The casualties of the Lehman collapse are popping up, one by one.

First, the Philippine economy. Socioeconomic Planning Secretary Ralph Recto now has a worst-case scenario forecast of 4.7 percent to 5.5 percent for gross domestic product for the year, down from an already revised 5.5 percent to 6.4 percent.

You know already that two of the nation’s biggest lenders, Metropolitan Bank & Trust Co. and Banco De Oro have hits on their portfolio. Rizal Commercial Banking Corp. (RCBC) today also revealed its exposure to Lehman. Together, the three banks have set aside $120 million in provisions—meaning there’s cash made available for any write down in the future.
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Now it’s no longer just a rumor. The US Fed is bailing out American International Group with an $85-billion package (you read that right). Apparently, AIG is indeed too big to fail.

I tried to camp out of Philamlife chief Joey L. Cuisia’s office this morning (well, I really meant sit really demurely in the lobby) just in case he has time to talk to a lowly journalist. Understandably, however, he was up to his ears with teleconferences and board meetings with this new development, but I’m on call the whole day.

Some thoughts that come to mind: Wall Street’s latest convulsions show there might be more casualties out there and all that’s part of the restructuring happening in financial markets. I’ve heard the phrase “the market corrects itself” too many times that it hardly means anything anymore. Now, I think the great white economists might not be speaking in tongues, after all.

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Like dominoes, the effects from convulsions in the US financial system will begin unraveling and regulators, investors and market players are hoping there will be more pieces left standing than those that are toppled over.

Late breaking news that the Federal Reserve is now considering providing a bailout package for American International Group is providing a soothing balm to Wall Street, especially after the company was downgraded yesterday by major ratings agencies. We will know more as the day unfolds whether the “unnamed source” in Bloomberg’s report has just given markets an early Christmas gift.

Because Lehman Brothers, Merrill Lynch and AIG are all complex financial companies, the reckoning may take months, not days. AIG’s dilemma, in particular, has had everyone’s knickers in a twist because its demise will hit every big Wall Street name and is expected to have huge ramifications all over the world. Government economic managers are largely expected to talk about this issue during their mid-year economic briefing at the Shangri-la Plaza in Makati at 10 a.m. today.

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The Brad Pitts of the world couldn’t have unglued me from Bloomberg television and my computer since yesterday, watching every little blip of news regarding the debacle happening in Wall Street and thinking about the ramifications locally.

Unlike Lehman Brothers, it seems that American International Group (AIG) has friends in high places. So far, it has been allowed by regulators to raise another $20 billion by borrowing from its subsidiaries and no less than Federal Reserve officials have asked Goldman Sachs and JPMorgan Chase to set up a $75-billion facility to stave off a crisis at AIG.

Gov. David A. Paterson of New York said the magic words: “It’s a systemic risk.” Meaning he thinks if the government let’s AIG fail, this could shake the entire financial system. Having said that, the government has shown reluctance in bailing out any financial firm using public money, of course, so expect more creative means to help out financial companies in trouble.
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Wall Street giant Lehman Brothers has fallen, Merrill Lynch has sunk into the arms of Bank of America and traders smell blood from global insurer AIG. Who’s next?

The New York Times has called this one of the most dramatic days in Wall Street’s history. The whole thing brings ominous tidings, says Fortune magazine. Expect more dramatic articles in the coming days as the media is whipped up into a writing frenzy.

Lehman employs around 3,000 staff in Asia and everyone must be on pins and needles waiting to find out what will happen to them. On the local front, only AIG among the big names mentioned in the news today, has a big consumer base in the Philippines, Philamlife being a member-organization of the insurer. (UPDATE: My local source says Philamlife has its own financial resources and will not be affected much by AIG’s troubles. I am waiting for an official statement from the company.)

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When you’re in your 20s, you’re probably just starting out in your first job and concerned with making a good impression. Even if you might still be living with your parents, buying a new wardrobe, going out to fit into your new environment, enjoying your independence will become paramount concerns, rightly or wrongly.

In your 30s, you are most likely raising a family, saving for your children’s education, taking out a home mortgage, paying for your first or second car, and some of you might be taking care of an aging parent.

If you are in the 40-something age group, you might have bigger salaries and bonuses, but will be dealing with health issues too and higher cost of living. At what point do you seriously start thinking about investing for retirement and how much do you set aside? With all these financial concerns at the back of your mind, it’s no surprise that retirement will be taking a backseat.

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Last Sunday, I asked my friend who was a businessman if he was still renting an apartment or if he had already bought a home for his family. He asked me if it was really a good idea to buy one, assuming he had the money to pay for the house in cash.

“You see, my Chinese friend pays P85,000 to rent a house in Greenmeadows and says it would be stupid for him to take out his P50 million in the bank to buy a house. He buys a house; his P50 million is gone,” says my friend.

“After all, he tells me, would anybody know that house is not mine?” he adds.
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By CFA Institute*

Investing is fun and very rewarding, especially, if you know the “rules of the game.”

