Applying value investing in the Philippine stock market

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.

Like what you just read ? Check these out !


zmd Hi ! my name is  Zigfred Diaz, Thanks for visiting my personal blog ! Never miss a post from this blog. Subscribe to my full feeds for free. Click here to subscribe to zdiaz.com by Email

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15 Responses to Applying value investing in the Philippine stock market

  1. Voice says:

    Grabe Ziegfried. Your blog looks like an ad. :p Kidding. I heard you passed the bar exams? That was like last year right? Congratulations. It’s just me. A voice from the past. Someone who used to know you. Someone you went to school with. Okay I’ll stop with the mystery. No not really. Haha. Kidding. See you one of these days sa church. I hope they still let me in though.

  2. zigfred says:

    Voice: hahaha I know who you are. Thanks ! Well sorry about my blog, but a blogger’s got to earn money besides providing free quality content.

    See you around !

  3. enji says:

    im still a student and ive been searching for philippine large-cap value stocks..
    we have a project on constructing a financial portfolio
    just wanna ask if whats the best valuation method to determine if a stock is a value stock?

    and how are the phil stocks classified into large cap, or small cap? US has this $5 billion range ive been looking for that same sort of classification applicable to the phils..

    btw, ive read the book Informed Investor by Frank Armstrong III, and yes, he prefers or say advocates value investing.. it was quite a reading.. il try later on on Warren Buffets

    Great blog! and great personality..(i read ur about me) i like the idea of learning many trades..although i actually dont enroll in formal classes.. but id like too..

    i hope you can act as our group’s consultant for the moment..lol

    nwei, God bless and more power!

  4. zigfred says:

    enji: Hi ! I wrote a reply, but it seems to be very long so I decided to turn it into a blog posts if you don’t mind. I’ll inform you once the post is up.

    I have not yet read the “Informed Investor” but i’ll try to get a copy.

    With regards to being “consultant” well, that’s too heavy a responsibility hehehehehe :-) But no sweat, I’ll try to be of much help as I can. Just ask your questions and I’ll be glad to answer them the best way I can. Pang hindi na kaya nang powers ko sabihin ko. heheheh :-) Anyway, I’ll be glad to help out, just furnish me a copy of your project when you are done with it.

    By the way what’s your course and from what school ? God bless and more power too !

  5. zigfred says:

    enji: Hi ! Just finished my response to your questions. Check it out here: http://www.zdiaz.com/2009/03/questions-and-answers-on-the-philippine-stock-exchange/

  6. indiebot says:

    Hi again!

    I have another question in relation to my first.

    How will you know when to sell stocks? I understand that it’s very hard to predict (some say it’s impossible) the movements of the market. But are there guidelines on how to protect yourself from incurring big losses in case a bear market strikes (aside from setting aside a part of your porfolio to cash and bonds)?

    Say for instance, you bought shares from a very good company during a bear market at a discounted price (e.g. P10). Since the market is cyclical, there is a big chance for that stock to go is up and this happens during a bullish market (for instance the initial bargain of P10 went up to P70 during this season). But how do you exactly prepare for the next bearish market?

    Should you sell it during a bull run when people are so to speak ‘greedy’ to buy those stocks? Then buy them again on the next bearish market? Or should investors still uphold the buy-and-hold strategy and ignore the rise and fall of the market and just wait it out for 20 years when the returns would be positive nonetheless?

    I know this is a very broad subject so I hope you could do a post about this in the future. Also could you recommend books that may help investors know not only when to buy but also when to sell.

    Thanks a lot! I’m glad I found this site.

  7. zigfred says:

    indiebot: Hi ! Thanks for your questions. I always appreciate questions from readers as it forces me to write about certain topics. I will be doing a post on your questions soon ! (I still am still working on other posts, among those are two other posts from readers) I will let you know once my post on your specific question is up. :-)

  8. xuzhu says:

    In an ideal world, you don’t sell your stock. If the first decision of buying is correct, then the sell decision is no longer needed.

    However, as a rule of thumb, you sell a stock if:

    1) you find a better value, on a risk-adjusted rate of return
    2) the investment thesis (the reason why you bought a company) is no longer there
    3) prices have outpaced value and you think value can no longer catch up with prices.

  9. zigfred says:

    xuzhu: I definitely agree !

  10. Chris says:

    Are you still active in the market? What do you suggest is a good move to make at this time? I’m reacquainting myself with the market too these days.

  11. zigfred says:

    Chris: Yes I am very active in the market. I am more of a value investor. Visit my new blog on stock market investing at http://www.stockmarket-investing.com

  12. rennie says:

    hello po I want to learn more about investing stock, can you help me for this

  13. rennie says:

    how much capital do i need to start in investing stock?, saan po ba ako pwedeng mag apply?

  14. john says:

    for all those curious in learning, there are a LOT of value investing educational websites to choose from:

    start with fwallstreet.com
    investopedia
    value-quest.blogspot.com/
    gurufocus.com tracks the top value investors internationally.
    you can learn A LOT from their interviews.
    some of the legends are:
    walter schloss
    marty whitman
    jean marie eveillard
    mario gabelli
    john bogle
    peter lynch
    christopher browne

    and the current superstars:
    mason hawkins
    bill miller
    prem watsa
    whitney tilson
    bill ackman
    david einhorn
    addie lampert
    bruce berkowitz
    chick royce
    david winters
    donald yatchman and sons
    rakesh jhunjhunwala

    devour books too!
    ben graham
    robert hagstrom books on WB
    mary buffett books
    charlie munger
    seth klarman
    monhish pabrai
    joel greenblatt
    john neff

    you can check out their interviews too (morningstar, bloomberg, youtube, or google videos)

    it takes a great deal of learning, tons of reading and analysis to make a good value investor… ive discovered this
    passion 5 years ago and have witnessed remarkable results (in both wisdom and money :P)

    read annual reports too!
    with only 250+ companies in the pse, that wont be too much.

  15. john says:

    pse also has a stock trading game, which i suggest to try out first before putting your hard-earned money on the line. test your system for at least 3 years (by which you have encountered a bear market)…

    if your system works, then you’re ready to start with real money and learn how to pull the trigger (easier said than done) :)

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