Victorias' secrets

Sweet surrender

When Victorias Milling Company (PSE: VMC), the country's largest sugar miller reported last week that it is paying P 1 billion of its debt by June 1 effectively reducing its debt load  to P 2.8 B by the end of the current crop year in August, hardly any one cared, or took notice. This is not surprising since the company is thinly followed by financial analysts, and it is not on the growth  and  exciting sectors of industry.

But what is telling is the words of its chairman, Wilson Young when he clarified that the pre-payment is "part of hardline efforts to reduce debt service, rebuild its balance sheet and restore liquidity." Very strong words coming from a company which has become synonymous with reckless and imprudent financial and operational (mis)management.

To recall, VMC debuted in the 90s at the local bourse. At the surface, the company looked healthy, but in a matter of few years, its financial conditions deteriorated rapidly owing to reckless borrowing. The firm was forced into court-mandated rehabilitation and trading of its shares was suspended indefinitely at the Philippine stock exchange (PSE).

The conditions imposed on the company are harsh by any measure, but effective in the end. Among the covenants include restructuring and conversion of bank debts into equity. Most of the cash flow from operations went to debt servicing for years up to the present. Court skirmishes were the order of the day between the original owners who wanted to retain control and its creditors who wanted their money back, or at least what could be salvaged.

In the end, the original owners were relegated to a minority position at 30% while bankers got 70%. Management passed on to a court-mandated arrangement wherein the creditors became dominant at the board level.

When the company's shares were allowed to trade again at PSE late last year, it came as a surprise since very few companies actually survive and come out unscathed after bankruptcy proceedings. For investors, major turning points of a company present interesting possibilities.

I decided to look at Victorias' secrets.

The latest financials and management's discussion prior to its re-listing wasn't really outstanding. It's book value was still around 0.75 a share, below its par value, and it was still struggling with very high debt to equity ratio. But interesting things emerged: (1) the company generated cash from its operations at least during the last three years; (2) it was dutifully following the rehabilitation terms; and (3) majority of the lenders have started converting to equity, among others.

Trading again of its shares would allow the lenders to liquify its non-performing loans for years--maybe, even for a profit.

As expected, trading of its shares were frenzied in the first few days, with quoted prices all over the place, from lows of near par value to as high as 5.50. This is to be expected of a security which has not traded for a long time. My own fair value estimate is about twice the book value at most, which is 1.50 a share. Some of the lenders have begun disposing of their converted shares, which put a downward pressure on the share prices. Those investors who have been trapped with illiquid shares for years may have sighed some relief.

At 1.50, the shares were already very cheap with an estimated price to earnings ratio at single digits, but those wanting out prevailed, sending the shares down to 1.20. The share prices have settled to  a trading range of 1.30 to 1.50 which is cheap. Those who have picked up shares at these levels have been rewarded well since these are now trading at 1.70 to 1.80.

The last time I looked at the financials, the book value is higher at 0.95 a share and the P/E ratio is still around 10. This may not rise much, since the company is a one-product company in a commodity business, but it is becoming profitable, and it should be able to declare dividends next year or so.

It's chairman Young has used appropriate terms to describe where the company stands now and where it will be in the next few years.

Is Philex losing its luster?

All that glitters...

All that glitters is not gold.

This truism could very well apply to dominant gold producer Philex Mining Corporation (PSE: PX) which suffered a string of difficulties lately.

When businessman Manuel V Pangilinan (or MVP as he is well known) and his group took over control of Philex a few years back, hopes were high that the move could very well inject some life into our moribund mining--in particular, gold mining--industry. He pulled it off by acquiring a large block of shares from the pension fund Social Security System (SSS) and other owners.

The takeover even elicited controversy (for the seller, not MVP) when MVP, to seal control of the company, bought a large chunk of shares from controversial businessman Roberto V Ongpin, at a huge premium. Only a few weeks earlier, Ongpin bought the block from another government pension fund Government Service Insurance System (GSIS) for about P12.50 a share only to flip it shortly to MVP at something like P 19.20/share. The issues include: why the GSIS sold the block cheaply; how Ongpin could have known that another group was interested in the block; and even the manner of financing the transaction when he borrowed from a government institution.

