PSEi 30 6,950: Desperate Times Calls for Desperate ICT-SM Led SY Group Pump; The Quest for Better Absolute Returns

 

The problem is not people being uneducated. The problem is that people are educated just enough to believe what they have been taught, and not educated enough to question anything from what they have been taught—@ProfFeynman

 

PSEi 30 6,950: Desperate Times Calls for Desperate ICT-SM Led SY Group Pump; The Quest for Better Absolute Returns

 

An organized four-company pump pulled the Philippine PSEi 30 back to 6,950

 

The Philippine PSEi 30 closed the week up .33% to nearly recover the 6,950 levels, which slipped from profit-taking during the early innings of the week.

 

Through seven weeks of consecutive advances, the headline index's YTD returns swelled to 7.63% (as of March 8th) and 16.44% from troughs of October 2023.

 

Understanding the foundations of the recent rally is imperative for comprehending the stock market cycle.

 

1. Only a few issues have been responsible for most of the gains of the PSEi 30. 

Figure 1

For instance, ICT share prices have gone totally vertical!  Its % share of its free float market cap has also gone parabolic! 

 

Up by an astounding 9.4% this week, ICT etched a new all-time high last Friday as it toppled BPI for the fourth spot as the largest PSEi 30 company!   Its market cap share has gained 16%, while YTD returns delivered 25.5%!  

 

However, ICT's share prices have diverged from its 2023 financial performance. 

 

Although ICT may have contributed by about 15-18% of the PSEi 30's YTD gains, it couldn't do it alone.  

 

And so, a series of orchestrated and rotational price pumps have also incited an upside spiral of share prices of other market cap heavyweights—primarily financials.

 

But since financials were on a weekly recess, recovering the PSEi 30 to its early March levels required help from other PSEi 30 mainstays. 

 

And thus, the SM-led Sy group (the top 3 heavyweights) assisted.

Figure 2

It is no surprise that pre-closing (3) pumps and (2) dumps governed the outcome of the headline index. (charts from Technistock)

2. Market internals Diverge with the Headline Index

But the general market didn't seem to agree with the index managers.

Figure 3

Decliners dominated the PSEi 30 breadth (19 down and two unchanged).  (Figure 3, upper chart)

 

The average change was a 1.19% deficit.  It showed signs of exhaustion, but index managers wouldn't allow it.

 

The week's performance was a deviance from the overall market sentiment.

 

Decliners also prevailed over the broader market with a 507-414 in the former's favor.  

 

Though reportedly bolstered by an aggregate foreign buying of Php 1.73 billion, mainboard volume growth remained anemic, if not lethargic. 

 

Nonetheless, the easing of global financial conditions has intensified the leveraged speculative mania.

 

The Indonesian JKSE reached an all-time high (ATH) this week to join the ranks of the five national benchmarks in Asia-Pacific, which set a new milestone in 2024. (Figure 3, lower image)

Figure 4

3. Concentrated and Organized Pumps 

Circling back to the local market, mainboard volume remained outrageously remote from its predecessors (2021, 2022 and 2023). (Figure 4, topmost visuals)

 

Yet, an elite crop of (top 10) brokers (mainly institutional) dominated or continued to control a substantial share of mainboard volume. (Figure 4, middle window)

The trading volume of the Sy Group accounted for 24% of the main board volume.

The top 20 most active issues corralled 83% of the main board volume.

 

Evidence from UC bank loans exhibits that the lending growth to the financial industries appears to have resonated with the PSEi 30's performance. (Figure 4, lowest chart)

 

Does this indicate intra-industry margin trade?

4. The Impact of Market Distortions

 

This compilation of evidence suggests a "cartelized" market rather than an economically functional one. 

 

The degree of distortions could be symptomatic of massive skeletons in the closet in the balance sheets of mainstream companies. 

 

Think about the 4-year Php 48 billion "budget overrun" by one of the largest telco firms here.  

If the supervising authorities can't balance the order for the minority shareholders, the industry and the economy, why should we suppose that markets are pricing capital effectively?

 

If so, what are the repercussions of sustained and intensified distortions of capital market pricing and misallocations?  A bull market?  Or a bubble bust?

