrupt. Truth is, the government has lotsa money. It spends trillions every year and it has the power to print the moolah. Question is, how does it spend the money? What are its priorities? Look at the list of economic bills prioritized by the government this year:

• amending the EPIRA Law to allow more access to competition,
• ratifying JPEPA
• creating the Civil Aviation Authority
• approving the proposed 2008 budget
• implementing the Simplified Net Income Taxation
• Rationalization of Fiscal Incentives
• Credit Information Systems
• establishing the Personal Equity and Retirement Account
• formulating a national tourism policy
• amending the Customs Brokers Law
• formulating a national strategy to conserve resources and helping arrest climate change
• identifying sources of renewable energy
• amending the Land Use Act
• passing Anti-Trust bill
• extending the Agricultural Competitiveness Enhancement Fund
• and promoting the Information Technology entrepreneurial ventures.

For financial planning watchers, the simplified net income taxation bill, credit information systems, and PERA bill (click here for the full text) are significant legislations to follow. There are many good men and women at the Department of Finance. Brilliant, too. But counting on a simplified tax rate to boost tax payment especially from professionals? That’s rather naïve, in my view. Professionals who under-declare taxes because its convenient to just let someone “fix” it will need much more than that to come clean. It’s a good concept, but I’m not sure it would fly. The National Statistics Office also reported that inflation slowly inched upwards in July to 2.6% from 2.3% in June. If you put your money in a time deposit that earns say 6% per annum, you’re actual earnings June 2007 over June 2006 was only 3.4% because inflation ate up almost half. More IPOs coming up: ABS-CBN units SkyCable, Global seen going public. Honesto General talks about the cement cartel in his Questions of Policies column. If you’re doing your home renovation or building your house, this article will kill your appetite to buy more cement for that concrete wall in the backyard. Esewhere, Neal Cruz asks some very sharp questions about how Philippine stockholders may be cheated in a P12-B deal concerning the Philippine Racing Club Inc. Be educated about how stock investing can turn ugly and read this article. I used to teach at the University of the Philippines so this report from the US State Department that the declining English language proficiency in the Philippines and corruption are turning off investors is like a punch in the stomach. I still remember my dismay at finding out that most of my students could not speak straight English (without the collegiala accent, please). I would have been pleased even if they couldn’t, if they could speak straight Filipino. No, they couldn’t :-(. Government has placed PIPC country general manager Cristina Gonzales-Tuason on the immigration watchlist so she cannot bolt, ADB says Asia’s rich is getting richer and the poor are getting poorer, the peso closed high at P45.18 against the dollar as the stock market breathed a little easier yesterday, and we have two long weekends in August (yehey!). That’s because August 20 (commemoration of Ninoy Aquino’s assassination) and August 27 (Heroes Day) are both holidays. In the blog world: Moolah Matters says she still prefers paying in cash instead of credit card and how the one-price rule is disadvantageous to consumers. My previous blog post on “The truth behind 0% interest promos” will tell you exactly what goes on behind the scenes when buying expensive items. Jon Mariano thinks that a P12 wage increase is a pitiful pittance and Philippines Without Borders writes a very informative and convincing piece on why the wage increase will make the country even more uncompetitive compared with other Asian countries and the hidden root of the problem. Oh, by the way, I asked HSBC to clarify its 0% interest on balance transfers that I wrote about in this previous post. Peeling off the marketing linggo, what HSBC is offering is 0% on the balance you transfer to this new card, no add-on rates, no finance charges, no handling fees as long as you pay at least 5% of your balance. Now, after you transfer your balance, I’m pretty sure you will find a good reason to swipe your new shiny credit card to buy that new couch you’ve been eyeing or pay for a feel-good spa that you deserve naman after working so hard ;-). If you become a roller, the bank says: “If you have other transactions and pay more than 5%, the excess payment will be applied first on the other transactions (i.e. transactions that are interest-chargeable) before the interest-free balance. This is advantageous to the client since the interest-chargeable portion is paid off first and interest-free term will be maximized.” Now, take note that: “Any new debt incurred outside of the zero interest portion, will be subject to the usual finance charges.” So, if you’re looking to retire credit card debt of at most P12,000, this is a good deal so long as you have the discipline to pay the balance within one year and you don’t rack up new debt with your new shiny credit card. You’ll just have to pay off new purchases in full to take advantage of this offer. This promo, by the way, ends September 30. (This is not paid advertisement.)

