Smoke and Mirrors

In this article from the Philippine Daily Inquirer, Congressman Golez calls for the auditing of the books of the three biggest oil companies in the country (Shell, Petron and Caltex). I have a couple of comments on this:

First, in calling for an audit, the government should make clear what an "excessive" rate of return is. If there are no clear definitions, then this audit can quickly turn into a form of harassment.

Second, once again, the oil companies complain that they are "losing" or "will lose" money in the current environment. However, this has not stopped them from declaring cash dividends to their stockholders. And last I checked, you usually do not give out cash if your company is losing money.

Third, all the protesters and activists should quit clogging the streets and causing traffic jams since nothing they do will truly change the way oil firms do their business. Yes, they may get the odd price-rollback every now and then but no matter how loudly they scream or how many slippers they throw at the head offices, nothing about the way these firms are run will change. If they really want to make a difference then they can chose to either work from within the industry or from without. How? I have the following ideas....

If they want to change how the oil firms operate, then one thing they can try is to work from within. Specifically, all of these groups should pool their resources and buy shares of the oil firms. (Yes, even the unlisted ones do have shares that are traded in private placements.) Once they are shareholders, they then have access to the firms financial documents and can directly question the directors and top management during the annual meeting. If they are truly militant, they can even try to get one of their own elected as a director and have a bigger say in how a company is run. (Also, I would like to find out just how strong their beliefs are once they themselves start receiving the annual dividends these firms declare.)

Alternatively, these groups can put their heads together and come up with programs that will wean people away from unnecessary oil usage. A good, simple and doable program would be for all of the public transport groups to sit down and to agree to drive responsibly. Think about it, a lot of fuel is wasted due to traffic jams caused by errant, undisciplined drivers. If all bus, jeep, taxi and tricycle drivers agreed to drive properly and not stop indiscriminately and if all operators properly maintained all their vehicles; I am sure fuel consumption will be lowered significantly.

Actually, an ideal setup would be for these activists to become stockholders of oil companies and to use the dividends to fund programs that would lower oil consumption. That, I think, would be a more productive use of their time and resources and would have a better long-term effect than pelting an inanimate building with slippers and tomatoes.

Chuck Norris

If you are like me and you grew up in the 80's, then you probably remember Chuck Norris. Before he calcified the image on Walker, Texas Ranger, Mr. Norris starred in a slew of films featuring him as an unbeatable, kick-ass fighter. (If I recall correctly though, he "lost" to the immortal Bruce Lee in an early film.) Well, a very devoted fan of Mr. Norris runs this really funny website of "Chuck Norris Facts" so if you're looking for a laugh, drop by and check it out.

Inflation Gone Berserk

As high as our inflation has reached lately (we've just punched through 11%), it sometimes takes the woes of other people to help us put some perspective in things. As a case in point, take this article in Yahoo which details the inflation crisis being faced by Zimbabwe. Prices there have rocketed so fast that their central bank has had to create a 100-BILLION dollar note. Take a few moments to go through that figure... 100 BILLION dollars. And this is just shortly after they just released a 500 MILLION dollar note.

To better put this into perspective, at the rate their prices are rising, it's very much like having the prices of everything you buy at least DOUBLING within a SINGLE DAY. (And we complain about the weekly gas price hikes.) Try creating a budget or financial plan for that situation.

I guess my main point here is that while, yes, things have gotten bad lately, a lot of it can still be overcome with a little belt-tightening and some creativity in finding substitutes for certain goods and services. On my end, I've rediscovered the joys of walking short to medium distances while a close friend has gone into biking. If nothing else, our current economic crisis might just improve the fitness levels of a lot of couch potatoes like me.

Silver Lining Part 1

With the cost of practically everything going up these days, everyone is looking for ways to scrimp, save and stretch their ever-shrinking budgets. With that in mind, here are some thoughts I would like to share with everyone.

First, don't panic. Yes, things are bad and it looks like they will get worse before they get any better. However, one of the worst things you can do is panic and start making decisions rashly and without design. OK, now that you've caught your breath, let's take a look at some of the other things you can do these days.