5. Quest for Better Absolute Returns 

Our goal as an independent analyst is to understand the genuine conditions of the marketplace so we can make prudent choices from the underlying risk conditions to generate better absolute returns.

 

We could have a broader scope of market forensics.  

Unfortunately, our access is limited to ungated (free) resources.  We could broaden our perspective to see monthly foreign participants and brokers per issue.  If available, the cumulative number of cross-trades and more. 

 

We could also see the depth of participation and general market sentiment via the aggregate number of issues (and components) above or below their 50-day, 100-day, or 200-day moving averages, the periodic price highs and lows, and more.

We certainly could use more data to expand our analytical horizons, which we can use in our assessment in the context of probabilities, behavioral finance, financial theories, and more.  

But then again, we are limited in resources and workforce (single analyst, data encoder, and agent/trader).

 

However, unlike the mainstream, this free subscription site aims for objective, value-free analysis, unconstrained by the agency problem (conflict of interest).  

We don't write to push for implicit sales goals or promote the interest of political or politically connected institutions—which is why there have been NO takers of the PSE's short selling (yet). 

Neither do we rely on confirmation bias themes to get "likes." 

Writing helps this free market acolyte learn more and work to improve on portfolio management, which I have been sharing with you for years.   

 

Anyway, thank you very much for listening.

 

Investing Tips from Jim Rogers and Jim Chanos

Investing tips from investing titans

First the legendary Jim Rogers (from the Financial Post)

“Most successful investors, in fact, do nothing most of the time.”

“If you want to make a lot of money, resist diversification.”

“It is remarkable how many people mistake a bull market for brains.

“On Wall Street there’s no truer adage than …’markets can remain irrational longer than you can remain solvent.'”

“No matter what we all know today, it’s not going to be true in 10 or 15 years.”

“If you want to be lucky, do your homework.”

“Swim your own races.”

“If the world economy gets better, commodities are very good place to be in … even if the world economy does not improve, commodities are still a fabulous place to be.”

“The most sensible skill that I can give to somebody born in 2003 is a perfect command of Mandarin.”

“Become a Chinese farmer, that’s what you should do.”

“If you can find ways to invest in Myanmar, you will be very, very rich over the next 20, 30, 40 years.”

“India is not a place for investors, but it’s a fabulous country for tourists”

“I don’t know any way to short either Harvard or Stanford.”

“I was poor once, I didn’t like it, I don’t want to be poor again”

Read the explanations here

In my opinion when Mr. Roger says "No matter what we all know today, it’s not going to be true in 10 or 15 years". He should apply the same word of caution on his views of China and or to Myanmar or to anywhere else.

Now to the famous short selling artist Jim Chanos (from Business insider) [ht financial post]

On Chinese politics: 

"When the leaders are all billionaires we must say that the Marxist-Leninist ideology has maybe been watered down a bit, sometimes with pigs in it."

Being a one of the strident China bear, Mr Chanos rebuts a Tu-quoque fallacy  

"'Mr. Chanos has never been to mainland China.' Well hell, I didn't work at Enron either."

On Chinese growth 

"It's the accounting tail wagging the economic dog."

On Chinese government statistics: 

"I'm not the only guy crying in the wilderness about the data coming out of China."

On Chiina’s banking system 

"The Chinese banking system is built on quicksand."

On investing research: 

"Primary research is crucial and not as many people do it as you think."

Also, do it on bottom up manner: 

"Nothing beats starting with source documents."

On conflict of interest: 

"The biggest mistake people make is being co-opted by management."

The role of short sellers: 

"The most important function that fundamental short sellers bring to the market is that they are real time financial detectives."

The intertemporal value of long term insights: 

"In investing, you can be really right but temporarily quite wrong."

Valuation matters: 

"Some of the best short ideas can look cheap from a valuation standpoint."

Spotting major errors: 

"We try to focus on businesses where something is going wrong."

Value versus shorts: 

"There’s a big difference between a long-focused value investor and a good short-seller."

On independent thinking: 

"You need to be able to weather being told you’re wrong all the time."

On Dubai’s bubble: 

"Go to Dubai and see what happened. It was…what I call it the 'Edifice complex'."