Our bestest buddy Bill Gates is no longer the world’s richest man, says Fortune magazine.

NEW YORK -- Microsoft founder Bill Gates has lost his claim as the world's richest person, ceding the title to Mexican telecoms tycoon Carlos Slim Helu, according to Fortune magazine. By most calculations, Gates has been considered for at least the past decade to be the wealthiest person alive, but strong performance by Slim's holdings on the Mexican stock exchange in recent months had pushed Gates into second place. "By our calculations, the 67-year-old Slim has amassed a 59 billion-dollar fortune, based on the value of his public holdings at the end of July," Fortune magazine reported in its latest edition, due to hit newsstands this week. "This number puts him just ahead of perennial number one, Microsoft founder Bill Gates, whose net worth is estimated to be at least 58 billion dollars.”

So, what would you do if you were Slim and you had a $59-billion fortune? Would it solve problems? How would this amount of money change the way you live? Microsoft executive Bill Gates and Mexican telecommunications tycoon Carlos Slim Helu. Photo from AFP.

…doesn’t mean you have to buy it. Not as cryptic as Seth Godin’s post here, but it totally captures a basic personal finance attitude and reminds of an earlier blog post on wants versus needs. Anybody want to play a game? Hopefully we’ll get some good personal finance one-liners from you. Complete the sentence… :-). You can choose one, two, or all. Just because advice comes from an “expert”… When you’re young, ambitious and earning only P20,000 a month… Poverty in old age… Happiness comes… The real enemy is… Sometimes, too much ….. is not enough. We Filipinos… Change is inevitable… A successful diet is… Without….life is…. When in doubt… Early birds… And finally! One MoneySmarts post a day … *ilag sa mga magaling mang-asar* In the news: NBN and Cyber-Ed projects, says Arroyo’s adviser Sergio Apostol, are not pushing through. There is no contract, he says. Another one for only in da Pilipins. I’m not sure how long that statement will hold true. The reality is that the Philippines operates a political economy. We cannot take our economy out of the politics in Mr. McGregor’s little garden where cats, mice, and man holding a rake all conspire against the inner productive nation of the Philippines trying its best to get free. South Asia flood victims are desperate for food and clean water. I have been writing about preparing for disaster, and encouraging families to stock up on water, food and yes, including important financial documents, -- in short everything needed in the event of floods, typhoons, power outages, tsunami, etc. No one can tell when disaster will strike. Not all of us are as lucky as this teenager who fell from a 6-foot story building and escaped with only bruises and scratches (shades of Heroes). The operational word in financial planning is planning. I’m a believer in 72-hour kits – bags that contain supplies for one person for 72-hours. Read all about that here. It seems like a day to think about SSS contributions and making sure these are remitted properly to the pension fund. This businesswoman was ordered by a Quezon City judge to pay P2 million in SSS dues for failing to remit properly. Minimum wage has just gone up in Metro Manila by P12 – hey don’t scoff at the amount. Every centavo counts (wink). Hmm. P12 multiplied by 20 multiplied by the number of minimum wage earners in the city equals the additional liquidity to be released into the system. I don’t think we need to worry about inflation there. For everyone’s information, the wage board pounds on the tables until their voices are hoarse just debating about the inflationary pressures of any wage hike. Our minimum wage earners deserve the increase. Ron Nathan promises to stop writing jokes about his wife and writes in language that a beginner can understand why the market is depressed and why his money is in cash right now. In the blog world: Moolah Matters has paid off one of her credit cards (congratulations Jetskee!), and The Dollar Stretcher writes an interesting article on why we spend the way we do in Peeling Back the Layers of Your Financial Onion. Get Rich Slowly says every penny counts and talks about the sweet spot between saving and the big goals. The Digerati Life blogs about what he thinks is the top 10 wealth building ways of ordinary people. A must read. Something struck me about Reyna Elena’s post on withholding remittances from the Philippines. It’s a vote blog post, but its an invaluable insight into how OFWs feel about the exchange rate. Personally, I still think we should all plan out our foreign exchange spending so that we don’t get hit by what Noet calls the “spot bulaga factor” of the peso, instead of calling for intervention in the markets by the government. My question then becomes, is this doable?