List Expenses
If you're not already doing this, then this is the place to start. I know that some people find this tedious and somewhat O.C. but you may just be surprised at how much you end up spending on "little" items on a regular basis. Forget Starbucks (as even they are shutting down over 600 stores) and list down each and every purchase on a weekly if not daily basis. Some common expenses that we tend to overlook since they are so "small" are the following:
1. Pirated DVD's, CD's and VCD's. Yes, they are a cheaper alternative than actually going out to see a movie but if you make a habit of purchasing 3 to 4 discs every time out, you might actually be spending close to a thousand bucks before the month is over. Especially if you go for those "TV-Series" DVD's.
2. Cigarettes. Aside from being bad for your health, your shrinking purchasing power is another good reason for you to quit. Think about it, let's say you buy per pack and smoke one pack per 2 days. In 30 days, you would consume roughly 15 packs and at 30 bucks a pack, that comes out to about 450 pesos a month. The amounts can get even higher if you actually purchase on a per stick basis. For example, if you smoke 8 sticks a day at about 2 pesos per stick, that comes out to 16 pesos a day or 480 pesos per month.
3. Cell Downloads. Seriously. At 10 pesos or more per pop, this is something that can quickly get out of hand. Keep downloading songs, tones, ringbacks, MMS pics and celebrity updates and you will soon end up spending hundreds of pesos on something that is not really necessary. (And yet, a recent study showed that a significant number of Filipinos would choose feeding their phones over their stomachs.)
4. Cable TV / Internet. I know, I know. This sounds like overkill but hear me out. Ask yourself, how much do you truly use these services on a daily basis? 2 hours? 4? 18? And yet, you will be paying about a thousand bucks per month for each or both of these things.

Prioritize and Streamline.
Now that you have that list of stuff you spend on; the next step is to prioritize and streamline them. Put another way, now is the time to ask yourself which expenses you can and cannot do without. Continuing our previous example, let's say that you're figures come out like this on a monthly basis:
1. DVD's / CD's : Php 400
2. Cigarettes : Php 450
3. Cell Downloads : Php 200
4. Cable TV : Php 800
5. Internet : Php 999

Now ask yourself, which of those is the most important to you? The least? For example : If you find yourself watching pirated DVD's most of the time, why not give up the cable TV? Or, if you have a fast internet connection, why don't you give up the cable and DVD's and just download your favorite shows online? There are sooooo many sites where you can get the latest movies and TV shows for free. Yes, it will entail some tough choices, but if you do it this way, you will be able to make a more informed choice as to what stuff to spend on.

Well, it's lunch time so I'll continue this post later.
Have a good day everyone.

What We Do

The following is an article I wrote for Business Mirror on December 4, 2006. It is a brief description of what keeps me busy these days.

I’ve received a couple of inquiries requesting information on just what Registered Financial Planners (RFPs) do. Specifically, these individuals wanted to know what we do, what we don’t do and how to engage the services of an RFP like me.

What we do

In a nutshell, RFPs, as the name implies, design financial plans for people. We make them plans and strategies that will allow them to achieve their personal financial goals within their desired time frame.

For example, assume you wanted to plan for the college education of your child. You have an idea of how much it would cost if your child went to college today, but what if your child will go to college in five years? 10 years? 15 years? How do you estimate how much tuition will be at that time? Next, assume that you have an estimate of tuition in 15 years.
How then will you pay for it?

Of course, if you are already rich then it may not be much of a problem. But if you are not, finding a way to pay for that expense will occupy a lot of your time and energy.
Specifically, how do you evaluate and decide which investment product will give you the best chance of meeting that goal? Do you stay with a savings account? Purchase blue-chip shares on the Philippine Stock Exchange? Make a placement in a unit investment trust fund? How about a mutual fund? Variable life insurance? Preneed plans?

How do you know which of these instruments, if any, would give you the best chance of achieving your desired goal within your desired time frame? Put another way, who would you ask if you wanted to know which investment alternative is best for you? Answering these questions is pretty much the entire point of being an RFP.

What we don’t do

As a general rule, we do not actually hold or manage any of the money of our clients. (Though there are some who do.) We design the plans and monitor them but implementation is ultimately left to our clients.