But the manner is not our concern here. Suffice it to say that by paying a huge premium to prevailing market price, MVP put much faith in the company as a business proposition, and by inference, the gold mining industry. It doesn't hurt if the gold price was also zooming its way to all-time high achieved at $1,700 an ounce.

Investors were cheering when the stock price of PX  climbed to mid 20s. At these levels, the price seemed expensive. Even MVP's acquisition price seemed expensive, but then, he is taking a longer view.

When the euphoria subsided and the stock price slid down to below P 19/share, I took a board lot position. It was still expensive, and I should have followed my instinct, but my faith in MVP  and on resources in general, prevailed. My thinking then was to add more when prices still soften--which I did.

All seemed well--when a sort of a black swan struck. A black swan event as introduced into finance, is a completely unpredictable event that causes catastrophic consequences. The September 11 World Trade twin tower attacks is the oft-quoted example.

When the mine tailings pond of PX's Padcal mine gave way at the height of an unusual volume of rain, the mine's gold operation was abruptly stopped. That was hardly a black swan by definition, but the consequences for the company was catastrophic.

The mine was ordered to stop operations and pay a hefty fine of at least P 1 billion, despite a force majeure argument by the company.

While this was happening, the stock price was seesawing with a downward bias, depending on the rumor at hand: how big was the damage? How large is the environmental impact? How much will the fine be? When will the mine resume operations?

The fluctuations in price represent huge potential gains--but also huge losses. It is not for the faint-hearted, however.

When it became clear that the mine will not be allowed to operate for at least a year and PX agreed to pay the P 1 billion fine, I realized losses. MVP agreed to pay, not out of admission to guilt, but he just wants to move on, and hopefully gain a favorable ruling on early resumption of operations. But the company has already suffered material change in its economics.

Taking losses is unpalatable to most investors, but that is a hard reality that should be accepted as-a-matter-of-fact by any investor, big or small. One should face losses some time, but try to minimize them. What matters most is that gains should  more than offset the losses for one to be successful.

At present, PX is allowed to resume operations for a limited time.

But the Philex story doesn't end there.

Lately world gold prices have cratered from around $1,600/oz to just below $1,400. The jury is still out where the price is heading, but the bears are predicting the worst. The least efficient production cost including ancillary services is estimated to be around $800/oz according to Seth Masters of Bernstein Global Wealth Management. Those high-cost producers would be squeezed hard.

PX which has one operational mine prior to its suspension, has its back against the wall. Its main product is highly dependent on world prices. Yes, it has some copper production, but it is a by-product of the main gold production. And copper prices have also tanked.

PX may have lost its luster; it may not be knocked out in the long term. But it is mortally wounded. It would be a very long time before it can climb back to its pedestal in the local mining industry. The current stock price may look attractive; but that could be just fool's gold.

At the moment, I wouldn't touch it with a ten-foot pole yet. Not yet.

Defensive driving preferred

From CartoonStock

Like in driving, it pays to be defensive in the capital markets when times are uncertain, investing ideas have dried up or one is unsure where the markets are heading. Now that the stock market is hitting record high and stocks are expensive by any measure, prudence dictates that some semblance of capital gains protection is required.

But is there a prudent way to accomplish it without really turning back at the market? Preferred stocks may provide some comfort.

What is usually traded at the stock market are common stocks, which represent your ownership to the issuing corporation. The value of the common stocks should rise and fall with the fortune of the underlying company. If that company has excess cash from its retained earnings, it may opt to give it back to the shareholders from time to time as cash dividends, if at all.

A preferred stock is somewhat different. It also represents ownership, but as the name suggests,  it has some preferred features over that of common. You are guaranteed to be ahead of common holders when surplus cash is handed out. What's more, at the time of issue, dividend yield  or the amount you are expected to be paid out as a percentage of the initial cost and the schedule of payments are spelled out. Those who own large blocks of these shares--passive investors or holders of conservative mutual funds-- are just too happy to wait for those regular dividends which come quarterly, semi-annually or annually.