TODAY'S banner story from the Philippine Daily Inquirer tries to pound another nail on the coffin of the NBN and Cyber-Ed backbone projects. Will the government agree to put an RIP on these controversial donor-driven projects? Your guess is as good as mine. Now, here's a question. Are cheap loans always good deals? If a loan carries only 3% interest per annum, does it make good sense to borrow? Not all the time. The fundamental question still is: do you need the item you are going to buy with that cheap loan? If it's a loan-driven expense, better stay debt- and worry-free. Even loans from relatives and friends that do not have interest or carry very light payment terms have hidden costs -- at some point they cause friction and unease.

Anyone who has been following business news and global markets has heard about the China bubble. As investors or would-be investors, how can the China bubble affect us? Specifically, as one reader who is also a newbie in equity investing asks, how relevant are the following:

• China's stock market has been waxing hot, gaining 55% year-to-date bringing its earnings multiple to 43.8x. In comparison, US stocks trade at 17.9x, Hong Kong 15.9x, Singapore at 14.5x and the Philippines at 17.2x.
• Former Federal Reserve Chairman Alan Greenspan comments on the stock market gains in China: "It is clearly unsustainable. There is going to be a dramatic contraction at some point."
• Exactly when that contraction will take place is the million-dollar question.
• But with 10% of Philippine exports heading to China and 10.8% of Philippines-bound FDIs coming from it, bursting China's stock market bubble could have far reaching consequences.

Further readings show that Forbes magazine thinks the 2008 Olympics in China will be a major catalyst for a sell-off and could trigger the bursting of the bubble but there's an ongoing mantra that nothing bad is gonna happen before the Olympics. Nouriel Roubini of RGE Monitor believes, on the other hand, that global markets should already be on the lookout for systemic risks but The Economist thinks there’s still some upside in the Chinese markets, having plotted the boiling point of history’s big bubbles. CHINA, Beijing : Chinese workers build a grand stage for the up coming one-year milestone countdown party to the Beijing 2008 Olympic games at the Tiananmen Square in central Beijing. Photo from AFP. RFP Speaks’ Joseph James Lago explains by talking about the price-earnings ratio, which is sometimes called earnings multiple:

When investors just rush into any stock market, pushing up stock prices correspondingly, the basic metric of valuation, the price-earnings ratio (PER) goes up correspondingly. The reverse happens when investors sell or exit in droves; the PER of the stocks and the particular stock market goes down.

Why is the PER (P/E ratio may be more familiar for some) important?

The textbook comfort zone for PER ranges from 10X to 20X. It says to buy when the PER is 10X or below and sell when the PER is 20X or higher. Another way to look at PER as textbooks say, is that the number or multiple you get is the number of years it will take you to recover your investment. So if it is 10X, you are looking at 10 years, if it is 20X, it is 20 years.

