Wednesday, July 1, 2009

CFA Review Class

Please visit for more details and for the registration form.

Chartered Financial Analyst Society of the Philippines (CFAP)
Review Courses
December 2009 CFA Level 1 Examination
“Build Your Network While Enhancing Your Learning”

Registration fee : Php 35,000.00
Venue : Room 502 (5th floor)
College of Business Administration
University of the Philippines - Diliman
Quezon City
Time : 1:00pm to 4:00pm

The package includes:

CFA Level 1 review materials
Mock-exam to be administered two (2) weeks before the date of the actual exam
One (1) complimentary entrance to three (3) CFA Philippines Continuing Education (CE) events worth Php 1,500 each
One (1) free affiliate membership to CFA Society of the Philippines worth Php 1,000 IF you pass the CFA Level 1 exam in December 2009

There will be sixteen (16) review sessions to be handled by various CFAP Members and industry practitioners according to the following schedule (all dates are Saturdays):

Thursday, April 9, 2009

WANTED: CFA Philippines Executive Director

CFA Philippines is currently searching for an Executive Director.

Please view details of the requirements for this position at the Job Listings section of

Saturday, April 4, 2009

Scams and Failures in the Finance and Investment Industry of the Philippines

BW Resources, Dewey Dee, Royal Manchester, Legacy, FrancSwiss, G7 Bank, Multinational Telecom Investors Corp. (Multitel), MMG Holdings, Performance Investment Corp. (PIPC), Glasgow and Maria Theresa Santos Trading

There is a crisis of confidence in the Philippines! One that is brought about by numerous scams and financial industry failures that go on without corresponding penalties.

Share your thoughts and suggestions on why our Investment environment is conducive for scams and schemes in the Philippines. More importantly, what can we do to positively change our investment environment.

Monday, February 23, 2009

Marc Faber turns bullish

Marc Faber, a renowned investor and a frequent speaking guest at CFA Philippines' seminars, has switched from his gloom-and-doom stance regarding the US equity market, and gave an upbeat interview to Bloomberg recently. Marc Faber has correctly predicted the current crisis two years ago. See his interview here, and also read the other articles in this very educational site for investors interested in macro environment, aptly named :

Friday, February 6, 2009

Why they sold CDS that destroyed their companies

The current financial crisis is more about Credit Default Swaps than housing prices. The losses incurred from CDS (on the seller side) on the financial sector is far greater than losses from direct mortgage loans. It is estimated that as of end of 2008, the nominal value of CDS is about $50 trillion.

Why did the banks (and companies like AIG) sell this product, when the upside is much smaller than the downside? unlike an insurance, the loss on a CDS contract cannot be shared by a pool of policies. It is a gamble, pure and simple. If the seller wins, he gets to keep the premium. If he loses, he loses big.

I got the answer while reading an article called "Twenty Five People at the Heart of the Meltdown". The first part of the article lists the major characters responsible for the global financial crisis, with a British focus. The second part lists those who saw it coming. Meredith Whitney was one of them, and she said that Citigroup was in big trouble back in October 2007. She credited her insight to an ex-colleague Stephen Eismann.

The path that Eismann took to reach the conclusion that the financial system was heading to a disaster was detailed in an excellent article by Michael Lewis, author of a book called "Liar's Poker", in Here is the answer:

"when I sit down with Eisman, the very first thing he wants to explain is the importance of the mezzanine C.D.O. What you notice first about Eisman is his lips. He holds them pursed, waiting to speak. The second thing you notice is his short, light hair, cropped in a manner that suggests he cut it himself while thinking about something else. “You have to understand this,” he says. “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. "

"His dinner companion in Las Vegas ran a fund of about $15 billion and managed C.D.O.’s backed by the BBB tranche of a mortgage bond, or as Eisman puts it, “the equivalent of three levels of dog shit lower than the original bonds.” FrontPoint had spent a lot of time digging around in the dog shit and knew that the default rates were already sufficient to wipe out this guy’s entire portfolio. “God, you must be having a hard time,” Eisman told his dinner companion.“No,” the guy said, “I’ve sold everything out.” After taking a fee, he passed them on to other investors. His job was to be the C.D.O. “expert,” but he actually didn’t spend any time at all thinking about what was in the C.D.O.’s. “He managed the C.D.O.’s,” says Eisman, “but managed what? I was just appalled. People would pay up to have someone manage their C.D.O.’s—as if this moron was helping you. I thought, You prcik, you don’t give a fcuk about the investors in this thing.”