To better illustrate what I mean, consider the following scenario. Let’s say you want to improve your general physical fitness. Of course, there are so many choices available. You can go on a diet. Go to a gym. Take up yoga or Pilates. Learn a sport. Now, while you can definitely just jump onto the Internet, do some research and develop your own plan; it would be more efficient and less risky to your health if you engaged the services of a trainer. That way, you can avoid many of the pitfalls novices fall into as well as have someone to monitor your progress and keep you motivated.

Registered financial planners pretty much work the same way—we help our clients develop a plan, we monitor the plan and we motivate our clients to stick to the plan. However, much like the fitness trainer cannot do your situps for you, RFP’s cannot do your investing for you.

Where to find us

OK, just in case you’ve decided that engaging the services of an RFP is for you, the next concern would, of course, be where and how do you hire one. A comprehensive list of RFP’s can be found at http://www.rfp-philippines.com. Once you’ve established contact with one of my colleagues there engaging their services boils down to the following process:

First, tell the RFP what it is you are planning for. Is it credit minimization? Educational planning? Estate planning? Increased investment returns? This is very important because it will allow the RFP to determine if what you are looking for is something he or she can provide. If the RFP says that what you are looking for is beyond his purview, then ask him for a recommendation as to who can meet your needs.

Second, along with telling the RFP what you want to achieve, be sure to give him an idea of when you want to meet said goals as well. This way, he will give you an initial feedback as to how realistic your goal is and if he can meet them.

Third, ask him how much he charges. In general, RFP’s charge either per project or per consultation. Rates, of course, vary and depend on the particular project and individual RFP.

Miscellaneous

With all of that said, I would like to emphasize the following points before I end my column this week:

First, does everyone need the services of an RFP? The answer is no. If you are pretty much happy with your finances and don’t find yourself wondering where to put your money on a regular basis, then getting the services of an RFP would be pretty superfluous. However, if you are having problems figuring out where to put your money or which of several investment options is best for you, then an RFP may be your best bet in answering those questions.

Second, the RFP can only tell you what you should do. At the end of the day, it will be up to you if you decide to follow your RFP’s advice or not. To paraphrase the old adage—RFP’s can bring you to the trough but we can’t force you to drink from it.

Rune Laraya

That is my new son Rune Rayala Laraya. He was born last June 29, 2008 at approximately 1:20 am and he checked in at 50 cm & 7.5 lbs. Unlike me when I was his age, he has proven to be a very well behaved baby and does not indulge in random projectile vomiting. He is undoubtedly the apple of my eye and I am going to have to watch myself so that I don't end up spoiling him shamelessly. This blog will be littered with pics of this little tyke and I hope you all find him as cute as I do.

Every now and then, I write stuff for magazines and newspapers and the following is one of the pieces I wrote some time ago. With all the fear pervading financial markets nowadays, I think that it is critical that we keep our heads cool and not panic unnecessarily.

Fear Factor

A common sentiment I hear from people these days is that though they would very much like to invest, they are afraid to do so. They are afraid that if they invest in things like stocks, mutual funds, pre-need plans or UITF’s, they will lose their money. Consequently, they keep the majority of their funds in savings accounts or time deposits since those are the products that they are familiar with. Unfortunately, this type of thinking only ensures that an individual will never be able to accumulate enough cash or assets to ensure a prosperous life. To illustrate, let me use this brief analogy.

Let’s say you live in Fairview and would like to go to Enchanted Kingdom for a day of fun and relaxation. Ideally, the best thing to do would be to wake up early and drive there. That way you get to spend the maximum amount of time at the park before it closes. If you don’t have your own vehicle or don’t want to have to deal with the hassle of driving but still want to spend the most amount of time at the park, the next best thing would be to wake up earlier and commute to the park. I don’t think anyone would consider going to Enchanted Kingdom from Fairview by walking there. Not only would you arrive very, very late but I doubt you would be in much shape to enjoy all the attractions the park has to offer. Actually, there’s a very good chance you will be unable to reach the park at all due to sheer physical exhaustion.