It also shows how much an investor is willing to pay per peso of earnings. A P/E ratio of 16x before the Asian currency crisis burst in 1997 meant investors at that time were already willing to pay P16 for every peso of earnings. With the stock market already trading in uncharted levels, meaning investors have never seen equities at these highs before, stock market pundits are divided on whether it’s time to pull out from equity markets or whether there’s still money to be made in stocks. Put that in a huge black box of never-ending speculation, together with nervousness over the China bubble (even Greenspan repeatedly says bubbles are extremely hard to predict), and you’ve got a potentially icky investment situation. It was amusing though, to see the difference between “official” answers to queries and a “just between the two of us” type of answer. HSBC CEO Mark Watkinson told me he expects a lot of investors to be affected when the China bubble bursts. However, HSBC itself being a long-term investor is not unduly concerned. It has the resources to ride the bubble out, and therefore expects to come out benefiting from it. BPI Investment Management, Inc. president Fernando Jose Sison III as well as Philam Asset Management Inc. president Karen Roa are likewise unruffled, believing that if you are in the market for the long-haul, there is no need to panic. Other analysts in a more relaxed setting, speaking but asking not to be quoted, say it’s time to take out your money and stay in cash while the market sorts itself out. Still other market watchers say the US, not China, will have a big impact on the market. Lago takes a different approach:

My immediate question is what is your age now? If you do not have a family yet and you are still in your 20s, you can tolerate having 85% of your portfolio in risky assets. But if you do not fit this profile, cash in your profits now and reduce your exposure to equities to 50% to 60% maybe.

This brings home the point that investment decisions are very much dependent on personal situations. I’m young and I have a 10-year investment horizon. I’m keeping my money where it is and just close my eyes! Remember that your P15 per share of ALI, for example, may look like a pittance if the share price goes down to one centavo tomorrow, but you will only lose if you sell. If you keep it, it’s just a paper loss. Same with bonds. So, my strategy is to keep cool, stay with companies that are in good industries and have good growth prospects. When the bubble bursts, I will buy some more. But that’s just me. So What Chocnut? In other news, PIPC says it’s not really an investment firm. There goes the smokes and mirrors. Watch out for more fuel hikes, and please, do ask for receipts the next time you go out shopping or eating out. (That sounds silly for us divisoria divas, hmmm.) Teves says non-issuance of receipts cost government P65 billion a year. I once peeked at a record at Camp Crame and was flabbergasted at how many car thefts happen in Quezon City. Check your car insurance and make sure you bought it from a legitimate company. Jon Mariano asks whether the ZTE contract is a good deal for the government, Uncomplicating the Complicated clarifies that there are no charges for using your own bank’s ATM, Reyna Elena says stopping doctors from migrating is a rotten way of solving the shortage of doctors in the country. On a lighter note, 78-year old guy from Bradenton, Florida who shares the name Harry Potter with the famous boy wizard from the movie screen gets a kick out of getting fan mail from children, being asked to sign autographs and requests for interviews from television networks. For our shopping addicts, read how Mariel Rodriguez hoards dresses but claims to be a cheap-etiks. Same with Starstruck winner Kris Bernal who loves to spend on Noritake dishes, a TV set in every room in her house (groan…a 48” set in the lanai and a 54” in the master bedroom, even a small one in the kitchen). To end on a more positive note, read how these young engineers are trying to do their part in sprinkling some fairy dust and sunshine on our dying patriotism by building the country’s first solar car.

Some things occurred to me as I read all your comments about that huge, inviting and exciting LCD television set. What if I had P1 million just lying around, perhaps a windfall from my stock market exploits? Would it be okay then to burn P199,000 on an appliance? Some of you told me in jest to go buy the TV as it probably won’t make any difference in my retirement money. Besides, if it would make me happy, why not buy it right? Was that you, hachiko? Thanks, I enjoyed a good laugh :). But it made me seriously consider why we spend money the way we do. Do we buy things just because we can afford them? What about buying a Jaguar? Or a P1,000 Chanel nail polish? Would that make a P50 million house with a P1 million dining table and P100,000 curtains a good idea? If I had $1 million (yes, dollars) to burn, would I be a miser if I don’t at least buy myself a Rolex when my P5,000 Timex watch will continue ticking until forever? There are many reasons why we part with our money. This is not by all means an exhaustive list. More like the beginning of a list. Some buy things to fulfill unresolved longings, to keep up with the family next door, to reward someone or buy their loyalty. Parents usually buy toys to placate, console or distract. We buy gifts for our spouse to prove our love. No one is here to judge if those motives are right or wrong. Knowing why we spend, however, will give us an idea if that spending is the answer to what we really seek deep inside. So do you think we are buying that LCD television set? Nah :).