The incentive system encourages bankers to focus on short term returns. As long as CDS lasts longer than the housing boom, the bankers would receive bonus before the party is over.

Tuesday, January 27, 2009

Team CFA Philippines - off to Singapore!

4 men and a lady will represent the Philippines in the upcoming Regional competition in Singapore on March 6-7, 2009.

Friday, January 23, 2009

Introducing TEAM CFA PHILIPPINES - Winner of 1st IRC - University of the Philippines! Congratulations!

Team CFA Philippines will be composed of students from the University of the Philippines.

Team CFA Philippines will be flying to Singapore in March 2009 to compete in the Regional Competition!

Let's all support Team CFA Philippines!

Thursday, January 8, 2009

Investment Reseach Challenge Finals on Jan. 23, 2009

The Finals of the 1st Philippine Investment Research Challenge will be held at the PSE Tektite Auditorium, Ground Floor, on the afternoon of January 23, 2009.
2PM - 6PM, Friday.

The members of Team CFA Philippines will be announced on this day! There is no charge for attending this event. Please register with the Secretariat if you intend to attend.

More details to be announced.

Friday, December 19, 2008

The End of the Oil Price Bull Run, Not

Light, sweet crude for January 2009 delivery reached a low of $33.87 on last Friday (19 Dec), the lowest since early 2004. The rapid fall in oil price in recent weeks was said to be due to reduced demand resulting from the weakening economy. Does this mean that we can return to our gas-guzzling way of life? as a person concerned about the environment, I sure do not want to see that happening. As an investor, I have more choices.

Data from the US Department of Energy site shows that, the retail price of gasoline in the US was falling in the last few months at a rapid rate. One press report suggested that the retail price had been falling for 86 days previously, but rose on Friday. The DOE data shows that actual gasoline supply has started going up since the week ending 28 November, although the increase was small.
The graph of motor gasoline supplied over the last 18 years is an interesting one. It shows that US actual demand for motor gasoline was rising since 1992, but peaked in late 2007. Since then, it has been in decline and also the range has narrowed. In other words, the demand was rising even when oil price was increasing rapidly from 2005 to 2006. We can speculate that the headwind caused by higher oil price on demand only reached its full strength in late 2007. Maybe because the world economy was growing robustly between 2005 and 2006 and that supported the rise in demand despite the higher oil price.
The scenario today is a weakening world economy and very low oil price. The demand for gasoline in the US dropped from a weekly volume of about 9.3 million barrels to just over 9 million barrels before 21 November, and has been climbing by a few thousand barrels per week.
Also, futures of the crude delivery in February has risen to $42.36, an increase of 69 cents since the day before.
Governments around the world are busy printing money and lowering interest rate. In about a year's time, asset prices may feel the effect. Let's hope for my portfolio and my environment that oil price will go back up to around $60 before the end of 2009.

btw, I heard that Snowballs has just got married. If so, congratulations!

Friday, October 24, 2008

Any more guesses on oil price?

The survey in this blog on oil price shows that most people did not predict the sharp fall of oil price in recent weeks. It is currently at US$70 whereas it was above $140 only a few months ago. Snowball, are you going to have a new oil price survey, now that we are closer to year end?

