Ever since I started reading Warren Buffett books more than 3 months ago, I had been hooked on value investing. I bought all the value investing books I could get my hands on. Perhpas I should consider taking some diet pill to stave of my hunger for value investing books. hehehehe
I wrote about my value investing book purchases in the post entitled “How Warren Buffett made me poor” and “I’ve got the latest Warren Buffett book!” Recently, I read some Benjamin Graham books. Benjamin Graham is Warren Buffett’s mentor and is considered the “Father” of value investing.
“Value investing” according to Wikipedia “involves buying securities whose shares appear underpriced by some form of fundamental analysis” Graham refers to value investing as buying an item worth $1.00 for half the price. The definition of “Value investing” has evolved throughout the years and has been refined by Warren Buffett. Warren Buffett is said to have a consistent above 20 % return per annum for more than 50 years because of the application of value investing in his investment strategy.
I will deal with value investing in detail in future posts. In the meantime I would like to show you how value investing applies in the Philippine stock market.
I teach Business law class at the Cebu Institute of technology department of Industrial engineering. Since one of our topics involves the corporation code, I always insert a tidbits of value investing ideas to my students. I believe they can appreciate the corporation code more if they have a picture on how real corporations work in the real world. In order to do this, I expose them to annual reports and financial statements.
I showed to my class how applying the principles of value investing can produce an almost “Buffett” like return in the Philippine stock market. Consider this:
GLOBE TELECOMS (GLO)
Globe Telecoms is a telecommunications company in the Philippines.
In the early 1990s it has positioned itself as one of the pioneer companies which introduced the more advance GSM technology during that time into the Philippines. With the introduction of text messaging the Philippines was poised to be the “text mesaging” capital of the world. This spells fat profits for mobile phone companies.
In 1997 GLO stocks sold for P 152.00 per share. Ten years later, in the bull market of 2007, the stock sold for P 1,700.00.
If you do the math this adds up to 27.31% annual compounded return. This means that if you bought 10 shares of GLO for P 1,520.00 in 1997 (P 152 per share x 10) and sold them in 2007 for P 17,000.00 (1700 per share x 10) it would spell for you a profit of P 15,480.00.
What if you bought 1000 shares of Globe in 1997? Do the math in you will be shocked what value investing can do for you.
JOLLIBEE FOODS CORPORATION (JFC)
Jollibee Foods corporation is a fast food company that started as a small ice cream parlor in the 1970s. Today, there are more than 1600 Jollibee stores in the country. JFC has recently expanded operations to 9 other countries. Its brands now include Chowking, Greenwich, Red Ribbon, Yonge King, Delifrance, Chun Shui Tang and Manong Pepe.
In 2001 JFC stocks sold for P 12.50 per share. Six years later, in the bull market of 2007 the stock sold for P 52.00 per share.
The annual compounded rate of return in six years time is 26.82 %. This means that if you bought 100 shares of JFC for P1,250.00 (P 12.50 per share x 100) in 1997 and sold them in 2007 for P5,200.00 (52.00 per share x 100) it would give you a profit of P 3,950.00.
What if you bought 1000 shares of JFC in 1997? Do the math and let value investing run your imagination wild!
MEGAWORLD CORPORATION (MEG)
Megaworld corporation is the Philippines second largest real estate corporation and is considered as the Number one condominium developer in the Philippines They are also considered as a major innovator in the real estate market with the introduction of the “Live, learn, work and play” concept. Currently its business operations include developing and marketing residential, office and commercial spaces and the operation of hotels.
In 1997 the market priced MEG stock at only P.43 per share despite its having a book value of P 1.587 per share. The Asia financial crisis has severely affected the property sector during that time. Ten years later, in the bull market of 2007 the stock sold for P 4.25 per share. This means a 25.75% annual compounded return in 10 years time.
So if you bought 10,000 shares of MEG for P 4,300.00 in 1997, (P .43 per share x 10,000) and sold them in 2007 for P 42,500.00 (P 4.25 per share x 10,000) you would have enjoyed a profit of P 38,200.00.
Just imagine if you had bought 100,000 shares of MEG in 1997! Value investing is definitely something worth to look at!
A word of caution, just because I have presented these stocks, does not mean that I am already recommending you to buy them right away. Make sure you do the proper fundamental analysis by applying value investing methods before you make a decision to buy. Remember this fundamental principle in value investing “The price you pay always determines your rate of return.” Continue to visit this blog for more post on value investing. In the meantime why don’t you check out some value investing books in my Guerilla blogger estore. Click here for some cheap books on value investing.
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