You are also ahead of the common shareholders, but below the debt holders when it comes to claims to the remaining assets of an issuing corporation which is in the process of liquidation (bankruptcy).

That's why it appeals to large conservative investors, fixed-income mutual funds, retirement funds and plain passive investors. Large blocks of these stocks usually end up at major shareholders themselves, banks which in effect are funding the company by subscribing to these shares, or affiliated companies.

The flip side is that preferred stocks are usually non-voting and non-participating, which means that you don't have much say in the affairs and management of the corporation. That's fine with us, small investors, since we don't expect to.

At any time too, the issuer may close the tap by redeeming the issued shares. I used to own Ayala Corp. preferred stocks (PSE: ACPR, retired) but the corporation took it out from the market.

There is also a special kind called a convertible preferred stock. This means that the holder can convert it to common shares when certain conditions are met. The common conditions include the price at which it can be converted to common, usually at a premium (higher) than the share price at the time of issue; and time lapse of a few years since issue date.

Thus, the holders look forward to a potential upside to their investment when the strike price has been breached and some. In the meantime, they are collecting the regular dividends. You can also convert to common, which is more tradeable, when the issuer can no longer pay any cash dividends.

An example of the latter is Swift Foods Incorporated preferred (PSE: SFIP). I inherited some SFIP shares when the Concepcions, the majority owners of RFM and SFI at the time, decided to unlock the value of their illiquid and non-performing SFIP stocks by giving these out to RFM common shareholders as property dividends some time ago at a ratio of 1 SFIP for every 46 RFM shares.

Both types can be traded at the exchange since both are listed, but the common shares are more liquid. I decided to sell mine directly to avoid the extra paper work, but majority of the holders have been converting them to common. The net effect would be that SFIP would disappear altogether in time while the number SFI outstanding common shares would increase; thus diluting the ownership of existing holders.

Fortunately for us, small investors who are less than derring-do at the stock market, a number of these preferred stocks are listed and tradeable. These are listed below:

Yields		Updated:	12-Apr-13
		Last		Listing
	Coupon	Price	Actual	Price
PFP	8.0000%	1045.00	7.6555%	1000.00
SMCP1	8.0000%	74.00	8.1081%	75.00
PPREF	9.5210%	112.00	8.5009%	100.00
FPHP	8.7231%	101.40	8.6027%	100.00
FGENG	7.7808%	112.50	6.9163%	100.00
FGENF	8.0000%	103.50	7.7295%	100.00
SMC2A	5.6250%	75.00	5.6250%	75.00
SMC2B	5.7188%	78.00	5.4988%	75.00
SMC2C	6.0000%	77.80	5.7841%	75.00

The first few letters identify the issuer: Thus, PFP is Purefoods Preferred while PPREF is Petron Preferred. The last few characters identify the series. The coupon is the promised payout per annum.

Even if you bought PFP and PPREF at a higher price than issued, the yields would still be higher than those for SMC preferred.  The SMC2 series were in fact issued to replace the costlier SMCP1 and other indebtedness while FPHP is currently being redeemed. These types of stocks are less liquid than common, however.

However, they don't appreciate much in price due to their predictable nature.

Now you have another choice for defensive play.

Smitten by Paris Hilton

The other Paris, not the city

Now that I have your attention, let me tell you about my encounter with one of the most desirable women around.

I was driving one morning along Katipunan Ave. when I was struck by a huge billboard advertising a new lifestyle residential development named Azure Residences. No, I was not in the market for posh homes; I was smitten by that attractive face on the billboard.

But this face--at that time I could not make out of it. As fate would have it, on the same day when I was reading online news, there she was again, on the news because of some papparazzi following her shindigs.  OMG, she's Paris Hilton, that socialite who finds herself on the tabloids for unexpected reasons.