US dollar’s elusive path

When the US government announced the passage of the legislation authorizing the US$700 billion bailout plan in September, most people thought that the US dollar would fall because of the consequential increase in supply of US dollars. To their surprise, the US dollar strengthened sharply against Euro and many emerging market currencies. However, it strengthened against the yen, as can be seen in the following graph.

Why did the US dollar strengthen against Euro? Perhaps because Europe is looking weak also and ECB is signaling it will cut interest rate. But if they do not cut faster than the US, there should be no change in interest rate differential. Hence, the strengthening of the dollar vs. Euro may reverse if the market has priced in a faster rate cut by ECB compared with US than what is going to be actually realized.

Why did the US dollar strengthen against emerging market currencies? The general thinking is because investors sold assets considered more risky and change the proceeds back to US dollars, investing in US treasuries instead. It seems that the selling of foreign equities has been the case, for example, with Indian stocks, and then Indian Rupees. But the Philippine stock market is so small that even with massive withdrawal from the stock market, the impact on the pesos should not have been as strong as has happened. Furthermore, with the peak remittance season coming soon, I am doubtful that the US dollar can maintain its strength against the Philippine pesos.

Why did the US dollar weaken against Japanese yen? The interest rate differential theory also seems applicable here. The interest rate of yen is so low that there is probably no room for any rate cut. When US cuts interest rate, then keeping money in yen does not look much worse than keeping money in US dollars. Japanese investors may have simply converted their US dollars back to yen, creating demand for yen and strengthening its exchange rate as a result. Any body out there has data that supports or refutes these theories?

Some interesting discussion on the main exchange rates can be found in :

Wednesday, October 15, 2008

Buffett style Investing Shines (Inquirer)

Buffett-style investing shines
By Ma. Salve DuplitoINQUIRER.netFirst Posted 21:04:00 10/12/2008

VANDERMIR C.T. SAY started investing when he was 12 years old. That was 22 years ago. He recalls picking stocks the way he would play darts. Not anymore. For the last decade or so, Vandermir has become a Warren Buffett-follower, investing only in good companies at good prices and buying them for the long haul.
In the last couple of months, amid cascading losses in markets all over the world, Buffett’s value investing philosophy has attracted.
The fact that Buffett, the world’s richest man according to Forbes magazine, has emerged as Wall Street’s knight in shining armor after injecting funds into Goldman Sachs and General Electric a week ago has most likely upped the ante significantly on value-style investing.
And if the sale of Buffett’s first and only authorized biography “The Snowball: Warren Buffett and The Business Of Life” written by Alice Schroeder (editor of Berkshire Hathaway’s layman-friendly annual reports) is any indication, the interest is just heating up. Just days after it hit bookstores in Sept. 29, the book has claimed a top spot on Amazon’s best-selling book list.
Say, the Chartered Financial Analysts of the Philippine’s new president, explains that value-style investing is based on very simple principles. “All we look for are good businesses at good prices,” he says.
What makes a good business? One that you’re absolutely sure will make good money in the next, say, 20 years and run by highly capable management with high integrity. That means you only invest in businesses you understand -- a trademark Warren Buffett philosophy.
In this day and age of extremely volatile markets, the value investor is unfazed because he buys and holds for as long as he needs the investment. He is not concerned about fluctuations. His life is relatively simpler and less harried because for him, Wall Street can wallow in its own toxic securities.
Contrast that with an investor who makes money from trading stocks or bonds and who had to watch his portfolio drop more than 20 percent in the last couple of weeks, asking himself every morning, “Is this ever going to end?”
In fact, Say says, some value investors he knows who have the extra cash are now revving up for acquisitions. After all, prices are low and whether in good or bad times, a good business is a good business.
“In general, what is happening is good for us because the crisis is pushing down prices. My job now is to look for good businesses,” Say says.
Whether in stocks and bonds, Say says good opportunities in the market are starting to emerge. He declines to say what are good buys, but gives tips: Look for businesses that are managed by people with high integrity and find companies that respect the rights of minority shareholders. Those two criteria alone will shorten the list of good bargains out there in the market, he says.
“Right now, Buffett can buy almost anything in the market, but look at companies that he is buying. Goldman and GE, companies that are being run very well … Integrity is important, the goodness of a person is important. What if you meet some guy with no integrity but you can probably make $200 million, you should say no. Why go through all that stress? There are better ways to make money,” he adds.
These may sound like dreamy principles in a day and age where everything is measured by money and returns. But it also uncannily explains why Wall Street is tottering like a drunken lunatic in a suit: Greed is the root cause of the subprime mortgage problem. Even more greed by investment bankers and hedge fund managers blew that out of proportion through derivatives instruments disclosed in legalese language very few understood.
“Buffett and Charles Munger (Buffett’s business partner) have attacked derivatives three or more years ago. Munger said comparing derivatives to a sewer is an insult to sewers. Now in this crisis, what is the value of his advice? Multibillion dollars because what are the key to the problems now? Derivatives,” Say explains.
That said, Say doesn’t see the popularity of value investing to stay for long. “It is the flavor of the year, but if you are asking if it will generally be much more popular than before, I would guess not. Buffett learned from Benjamin Graham more than 50 years ago. It is not a secret; it has been around for a long time. But it has never been a popular style,” he says.
Reading annual reports and understanding what makes a business tick takes a lot of patience. It’s based on analysis, and not a quick tip to make a quick buck by flipping a stock or bond. Adhering to those principles and being disciplined is the hardest part, says Say, because old habits die hard.
“There are a number of value investors here in the country. They are in the minority, as well as with any other market, even in the US,” he says.
And do they make more money than the flippers? Say knowingly smiles, and says, yes, they are wealthy.
The 32-year-old investor tries to emulate Buffett not just in investing but also in the way he lives. Buffett, the shy billionaire who is also called the Oracle of Omaha, still lives in his house in Nebraska that he built more than 50 years ago, doesn’t have a driver, is brand loyal, and highly values integrity. Say uses an old model mobile phone and says his passion is helping people live better lives.
“My clients have been calling me about the book (Snowball) when it came out, and they were very excited about it. It’s like our Harry Potter,” he says with childish excitement.