On monetary policies: 

"If everyone knows you're going to print money ... you know ... welcome to Zimbabwe."

On US and Europe’s economic problems: 

"We keep kicking the can down the road. But maybe now we're at the point where the can is kicking back"

On what I usually write about as the agency problem in the financial world: 

On being a broker: “They’re not interested in truth or what’s best for the client, but in making the sale with the least amount of work.”

On Noise versus signals: 

"Though I listen to the noise to make sure there’s no new information that I need to know, I don’t worry about most of it."

On government interventions: 

"Beware of the law of unintended consequences"

On the role of luck: 

"A lot of what happens in your life is merely serendipitous and really just luck."

A career advise: 

"If you ever have an idea and you think you need to take career risk to accomplish it, do it early in your career."

Read the explanations here

Tim Price: I’ve been investing since January and I’ve never seen anything like it.

At the Sovereign Man website, Tim Price Director of Investment at PFP Wealth Management in the UK shares some important tips on investing in an environment resembling the pre-Asian crisis 

[Bold fonts mine. My comment are in unquoted sections and will deal with Philippines conditions unless stated otherwise ]

“I don’t know what to say. I’ve been investing since January and I’ve never seen anything like it.” – Unnamed Hong Kong housewife during the Asian financial crisis of 1997/8.

What follows is a continued personal perspective on some of the challenges facing today’s investor:

1. For many investors, capital preservation in real terms should be more important than capital growth in notional ones.

Note capital PRESERVATION should be the priority

2. Investors – as humans – are typically loss-averse. We feel the emotional impact of equivalent gains and losses disproportionately. This does not mean we should avoid considered risks, but to invest dispassionately.

In the Philippines, I have never seen so much or intense “passion” in the belief of a supposed "riskless" one way trade, based on a new “growth” paradigm. Even dissenting opinions are now considered a taboo!

3. Investing dispassionately is difficult when most of the investment media comprise the participants in a 24/7 circus. If the business of investing is either entertaining or exciting, you’re doing it wrong.

When people argue that one’s position should echo with the crowd’s opinion, then this is about entertainment and or having a dopamine “trip”. One may add "ego trip" to that. In a bullmarket everyone is a genius. 

This certainly is not about investing but about social desirability bias.

4. The answer is obvious: turn off CNBC. (Judging by their viewing figures, plenty of investors already have.)

Turn off mainstream media: newspaper, tv, radio, or even populist internet circles.

5. True diversification remains the last free lunch in finance.

When the rising tide lifts almost all boats there are very small windows for diversification

6. Having fatally tainted monetary policy, the dismal science of economics has wrought damage across investment theory as well: ‘homo economicus’ does not actually exist, and markets will never be wholly efficient until all people are, too. 

7. “The investor’s chief problem – and even his worst enemy – is likely to be himself.” (Benjamin Graham)

The seventh rule will be discovered by crowd soon.

8. The general principles of investing are not arcane. They should begin with the avoidance of loss.

Again avoidance of loss is capital preservation

9. Starting valuation is the most important characteristic of any investment.

When a stock tout tells you that PERs of 30,40,50,60s+ and PBV 4,5,,6,7,8+ of mature companies represent a "buy", then this hasn’t been about investing. Rather this is about the delusional belief of a one way trade where “Growth” serves as a fictitious slogan for stock market prices rising to eternity. 

10. Risk is poorly defined as volatility. It is better defined as the possibility of a permanent loss of capital.

In the Philippines, the public sees little or no risks even even when money supply growth rate has soared to 30++% for nine straight months.

11. “Operations for profit should be based not on optimism but on arithmetic.” (Also Benjamin Graham)

The inflationary boom has lobotomized arithmetic, or most importantly, common sense.

12. Don’t buy poor quality investments pushed by sell-side interests; don’t overpay for quality investments.

Beneficiaries of  the inflationary boom naturally want the public to overpay for pseudo investments which they say is about "quality". But the real reason behind the spin is this that due to financial repression, negative real rates enables and facilitates the redistribution of risks and resources from the unsuspecting public to politically connected vested interest groups.