The Philippine Daily Inquirer reports:

The shroud of secrecy surrounding high-level government contracts has led to the rise of “grander” and more lucrative corrupt practices in the Arroyo administration, anticorruption crusaders said Tuesday. But red tape and petty corruption, such as bribery, have decreased because of the anti-red tape executive order issued by Malacañang last year, Vincent Lazatin, executive director of Transparency and Accountability Network (TAN), said.

The executive order reduced transaction fees and trimmed bureaucratic dealings in several frontline agencies. “Bribery is going down. But the grand or bigger types of corruption are on the rise,” said Segundo Romero, a senior fellow at the Development Academy of the Philippines (DAP), which presented Tuesday corruption prevention studies under its Corruption Prevention Action Project.

Everybody in this town hates corruption. That collective distaste is real. I can almost taste it. Yet, given the choice to pay off the traffic enforcer or accept a ticket, most would take the former. Most would choose to bribe someone at the Bureau of Internal Revenue rather than pay the right amount of taxes. Pay a small bribe rather than add to some corrupt congressman’s largesse? The Filipino conscience is at odds with itself. Here’s a twisted application of the left hand not knowing what the right hand is trying to do. We hate corruption and yet we do it because it’s convenient. Vince Lazatin was a fund manager for more than 10 years. We spoke more than a week ago, and I pointed out that he seemed more grounded and looked more fulfilled working in the NGO sector as president of Transparency and Accountability Network. Apparently, fighting corruption is the job he had longed for, more fulfilling than the rush that comes from fighting the herd in financial markets. May your tribe increase, Vince. Let me state the obvious. Corruption is not about some congressman’s pocket or some government official’s retirement package. It is an insidious tax that affects everyone. It adds to the cost of doing business and raises the cost of goods and services. It’s one of the reasons Philippine sovereign bonds are still considered junk bonds in global markets. It’s one of the reasons why small businesses do not survive. The flip side is, elimination of corruption can drop the price of your pansit. It’s as simple as that. In other news, Noet Ravalo expects more opportunities for individual investors arising from the SONA. He expects higher returns through an increase in interest rates and from a stronger currency. He expects the government to issue more debt securities to fund all the roads and highways the President wants to build. We may also see more local governments issuing more municipal bonds. He sees more development of the forward market and the wider tradability of bankers/trade acceptances.

"These products directly help our exporters/importers and would alleviate the volatility on spot (current) market prices." Certainly, these products represent opportunities for retail investors to better participate in the financial market. But perhaps beyond purely personal finance considerations, they also provide a way for individuals to be active partners in funding the desired vision for the country.

I'm fighting some pessimism here. Let's hope you're right. Other bloggers: Get Rich Slowly has an answer for Peter who is worried about his credit score (well, in a way). Yeah, its not the end of the world when your credit score is down in the pits. But more vigilance is needed. Investopinoy says you save on electricity cost if you use the rice cooker instead of the microwave. Dave Llorito says the NBN and Cyber-Ed projects have bloated costs and should be dropped. Oh and following Dave's gracious lead, I would also thank Manolo Quezon for inviting me to be a guest on The Explainer over at ANC to talk about Francswiss and explain about pyramid scams. It was fun to play with the friendly orcs, play money and children's blocks to show why pyramiding is doomed from the beginning, Manolo. It was a great experience, and thanks for promoting MoneySmarts! Unfortunately, I was nervous ALL the time. hehe. I don't know how you do it so well.