She's also a true blue blood, heiress to a hotel empire, and a lifestyle designer on her own right. If she lent her beautiful face to this project--there must be something behind this.

I did a quick research and I found out that the developer is Century Properties Group (PSE:CPG) which recently entered the Philippine Stock Exchange (PSE) through the backdoor--by backdoor listing, that is. A backdoor listing happens when an investor group takes over a publicly-listed corporation--it doesn't matter if the corporation is profitable or not--and injects completely different kind of assets into it.

In this case the listed company used to be called East Asia Power Resources when the Antonio family who has been into property development for the last 25 years, took over. Its patriarch Jose E B Antonio used to be an ambassador and  was featured at an international publication. So this is no fly-by-night corporation.

The latest financials were even more impressive than Ms. Hilton. At the price then, about 1.60 a share, the  price/earnings (p/e) ratio was reckoned to be less than 10, price to book of less than 2, and a percentage  return on equity at the high teens. And its big projects are still under construction or at the planning stage.

But the stock price was still dropping. I dipped my toes at 1.50, added some at 1.47, 1.45--but the price hovered at around 1.40 for weeks. How could this be? But as far as I know, analysts have not started covering this company.

Finally, with the rising of the bull market tide, CPG stock prices raced up fast breaking the 2.00 a share barrier. In the meantime, I learned that Donald Trump, a big name in U.S. property development also allowed his name to be attached to a marquee CPG development: the Trump Tower Manila.

Did I ride my shares to the top? I would be a liar or a seer, if I did that. Every time the prices bump up, I kept on lightening my load. By the time the price hit 2.10, I was completely out. Even at this price, the stock was still attractive, financial-wise, and went on to 2.30 or so.

Was I insane to let go of shares much farther from the top? It is easy to dismiss it that it is not a good investing strategy when seen from a rear view mirror. But I find this technique quite sensible. You may not maximize your gains, but you are protecting your capital from sudden downturn. If, indeed, you find the stock really attractive, you can pick up some at lower prices. This view is also shared by top investors.

Then, the company announced a top-up offering at a price of 2.05 a share. This occurs when the major shareholder--the Antonio family--sells a huge block of its holdings to outsiders to raise funds, but at the same time subscribe to the same number of shares at the same price. This is the quickest way to raise funds for the company--since a top-up offering has less paper work attached to it--without surrendering too much control.

This is also favorable for investors since the company stocks have become more liquid.

The stock price promptly tumbled to near the offering price. When it dipped below 2.00, I started picking up shares again.

This time, Paris Hilton was far from my mind.

Be afraid, be very afraid

At the pit stop

Warren Buffett, the third richest man on earth and considered as one of the most successful investors of all time, has repeatedly counselled regarding the stock market: " Be fearful when others are greedy; be greedy when others
are fearful".

In the last few weeks when the Philippine stock market index has been piercing new highs at an alarming regularity, it may pay to take stock (no pun intended), pause for some breath, and assess where the market is going. And reflect on the above words of the sage of Omaha.

Most of the professional fund managers sing the same chorus that yes, the market is expensive on both absolute and relative terms. Absolute, in the sense that if you were to buy entire companies listed on the bourse, you wouldn't be paying for them at the quoted prices. Relative, in the sense that compared to our neighbors, to well developed markets and to other developing countries far and wide, our market is simply more expensive.

On the same breath, the same fund managers justify the valuation and the rally, saying that it is sustainable.

Listen to a recent declaration by a CEO of one of the largest financial firms operating in the country: "we believe that this rally is sustainable" for three reasons:

1. Liquidity. There is too much money sloshing in the financial system. Yes, it is too much money chasing too few options in the stock market. But when the music stops--a thunderous thud. That liquidity can easily be siphoned off. It takes only an acceptable resolution of the Cyprus crisis, or even a realization that it is no big deal, for foreign funds to float away. Upcoming top-up offerings (issuance of additional shares) to comply with PSE's minimum float requirements such as that of the LT Group of Lucio Tan (PSE:LTG) of soon-to-be renamed Alcorn Gold Resources (PSE: APM)  of another Lucio (Co) could dry up the local fountain of money.