Friday, October 3, 2008

The role of rating agencies in the US Subprime crisis

For those still in the mood of looking at someone to blame for this financial mess, here is one target that you should not miss : the rating agencies. Bloomberg has two excellent articles explaining how S&P and Moody's put profit ahead of their professional integrity and underrated risky derivatives such as Subprime mortgages backed CDOs (part 1 and part 2).

Another very important article giving a broader perspective on the effects of the dominance of the financial sector in an economy, and includes an explanation of the subprime mortgage crisis as well as a description of the role of the rating agencies, is this article by John Bogle, "Black Monday and Black Swans", an abstract of which can be found in the August issue of CFA Digest. It is a must read for any one who is interested in the root causes of the subprime mortgage crisis.

Wednesday, October 1, 2008

capital market : more regulation or less?

In the midst of the worst financial crisis in the world leader of capital market, a debate is going on as to whether the solution should include more regulation of the capital markets or less. Those who argue that there should not be more regulation cited the negative effects of the Sarbanes-Oxley Act enacted in 2002 in the aftermath of the Enron scandal as a reason for opposing more regulation.

In my view, the evidence of this current crisis speaks clearly for itself. The more regulated commercial banks were allowed to trade heavily in unregulated financial products, while the lightly regulated investment banks were allowed to trade freely with the commercial banks. Even though the commercial banks were more regulated, because of their heavy dealings with the investment banks, the end result was both needed to be rescued. Of course, lax supervision, which is a problem with execution rather than legislation, allowed banks to lower lending standards. Regulators were at fault in believing that just because banks claim that they would immediately pass on most of the risks of the dicey mortgages to a third party by selling mortgage backed securities to pension funds and other non-bank financial institutions, banks should be allowed to lower their lending standards. More regulations, specifically in respect of trading of derivatives and the intertwining of business dealings with non-bank institutions, should be required, as well as better implementation of existing regulations.