There are some simple rules to follow. Ignoring them, or making mistakes in applying them, can be very risky. Making mistakes repeatedly could drain your assets very quickly.

“Creating a program to confidently boost investment success is not easy,” said Mark Yu, CFA, president of CFA Philippines, the local affiliate of CFA Institute, which administers the CFA® (Chartered Financial Analyst®) Program worldwide. “Investors are sometimes their own worst enemy by making common mistakes.” CFA Institute asked selected members to come up with 11 frequent and costly pitfalls that individual investors should avoid.

1. Having no investment strategy. Every investor must develop an investment strategy that will serve as a guide. A well-planned strategy considers time horizon, risk tolerance, amount of investable assets and planned future contributions.
2. Investing in individual stocks instead of in a diversified portfolio of securities. Investors should keep a broadly diversified portfolio incorporating different asset classes and investment styles. Failure to do so leaves individuals subject to fluctuations in a particular security or sector.
3. Investing in “stocks” instead of in “companies.” Invest in finance enterprises that are likely to have a positive long-term growth potential. Analyze the fundamentals of the company and industry, not day-to-day shifts in stock price. To avoid difficulties, examine a company’s corporate governance profile to ensure that it has basic corporate governance protections.
4. Buying high. Many people commit the mistake of investing in stocks that did well in previous years or in “popular” stocks of the day assuming that these will also do well in the future. Remember that the fundamental principle of investing is to buy low and sell high, not the other way around.
5. Selling low. Not every investment will increase in value. Even professional investors have difficulty beating the S&P 500 index in a year. Always have a stop-loss order on a stock that might fall in price. It’s better to take a small loss and redeploy the assets toward a more promising investment.
6. Churning your investments. Too much trading cuts into investment returns, because of transaction costs. The solution is to adopt a long-term buy-and–hold strategy, rather than active trading.
7. Acting on “tips” and “soundbites.” Veteran investors gather information from several independent sources and conduct their own proprietary research and analysis before making an investment decision.
8. Paying too much in fees and commissions. Investors should be well-informed with the associated expenses that accompany every potential investment decision.
9. Unrealistic expectations. Take a long-term view when making investments. Don’t allow external factors to cloud your actions or to cause a sudden shift in strategy.
10. Neglect. Individuals often fail at investing, because they don’t know where to start, or because they neglect their holdings.
11. Not knowing your real tolerance for risk. Investments always come with risks. Don’t wait for a sudden drop of value of assets to determine your level of risk tolerance.

About CFA Institute
CFA Institute is the global association for investment professionals. It administers the CFA® (Chartered Financial Analyst®) and CIPM (Certificate in Investment Performance Measurement) curriculum and exam programs worldwide; publishes research; conducts professional development programs; and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry. CFA Institute has more than 95,600 members, who include the world’s 82,400 CFA charterholders, in 134 countries and territories, as well as 135 affiliated professional societies in 56 countries and territories. More information may be found at www.cfainstitute.org

About CFA Society of the Philippines
In 1995, the CFA® (Chartered Financial Analyst®) exam was first introduced in the Philippines, with the support of the Capital Markets Development Council, Inc. (CMDCI). On July 1997, a group of CFA candidates, practitioners from the investment community and members of the academe gathered to form a society in response to the growing need to set higher standards in the investment community - in terms of knowledge, competence, professionalism and, above all, ethics. Thus, CFA Philippines, formerly known as the Association of Investment Professionals – Manila, was established.

CFA Philippines is the local affiliate of US-based CFA Institute. Its mission and vision is to be the premier association in the Philippines’ investment and finance profession by promoting competence, professionalism and the highest ethical standards.

Mutual funds are sold as the investment for the masses, allowing ordinary Filipinos with as little as P5,000 to get their feet wet in an instantly diversified portfolio of stocks, bonds, or both.

It was a little bit of a surprise to find out that the average mutual fund investor as of June 30, 2008 has a placement of roughly P483,820 in mutual funds — not your average Filipino, obviously. That’s an impressive little factoid.

Based on official figures from the Investment Company Association of the Philippines (ICAP), this figure is lower than the average investment size of P580,843 in December 2007, which is again lower than P622,079 in June 30, 2007.
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Savings account: P5,000
Checking account: P5,000
Time deposit: P10,000
Special deposit account: P100,000
Foreign currency deposit account: $1,000
Mutual fund: P5,000
Unit investment trust fund: P5,000
Treasury Bills and Bonds (through banks): P100,000
Account with a stock brokerage firm: P50,000 (but I just learned that at least one has no minimum investment at all)
Priority banking accounts: $50,000 (you will have access to different investment instruments at higher interest and the services of wealth managers or financial planners)

For first-time investors, read this guide: Investment 101 for the first time investor

(Check this spot again from time to time for more updates. The usual disclaimer applies: this is not a solicitation to buy etc. etc. and each instrument is attached to its own kind of risk).