13. The ‘equity / bond / property / cash’ paradigm struggles fundamentally in an environment where all of these asset classes appear overvalued.

Again little window for diversification

14. Friends are unlikely to share their worst investment outcomes at the golf club.

The stock market is a social phenomenon. During booms, stock market becomes THE talking point in social gatherings. During depressionary busts, the stock market is seen as operating in oblivion.

15. Liquidity is overrated. For capital that can be safely committed to the longer term, it is irrelevant.

Central bank injected liquidity is the ultimate source of the boom-bust cycle.

16. Private investors are often poorly served by the asset management industry.

17. The medical profession has the Hippocratic Oath: first, do no harm. The asset management profession lacks such an explicit expression of fiduciary commitment to its clients.

For both 16 and 17 when asset managers commit resources of depositors to overvalued assets, this would account for as the Wolf of Wall street model. It’s a combination of principal agent problem (asset managers benefiting at the expense of depositors) and Keynes’ sound banker (lead the crowd during booms and hide under the skirt of the crowd during busts).

18. Private investors may, all things being equal, be better served by small, unlisted, private partnerships than by global, publicly listed, full service investment brands.

19. Rising compliance and regulatory pressure reduce variety in the asset management business. This is unlikely to be in the best interests of private investors.

Increase in regulations mostly skew the benefits to the interests of entrenched groups.

20. When interest rates are close to all-time lows and the printing presses are running, the merits of ‘deep value,’ profitable, well-managed businesses are more than usually compelling – compared to just about any other asset or asset class.

Value is a rarity in today’s central bank driven deeply overvalued global markets. As Warren Buffett aptly noted, it's only when the tide goes out do you discover who has been swimming naked. That's when value will surface.

21. Distrust anybody who claims to have all the answers. Especially today.

Oh yes, this is very important. Please do your own research based on objectivity, independence, “arithmetic” and common sense. And avoid the mainstream.

Do it in the way of value investor and mentor of Warren Buffett Ben Graham

You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.

How 3D Printing has been Enhancing the Housing Industry

Take away the property bubbles for a moment. 

The use of 3D technology has been spreading. Today, with 3D Printer technology, housing will not only become more affordable, they can be built fast and according to one’s taste or 'custom fitted' housing.

In China a Chinese company has introduced mass housing via 3D printer technology. The said company “3D printed” 10 houses in 24 hours using recycled construction materials for $4,800 (Php 214,000). The houses were printed offsite and assembled at the site location. 

The Chinese company hasn’t been the first to join the race to build 3D printed houses in 24 hours, a researcher from a US based university has been working on such goals too. I believe there are more but have been undisclosed.

In Amsterdam, the world’s first onsite 3D printed house—which is actually intended as a museum and a research facility—is being built. House materials consist of layers of molten plastic which function like LEGO materials.

Three insights. Technology brings about “deflation”—something which authorities and the mainstream—have been deeply averse to. Yet "deflation", for consumers, means more affordability or more goods or services one can buy with a given currency unit—such signifies as an increase in real purchasing power (What money can buy). 

What the mainstream doesn't tell you is that the "deflation" they all so rabidly dread is credit deflation (bubble bust). So they all promote sustained debasement of the real purchasing power of money via bubble blowing or credit inflation policies  

The second lesson is competition. The quest for profits has not just led to the discovery of new technologies, but has also been impelling companies to innovate or to introduce new or improvised uses (applications) for a specific technology in order to satisfy consumers. 

Lastly the potentials of 3D Printing technology remains vast. 3D printing technology is yet in the early phase of expansion in terms of diffusion of applications to commerce and to households. So for me, this an industry worth monitoring.

[Disclosure: As of this writing, I have no equity holdings in 3D technology stocks]

10 Most Common Biases affecting the Psychology of Investing

ConvergEx's Nick Colas has an interesting list of the “10 most common biases affecting the psychology of investing” (via the Zero Hedge)

1) Anchoring & Adjustment:  This combination occurs when initial information unduly influences decisions by shaping the view of subsequent information.  Once the “anchor” or initial information is set, there exists a bias for interpreting other information around the anchor.  Car salesmen frequently use this tactic when presenting an initial sales price, making the subsequent negotiated prices seem lower than the initial price even though they are still higher than what the vehicle is actually worth.