2. Robust earnings growth. "Earning were up 15% in 2012".  That is not big compared to the increase in stock prices. Telecoms earnings are flat. Income at major mining firms are lower. What if there are few takers to those gleaming new condominium projects that are mushrooming like mushrooms?

3. Strong political mandate. Maybe, but big infrastructure projects have not really taken off. Most are bogged down by politicking and posturing. As commentator Wlliam Pesek of Bloomberg cautioned on the recent Fitch ratings country upgrade, what if the next administration would have a different idea on reform?

Just how expensive is expensive?

The easiest valuation tool to understand even to the layman and the small investor especially, is the so called price to earnings or p/e ratio. This is calculated by dividing the current quoted price by the earnings per share of a given company. The latter is in turn obtained from dividing the net income by the number of shares outstanding or shares issued. Apply that to all the companies listed that are part of the Philippine stock index (the PSEI) and divide by 30, the number of firms comprising the index, and you have the average market p/e.

You get a value of something like 21.7--overvalued by historical standards. By comparison, the U.S. indices are deemed reasonable at p/e 14 and somewhat expensive at 18 or 19. At present, the Dow Index has an average p/e of 15.8; the S & P, of 18.5--and analysts are already warning of a bubble in the making. During the dotcom bubble, average p/e values have reached the high 20s, with individual technology stocks that have earnings sport multiples of 35, 40 even 60.  Our neighbors in Asia are cheaper in this regard.

By looking at the average the details may be hidden. So I plucked the p/e values of notable names which I really would like to invest in  from an investment newsletter and here's what I got: Banco de Oro (PSE: BDO), 21.8; Puregold (PSE: PGOLD), 37.5; Jollibee Foods (PSE: JFC), 39.8; SM Prime Holdings (PSE: SMPH), 33.4; Ayala Land (PSE:ALI), 46.8; Manila Water (PSE: MWC), 20.7. These are for 2012.

No further evidence, your honor.

For the case of BDO, that number corresponds to a price of about P 85/share, which is already down from above 100 a share. I used to own MWC which I like due to its prudent management and steady, albeit not so rapid growth. But when the p/e hit 18, I decided to let go.

P/E valuation is not an end by itself. In fact, I use it as a starting point in further delving into a target company for potential investment. One should also look at other aspects such as book value, dividend yields, the industry where the company operates, and integrity of management, among others.

So, what now?

For a start, be afraid, be very afraid. But not terrified or fossilized into inaction. You do not earn when you are not invested in much the same way that you cannot win in chess by resigning.

Being in a state of anxiety to the point of paranoia can have a cleansing effect on your thinking and decision process. You start deciding on the basis of data and not by emotion. You don't get carried away by herd mentality.

Remember that we are talking of average values. There are hidden gems which carry cheaper valuations than average. Finding them would still reward the diligent.

The name's bond, just bond

Taken from jantoo

For many Filipino small investors, bonds as an asset class for potential investment seems out of reach and is reserved only for big investors. This is only partly true. A bond market exists wherein bond units are bought and sold just like any other commodity. The difference from stocks is that the bond market players consist mostly of large institutional funds, hedge funds, and mutual funds.

What are bonds?

These are  indebtedness or debt instruments issued by large corporations and sovereign governments. The issuer, as the name suggests, is bound to repay the creditor at some pre-determined interest rates and schedule.

The repayment terms extend to several years, so for corporations, issuing bonds is raising funds for big projects, expansion or paying other higher interest debt, without worrying about payments in the short term. By issuing debt rather than equity or new shares, existing shareholders do not suffer from ownership dilution.

For corporate bonds, the major risk is if the issuer's business is going down the drain and it could no longer pay the payments due. The perceived risk varies across the quality of the issuers; the more stable the company issuer is, the less likely that it will default on its commitments to bondholders.


