First of a three-part series
SOME public investors maintain long-term placements on listed companies for regular dividends either in cash or in stock. They are passive stockholders who are not as interested as stockbrokers are in the filings posted by public companies on the website of the Philippine Stock Exchange. They feel and experience the significance of the ownership certificates when they attend the annual and special stockholders’ meetings.
This piece and the succeeding two pieces are for the small investors who prefer to wait for dividends but never bother to ask what’s going on inside the boardrooms. It is about time they should change their attitude. They should start raising questions about the board’s responsibilities to the stockholders by seeking comprehensive disclosures on the results of directors’ meetings.
Such shortcomings on the part of the insiders may be the reason for the unexplained surge or plunge in the prices of certain listed stocks. Unluckily for the small investors, even the compliance officers of these companies fail to explain the sudden rise or fall in share prices of the companies they represent.
It is understandable for listed companies to have no regard for the ART of full disclosure when they have something to hide. The three letters in capital stand for accuracy, relevance and timeliness. (This is not my original idea. I heard the acronym from Otilio San Diego, a former director of the examiners and appraisers department of the Securities and Exchange Commission.)
Are the company insiders who are responsible for disclosing the correct information at the right time, simply playing dumb or ignorant? They should be made to understand that the omission of material facts is one of the worst crimes they could commit as supposedly responsible and highly paid executives of public companies.
I have written a few pieces already on the unexplained behavior of certain stocks that I need not repeat them here. Instead, I am basing this series on the financials to guide public investors in charting their investment choices.
A few words of caution: This piece is not an invitation to invest in any of the listed stocks. Rather, this is intended to encourage public investors to be more active and not remain passive onlookers as they have been for years. In short, they must get involved by attending stockholders’ meetings and participating in the open forums. In this way, you would know the answers to queries that you have always wanted to ask but have not been able to.
Public investors should make known their stand on issues affecting listed companies. They should not limit themselves to monitoring the agenda of the board and stockholders’ meetings. As much as possible, they should also be active in raising their voices against government abuse of public companies, particularly legislators who enjoy this penchant for going after legitimate businesses in the guise of investigations “in aid of legislation.”
When have any of these elected spenders of people’s money ever filed a bill in Congress as a result of his or her investigation of private businesses?
In the succeeding part of this series, I will try to analyze certain contents of financial statements as I understand them.
For instance, what does the sudden increase in the quarterly net profit of listed companies mean to the public? Is it always proper to compare the results of a particular three-month period of a given year against the same quarter of the previous year? This, along with other accounting entries of interest to investors, would be explained in the next two pieces.
One of the more important and interesting contents of a company’s AFS is the retained earnings or surplus, which determines the ability of a company to distribute dividends. The investor should know the rules of the Securities and Exchange Commission that govern such matters.
Perhaps, not all investors are aware that the SEC closely monitors the retained earnings of private companies such that when the amounts reach a certain level, the excess should be distributed as dividends, either in cash or in stock.