2) Attribution Asymmetry: The concept here involves people’s tendency to attribute success to internal characteristics (such as talent and innate abilities) and to attribute failures to external factors (like simple bad luck).  Research has shown the reverse to be true when evaluating the successes and failures of others.  The lesson here is most valuable when you hit a “hot streak.”  When you experience speed bumps, don’t be quick to write them off as poor luck – there could be a fundamental problem with your strategy.

3) Choice-Supportive Bias:  By distorting recollections of chosen courses of action versus the rejected courses of action, people tend to make the chosen outcomes seem more attractive that the foregone ones.  Just as people more frequently remember “good” memories than they do “neutral” or “bad” memories, the belief that “I chose this option therefore it must have be superior” can lead to a false recollection of the ultimate outcome.  Learn from your mistakes – don’t forget them.

4) Cognitive Inertia: This is just psychological speak for the unwillingness to change thought patterns in light of new circumstances.  Quite simply, do your homework and keep up on your investments.  If a company slashes guidance, for example, perhaps you should consider altering your investment accordingly.

5) Incremental Decision Making & Escalating Commitment:  These biases occur when people view a decision as a small step within a larger process, rather than as a singular choice.  As a result, this viewpoint perpetuates a series of similar decisions, when perhaps many of those decisions should be evaluated with a fresh mind.

6) Group Think: Grown-up lingo for peer pressure, group think occurs when one feels compelled to adhere to opinions held by a larger group.  This one’s easy – don’t let others sway your opinion.  Groups tend to form a singular opinion based on the opinion of the loudest or most influential person in the group.  Doesn’t mean he’s right.

7) Prospect Theory: This theory explains that people are more likely to take on risk when evaluating potential losses; though in looking at potential gains, humans have the tendency to be risk-averse.  In other words, losses feel worse than gains feel good.

8) Repetition Bias: The bias results from the willingness to believe what one has been told most often and by the greatest number of different sources.  Remember all the hoopla over Facebook’s IPO?  And then its year one performance?  Yeah, everybody though it was a hot stock and only now has it drifted above its IPO price.

9) Sunk-Cost Fallacy: If someone makes a decision about a current situation, based all or in part on what they have previously invested (money, time or otherwise) in the situation, they are suffering from sunk-cost fallacy.  Not matter how much you’re down on an investment, if it’s likely to never be recovered, then cut your losses and let it go.

10) Wishful Thinking: This “problem” happens when people are too optimistic; wanting to see things in a positive light can distort perception and objective thinking.  Just because you really really really want your investment to appreciate, doesn’t mean it will.  Investing should not be treated as gambling.

I would 10 more to this list

1.confirmation bias—search for information that confirms on embedded beliefs rather than objective analysis (related to selective perception)

2.endowment effect—ascribing more value on things or ideas that are owned or possessed (related to sunk-cost)

3.optimism bias—the tendency for people to believe that bad things will happen to everyone else but them (Nassim Taleb calls this the denigration of history)

4.regret theory—reaction to opportunity loss (I should have done this…)

5.status quo bias—preference for the status quo, rejection of change

6.clustering illusion—the tendency to see patterns where there is none or the intuition for pattern seeking

7.gambler’s fallacy--mistaken belief that if something happens more frequently than normal during some period, then it will happen less frequently in the future or (Nizkor) a departure from what occurs on average or in the long term will be corrected in the short term

8.confusing cause and effect

9.hindsight bias the presumption of knowledge from something that has already occurred or the “knew-it-all-along effect”

10.survivorship bias—tendency to focus on winners while overlooking the others due to lack of visibility

I wrote about “The Psychological Impact of an Inflationary boom” here.

Cognitive biases and heuristics signify as the "law of least effort"- the tendency to desire more rewards with lesser efforts or costs. 

As Nobel Prize psychologist and author Daniel Kahneman, wrote in Thinking, Fast and Slow (p.35) 

A general “law of least effort” applies to cognitive as well as physical exertion. The law asserts that if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action. In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.