Philippine Stock Market Research

Our Contribution to Value Investing

February 24, 2012

Pymwymi Fund Doubles

Back in 2009, we made the Pymwymi Fund, a basket of 15 stocks deemed to have high growth and resiliency.  Five of them equally share a 50% weighting.  Ten of them equally share a 50% weighting.  We made this to show ourselves if the investment methodology we chose as the foundation of our research works.  In 1Q10, the PSEi beat the Pymwymi Fund, but after that, it has left the PSEi in the dust.  It even beat First Metro Save and Learn Equity Fund and Philam Strategic Growth Fund in 2010.  They were the best stock funds in that year.  The Pymwymi Fund dilly-dallied in 2011 and rallied again in early 2012.  From its inception in January 5, 2010, in just  two years and almost two months’ time, the Pymwymi Fund has doubled in value in February 15, 2012.  It now has a yield of 117%.  This minus the cash dividends it has generated since inception.  This fund is just based on research and a simple Long Term Buy and Hold strategy.

In Memoriam:  Walter J. Schloss, Value-Investor (1916-2012)

He didn’t go to college but learned about value-investing from Ben Graham himself.  After serving in WWII, he worked in Graham-Newman and even became an officemate of Warren Buffett there.  He went out on his own and generated an average annual return of 16% from 1955 to 2002 beating the S&P 500’s 10%.  He chose debt-free, undervalued stocks trading below net working capital and book value.  He also suggested minimal contact with listed companies’ management as they tend to provide “picture-pretty” data.  Independent analysis is the key.  Mr. Schloss is second-gen value-investor after the pioneer, Ben Graham.  This investment methodology lives on with us and the many others around the world.

“What’s It Worth?” on an Index Level

After all the research and margins of safety in place, value investors ask the most important question, “What’s it worth?”  They also buy their chosen undervalued stocks regularly making them position at low levels to maximize long term gains.  Our contributions to this investment methodology are the PSEi Bands and the PSEi Tracker.  Here, we position our buying in the low levels computed for the PSEi to maximize our gain.  We not only ask the question, “What’s it worth?” on a company level but on an index level as well.  Like other value-investors, we don’t chase prices and let the market serve us.  Patience and fortitude are essential.

We made these two fund-management tools because we observed that value-investors regularly buy undervalued stocks even when the market is high.  They have that luxury if they invest in US equities.  There’s lots of choices, lots of stocks.  There’s the S&P500, the Russell 2000 and the Wilshire 5000.  But in the PSEi where there are just around 200 stocks, you have to save your bullets and strike like a sniper.  Shoot only when the shot is there to maximize value.  200 stocks and only 23 are really worth buying.  23.  And out of that 23, nine are two to four baggers.  Just nine.

We’ve formed the Pymwymi Fund 2 based on our fund-management tools.  Regular stocks buying is also part of the strategy here and not just a one-time Long Term Buy and Hold done in the first Pymwymi Fund.  We’ve already asked the question, “What’s it worth?” on a company and index level.  So far, as of this time, our portfolio is composed of zero stocks.  It’s because…

“I am a stone.  I do not move.  Very slowly, I put snow in my mouth, then he won’t see my breath.  I take my time.  I let him come closer.  I have only one bullet.  I aim at his eye.  Very gently, my finger presses on the trigger.  I do not tremble.  I have no fear.  I’m a big boy now.”

Enemy at the Gates

Mandalay Pictures

2001

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Disclaimer

The Philippine Stock Market Research report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.