• Choosing the best stocks

    4

    FROM time to time, I receive emails from readers of The Manila Times asking my help in choosing the best listed stocks for their portfolio. I thank them for their trust in me but at the same time, I have to tell them that I consider myself still only a stock market reporter. Thirty years ago I began covering the Securities and Exchange Commission, which used to regulate two exchanges. These were the Manila Stock Exchange and the Makati Stock Exchange, which were eventually merged to form the present Philippine Stock Exchange.

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    The latest email came from a reader who identified himself as Rem Ramirez, requesting me to “suggest some stocks to buy” in which to “park his investment for the long haul and let my children cash in on it.”

    In his email on Nov. 5, Mr. Ramirez wrote that, with share prices falling, it would be “cheaper to buy nowadays.” He is only partly right because he and I would not know how long the downtrend would last, if it had not ended yet.

    To be honest with Mr. Ramirez, I do not recommend which stocks to either buy or sell.

    Instead, I report on the financials of listed companies only for the information of the readers, who may not have enough time to read the disclosures posted on PSE website.

    Apparently, Mr. Ramirez was attracted by the title, “Is it time to buy MWC shares?” in a previous piece. I posed the question simply because I do not want to influence the public investors into either buying or selling or dumping certain stocks.

    Some food for thought for Mr. Ramirez and others like him who need a guide in selecting stocks: Nothing is more gratifying to a market investor than to score on his/her market placements based on his/her own analysis.

    Some pointers
    Anyway, if it would please Mr. Ramirez, along with a few other readers who may be interested in investing on listed shares, I am suggesting a few pointers in selecting stocks for the long haul. But to play it fair, I am not naming any public company for that matter lest I be accused, as I have already been accused by an anonymous reader, of having been paid by some parties to impugn his/her patrons.

    If I were to invest today in listed stocks, I would choose ones that regularly pay dividends either in cash or in stocks. In this way, I would know that my investments would grow over time, as Mr. Ramirez wrote that he would invest, say, P100,000 for the future of his children.

    How can the public determine which among the more than 200 listed companies would pay regular dividends? It is easy. Just review their profit history and take note of their retained earnings.

    Yet, as I have written in the past, public investors should not allow themselves to be fooled by the numbers. Holding companies report as retained earnings even the net profits of their subsidiaries that “have yet to declare such earnings as dividends.” This kind of reporting may not be fair to the public but is allowed by the Securities and Exchange Commission.

    How would public investors fully understand said accounting entries? Are these intentionally hidden from them without even the SEC examiners noticing them?

    This is where “caveat emptor” plays a significant role. Yes, buyers should take the necessary precaution in dealing with and reading PSE postings. Public companies are required to submit to both the SEC and the PSE all information that may affect their share prices.

    These disclosures, which serve as the public’s only access to listed companies, should contain the three attributes under “the ART of full disclosure.” ART here stands for accuracy, relevance and timely, which are self-explanatory.

    (Note: I did not invent the acronym ART but I have been using it since I first heard it from Otilio San Diego, a former SEC director, who retired many years ago.)

    Unfortunately, the public are sometimes deprived of their right to full disclosure by listed companies. For instance, they would be told thru PSE filings about the sale of a big block of shares by certain stockholders. The postings identify only the sellers, but in so many cases, they either fail to name the buyers or intentionally omit them. More on this topic in the next piece.

    esdperez@gmail.com

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    4 Comments

    1. john manalaysay on

      old dogs cant learn new tricks as age has rendered their minds immobile if not inutile. invest your hard earned money in young & proven,no nonesense, competent ship captains that has the guts to spend & hire very able lieutenants from the outside.P.S., my son works at ISS makati.

    2. Information is very expensive these days because we are in the “information age”. Even those who called themselves “experts” did not recommend any particular stocks to buy in any of their interviews. Also, if you are attending a seminars there are no specifics on how to navigate a good company. The first thing he will do is to invest in his education first by reading books, listening to tapes or videos because in there you may get very specific instructions to navigate a good company. You must learn the fundamental and technical analysis first (basics) before you invest in the stock market.

    3. I suggest that your reader study chart analysis, and to focus on the monthly charts only for long term investments. The daily charts should be used for timing only. Do not trade short term, unless you have inside information or is already an excellent chart reader. Last but not least, do not listen to your broker when and what to buy and sell. That they do not exist to look out for your interest is an understatement. Here is a tip: look closely at the mining companies. Disclosure: I don’t trade the local stock market.