If the issuer is a sovereign government, the bonds are termed sovereign bonds, and it is supposed to be guaranteed by the issuing government, and hence, less risky than straight loans. Most of the time, bondholders enjoy their steady stream of income payments, and most mutual funds include bonds as a sizeable portion of their portfolio.

Under special circumstances, you could lose your shirt with sovereign bonds. The current financial turmoil involving Cyprus illustrates this point. Part of the rescue package imposed on the country to save its ailing banks forces big bank depositors and bondholders to take a "haircut"--the financial euphemism for taking losses.

When Argentina defaulted on its sovereign debt in 2001, the hardest hit were bondholders. Some 93% of the country's creditors accepted huge losses, rather than lose everything. The rest of the hold-outs took Argentina to court and the case has dragged on until the present.

That is why bonds are rated according to their risks by ratings agencies such as Standard and Poor, Moody's and Fitch, which have entered into public lexicon owing to the latest country upgrade to investment grade by the last mentioned agency.

While the small investor cannot  participate directly at the bond markets, he can have some exposure to bonds by buying into mutual funds.  There are mutual funds that tout themselves as bond funds obviously because the bulk of their portfolio consists of--well, bonds.

To give the reader some idea on how much returns to expect, I am listing the bond funds of the Bank of the Philippine Islands (PSE:BPI) group together with the corresponding yields for 1 yr and 3 yrs. This is shown to illustrate what to expect and does not constitute an endorsement. As the fund managers always warn, past performance does not guarantee future performance.

	Absolute Yields (as of 4/1/2013)
	1 Yr	3 Yrs
BPI Premium Bond Fund	8.41%	22.02%
ALFM Peso Bond Fund	10.12%	28.38%
Odyssey Peso Bond Fund	23.95%	60.87%
ABT Philippines Bond Index Fund	18.65%	37.73%
ALFM Dollar Bond Fund	6.91%	18.90%
Philippine Dollar Bond Index Fund	9.40%	36.20%
Odyssey Phl. Dollar Bond Fund	8.46%	35.66%
Odyssey Emerging Market Dollar Bond Fund	3.55%	9.70%

As part of diversification and as a voluntary disclosure,  I do have placements in two of the funds mentioned. I regularly shift some funds to less risky investments when stocks tend to be pricey. Bond funds are my favorite.

At par with par value

PLDT stock certificate

Let's get down to basics.

When a business entity is formed as a corporation, you need some amount of capital, let's say, 100 m pesos. Let's suppose there are five persons--the incorporators--and each of them equally ponies up 20 m for the initial capital. Their  share of ownership of the corporation would now be represented by--well, shares of stock of the corporation.

Theoretically, they could issue one share each to themselves, with each share representing 20 m, for a total of five shares. That amount represents the par value, or the initial valuation, of each share.

But then, down the road, one or some of them would like to sell their share of the corporation to the other incorporators, to outsiders, or to their kids as inheritance. Dividing a share to several persons would be inconvenient and impractical. To anticipate this probability and for a host of reasons (like conducting an initial public offering or IPO much later), the corporation might as well issue 100 million shares with each share now having a par value of one peso.

How convenient. But one peso, while the most common, is not the only possible par value. For example, most bank stocks have a par value of P10, while the speculative ones--the so-called penny stocks--have the ridiculous par value of 0.01 or one centavo. Back then, it might have made sense when you could buy something out of your ten centavos (like a bottle of soft drink, or the minimum jeepney fare).

Market stock prices on the other hand, are those that appear as transactions at the Philippine Stock Exchange (PSE), and the quoted price of a given stock is what the buyer (bid price) or the seller (ask price) thinks the share price of that particular company is, or should be. As the company's business flourishes with time, the perceived or market value would rise above par, and if the company has been in existence long enough, the market value would be far different than its par value. PLDT (PSE:TEL), which last traded at P 2988/share on March 27, has a par value of only P 5. If the company is going down the drain, the market value could tumble below its par value.

The issued equity amount you see in balance sheets, is based on par value.