Monday, September 29, 2008

Is fundamental analysis dead?

The US stock market dropped nearly 10 percent last Monday, after the $700 billion rescue plan was rejected at the House of Representatives. Did the business prospect of all the listed companies go down with the rescue plan? The PSEi was at 3,677 on 2 October 2007. On 30 September 2008 it was 2,569, a decrease of 30 percent. Did the Philippines' business environment deteriorate that much during that time?

Many investment education programs, including the CFA program, emphasize fundamental analysis, which looks at a company's income prospect, liquidity ratios, debt to asset ratios and so on. However, in the past 14 months, what dominated the US stock market were the housing market's condition, and, more significantly, the availability of credit, and these factors also have an overriding effect on the stock markets in far away countries, some of which undoubtedly have strong trade ties with the US, but the extent of the impact on their stock market still seems disproportionate to the trade impact.

Analysts who relied solely on fundamental analysis would see the stock prices of many good companies battered to 'unreasonable' levels. In ordinary market conditions, the analysts would disregard short-term price misalignments, or even regard them as opportunities. For example, Warren Buffett's fund bought shares of USG, a US building materials manufacturer, in mid 2007 at around $38. However, this time round, the 'misalignment' has lasted more than 14 months, and who knows how much longer it will last. USG is currently trading at below $26.

Is it time for analysts to admit that the supply of liquidity and market sentiment are also important factors in determining stock price levels? and at certain times, these factors can override fundamental factors by a large margin and for a long time?

Thursday, September 11, 2008

Investment Research Challenge - Kick Off Event Coming Soon!

The IRC will officially start on September 26, 2008, 3-5PM at the PSE Tektite Trading Floor, Pasig City.

The 5 participating schools are the ff.:

1. Ateneo de Manila University
2. De La Salle University
3. University of Asia and the Pacific
4. University of the Philippines
5. University of Santo Tomas

Which school shall represent the Philippines?

Tuesday, September 2, 2008

Questions, Comments and Suggestions as talked about in ANC! - For All Visitors

This is the place for all visitors from all around the world to post your thoughts and questions. What issues would you like CFA Philippines to discuss? What questions do you have about investing in stocks, bonds, funds or UITFs?

PRESIDENT - Vandermir T. Say, CFA, VICE PRESIDENT -Maria Victoria Mangonon-Caintic, CFA, VICE PRESIDENT- Raymund Abara, CFA, TREASURER - Denis Du, CFA
SECRETARY- April Lyn Chua-Lee, CFA, DIRECTOR - Mark Yu, CFA
DIRECTOR - Ernesto Francisco Jr., CFA

Did you know that there are only 86 CFA Philippines members? CFAP members are literally, 1 in a million!

Monday, September 1, 2008

Finance and Its Fancy Lingo

There has always been a continuous debate as to whether finance is more properly characterized as an art or as a science. I am not to make a claim but for me, there is something so artistic and fascinating about the world of finance that separates it from undoubtedly scientific fields like Mathematics: its ever extravagant lingo.

Mathematics is a very systematic study – systematic even in the way it gives a term for something. First, it often uses Greek letters predominantly for numbers, sets, functions and spaces. It needs a large number of symbols to stand for these abstract objects but its wide use of Greek letters provides a collection of useful symbols to supplement the Roman letters. Second, it sometimes uses Greek prefixes as is the case in naming polygons, polyhedra, and polynomials. Such simple, systematic and consistent way of coming up with a terminology is not observed in the field of finance.

In Math, we know that Euclidean geometry, Euclidean metric, and Euclidean algorithm are all from Euclid just as Abelian groups are from Abel, and Eulerian graphs are from Euler. Likewise, Roman numerals are so called because they are a numeral system originating in ancient Rome. This makes me question why Eurobond and European option are so termed if Europe has nothing to do with them!