Now, regardless of the method of travel you choose, there is a realistic chance that something will go wrong and you will either arrive at the park late or not at all. Your car’s radiator could overheat or the bus you are riding could get a flat tire. As a worst case scenario, the vehicle you are riding in could actually get hit by another car and mess up the trip completely. All of these events could happen and not a day goes by wherein someone, somewhere, gets a flat tire, an overheated radiator or gets involved in a collision. But would you actually let these things stop you? Would the possibility of being involved in a vehicular accident dissuade you from either riding or driving a motor vehicle forever? Would you let the fear of a possible accident determine where and what places you can go to?

Believe it or not, the process of investing is very much like the situation I just described above. To begin with, we all have our own vision of Enchanted Kingdom – the life we would like to have wherein we are free from the day-to-day cares and worries of life.

Second, the time at which we wake up and begin the trip is the time wherein we begin to invest actively for our personal goals. Simply put, the earlier you start on your journey, the earlier you will get to your destination. Furthermore, starting early gives one the luxury of taking things slowly. We don’t have to rush and can take the time to enjoy the trip. Most importantly though, starting early gives one a buffer zone that can definitely come in handy should a flat tire or some other emergency arise.

Third, the mode of transport we use equates to the investment products we pick – stocks are like cars (fast and expensive); pooled funds are like public transport (slower but cheaper) and savings accounts / time deposits are akin to walking. Of course, much as there is no intrinsically “best” form of transport, there is also no intrinsically “best” form of investment. Instead, there are “suitable” or “efficient” investments. To be more precise, much like it would be more efficient to walk short distances, so are time deposits and savings accounts more efficient than stocks for short-term needs.

Fourth, the type of transport we select determines how involved we have to be in the investment process. For example, if we regularly travel by car, it would be in our best interest to keep the car well maintained. However, as any car owner will tell you, properly maintaining a car takes time and money. It simply will not take care of itself. Stocks require the same amount of involvement. Ask any successful stock trader and they will tell you that maintaining a stock portfolio takes quite a bit of time and money. One cannot simply enter the market and expect everything to work as they expected.

Fifth, much like something can always go wrong on a trip, no investment instrument is 100% risk free. There is always a chance that, no matter how carefully you’ve planned things out, something somewhere will go terribly wrong and mess things up. For example, let’s say you decide to drive to your destination. Now, you’ve properly maintained your car and you drive as carefully as you can. Unfortunately, there is very little you can do to prepare for the drunk driver on the other lane who decides to slam his vehicle into yours. The same thing holds for investing. No matter how well you plan your portfolio, events outside of your control can suddenly just step in and wipe out most of your holdings. (Example: Asian Financial Crisis of the 90’s.)

With all of that said, what can we then do to eliminate or minimize whatever fear we have of investing? Well, much like we would learn to drive a car or memorize the different routes jeeps and buses ply, so must we exert the effort to learn about stocks and other investment tools. To put it bluntly, it is only through education that we can master our fears and prevent them from limiting the kinds of lives and the kinds of dreams we can achieve.

Something new....

Well folks, here it is. After months of procrastinating and several false starts, here is the blog that friends and family have been needling me to do for some time now. For those who know me, you pretty much know what you'll find here since you guys have been the ones "suggesting" what topics I should write about. For the random (and not so random) visitor, here is what you can expect.

First, you will get lots of pictures of my upcoming baby boy. He's due to arrive sometime within the next three weeks and I am frankly both terrified and delirious with joy. As of now, we've decided to name him Rune (since Frodo wasn't acceptable to anyone but me). So in about 3 weeks, look for pictures of a hopefully cute and healthy little boy to start peppering this site.

Second, you will get some links and reactions to other sites and issues that I will find on the Net. Since I am online for most of the day, expect to get a hodge-podge of postings on stuff like Philippine entertainment, U.S. politics, tech stuff, computer games, sports and pretty much anything else I will run into while surfing.

Lastly, the bulk of the postings here will deal with personal financial planning in the Philippines. Specifically, I will be writing about how the average, middle-class Filipino can begin taking control of their personal finances. My goal here is to give people a venue wherein they can learn about personal investing in a very non-technical and easy-to-understand way.

So without further ado, let's get cracking with my first bunch of posts....