Watch out for dividend announcements. A cash dividend of 10% refers to that percentage of the par value, not the current quoted prices.

By virtue of some corporate actions, the par value can change. If a company has been bleeding red ink for years, its capital (equity) would be depressed so much or it may turn negative. The board of directors may then decide to lower the par value to "wipe out" the deficit, which is actually an admission of permanent loss. Thus, if the par value started with one peso and ends up with 10 centavos and you are a stock holder, you lost 90 centavos per peso of your capital. Example, the par value of Atlas Consolidated Mining and Development Corp (PSE:AT) share has been lowered to P 8 from the original P 10.

The same board may also decide to split up its shares by lowering the par value to a fraction of the original. This is to increase the number of shares available in the open market, and to make the share prices to be perceived as affordable. But that  doesn't really change the fundamental ownership structure of the company.

An increase in par value is also possible. This is usually resorted to when the major owners would like to enhance the image of a corporation from that of a speculative firm (which has a par value of say, one centavo) to a more established kind. This usually happens when a dormant firm which started as a speculative oil or mining exploration firm is taken over by new owners who have different plans of business than the original. Recent examples abound, and if one understands the situation and acts quickly, one could profit handsomely in a short time.

Others are made higher for accounting and trading convenience since it would be easier to handle millions rather than billions of shares.Large companies like conglomerates which expect a significant fraction of their shareholders to be institutional foreign funds prefer larger par values (and market prices) since when prices are converted to other major currencies, the holders won't be talking of pennies or fractions of a dollar or euro. For example the par value of Ayala Corporation's shares (PSE:AC) is now P 50 whereas it used to be one peso.

You are more concerned of course with market quotations for trading purposes. However, it pays to know the par value to understand corporate actions which lead to better appreciation of investing in stocks.

Letting others do it for you

It is tempting to zoom through the smooth highway than take the bumpy road less traveled.

It is but natural. When you navigate through an unfamiliar city, your tendency would be to stick to major roads with clear signs and directions, otherwise you wouldn't want to end in a dangerous ghetto or a dead-end dump site.

The same thing is true for first time investing. While you have just hopped in on the steep learning curve, you may wish to let your savings work for you by letting others do it for you--in the meantime. There are many good reasons for entrusting your money to others to invest:

1. You are starting. You have very little idea where to put your money.

2. You have limited time. You have to report to the office daily, or you have call on clients for your direct-selling business.

2. You have limited resources. You have P25,000 pesos which you don't need to spend immediately and you wish that that amount would work for you

3. You don't want to take risks by yourself. That's because you don't have much experience in investing yet.

If I were in that situation I would simply place my money on a unit investment trust fund (UITF) offered by most banks or a mutual fund which you could also avail of through banks. Both work similarly in the sense that your money is pooled along with those of others and invested in financial instruments which are otherwise inaccessible to us, small investors. The difference is mainly on the how they are structured and managed.

While you are at the mercy of the fund manager, you still have some control of your money by knowing and choosing the fund to invest in.

There are basically three types of mutual funds on the basis of where the money is invested:

1. Fixed-income fund. This fund invests only in fixed-income financial instruments such as treasury bills, money-market placements and government-backed bonds and the like. The risk is minimal but the returns are capped.

2. Balanced fund. This fund places its money mainly of income-generating instruments such as treasury bills, preferred stocks and bonds, which are debt instruments issued by corporations and the government,    but a portion of the fund is invested in blue-chip equities or stocks. A typical balanced fund would have 20% in stocks Hence, the name. You would also encounter a growth and income fund which is essentially the same.

3. Equity fund. As the name implies, this fund is tilted towards stocks, and therefore by definition is riskier than the previous ones. The potential reward is you earn more than the average compared to the other funds. The drawback is you could also lose big. I have examined some equity funds and the holdings seldom go beyond 50% stocks, except for a few ones. So it is not really that risky.

While I was searching for actual examples of Philippine mutual funds, I found this list, kindly provided for by another Filipino financial blogger.

You're on your way.