In Math and other disciplines, we typically use the Latin prefix semi- to an object that is half of or partly something. We have such words as semicircle, semiperimeter, semiannual, and semiformal. Now, how come a combination of American and European style options is never named semi-American or semi-European? It is because the people from Wall Street have found just a more ingenious name for it: Bermuda options! Note that it only makes sense if you're aware that Bermuda is that tiny place that is nearly halfway between the United States and Europe.

As you may have already noticed, financial jargon has very rich etymology. More often, it is influenced by popular culture. There exist countless financial terms now that alludes familiar elements in pop culture so as to portray something in finance. A good example is voodoo accounting which describes a form of financial statement manipulation. In western countries, the word “voodoo” suggests witchcraft and mysterious occurrence. Hence, in voodoo accounting, what is likened to”witchcraft" is the use of accounting gimmicks to conceal what it truly going on with the firm, resulting to "mysteriously" high revenues or assets. Another example is Santa Claus Rally, which takes place between Christmas and New Year’s Day. Just like Santa Claus who allegedly gives presents to the children, this rally brings presents to the investors in the form of a climb in the share prices.

Sometimes, a financial term can have biblical reference. You probably have heard already the phrase “baptism of fire”, citing Matthew 3:11. It is generally used to denote a first painful experience and in finance, it describes a tough challenge faced particularly by a company. It can be a situation like an IPO, merger or acquisition, or election of new officers. Other times, finance derives its terms from concepts from other fields, such as Chemistry. For instance, the term acid test ratio comes from the method of determining whether a metal is a real gold. Gold, unlike other metals, does not corrode when immersed in acid. Just as the acid test becomes a test of reliability, the acid test ratio becomes a test of financial integrity for firms.

Also observe how people from Wall Street come up with a name for a graph: it just requires a rich imagination. Unlike in Math, you don’t have to discuss the concavity, slope, or curvature of the graph. You are not required to identify its critical points, points of inflection, or intercepts. To recognize a pattern, you just have to think of the thing that it most closely resembles. For instance, cup-and-handle pattern is a popular chart patterns in technical analysis and as you might imagine from the name, this pattern resembles the shape of a tea cup. Needless to say, a head-and-shoulders pattern looks like a head with two shoulders. Hence, you should not wonder anymore how the flag and pennant patterns, and saucer bottom patterns should appear. Other non-technical analysis graphs like volatility smile, butterfly spread and Christmas tree also share the similar etymology: their names are a hint of what they look like.

The world of Mathematics will bombard you with alphas, betas and gammas. You’ll also become accustomed to hearing or even using phrases like almost all, arbitrarily large, sufficiently close, if and only if, and without loss of generality. If these are not yet nauseating enough, you’ll encounter more seemingly sophisticated terms like isomorphism, axiomatic system, parametric equation, affine planes, etc. This makes the subject sound dry, uninteresting and intimidating for many people. In contrast, the financial sector uses the language that everyone speaks. Though it may sound like good news, the truth is this language is embedded with mysterious codes that if you’re new to the industry, it can take a lot of untangling. So, to end my discussion, here are few more terms I have “untangled” when I first plunged myself into the sea of finance and its fancy lingo:

Fannie Mae and Freddie Mac are not famous Hollywood fraternal twins.

Pac Man is not the classical arcade game, nor is it the alias of a boxing champ.

Sleeping Beauty is not the popular fairy tale classic and Walt Disney animated film.

Whoever says being a technician does not pay well is wrong. In fact, in the world of investing, it is a white collar job that offers a lucrative pay if you’re good at it.

Detecting liquidity and solvency is a task not just for chemists. In fact, financial analysts love doing it too.

A lobster trap is made not to trap a lobster just as a shark repellent measure is done not to drive sharks away.

A golden parachute is not golden, nor is it a parachute. The same is true of a silver parachute.

A plain vanilla is not an ice cream flavor. It isn’t sweet, and most of all, it isn’t edible.