The Bull-Bear Connection – An Unsolicited Advice to the Black Swan Manny Pacquiao

Posted on May 11, 2012 by Romie Cahucom

There’s a strange connection between the stock market and boxing success.

In the stock market there are bulls and bears; in the realm of boxing or pugilism, there also are bulls and bears. The bulls are those times when a boxer keeps on winning and if ever he loses, he quickly regains the winning form. The bears come when the boxer loses and appears to have lost the winning touch.

Some boxers just keep on winning and winning… until one day they lose big. Usually, the loss is followed by another. He may have another win or two, only to lose again, until the boxer finally realizes that his touch is gone.

That’s the time that the poor boxer finally hangs up his gloves for good, realizing that the bear market in his career is for real, and  the bull market is now just a thing of the past.

Well, this bull and bear analogy between stock market and boxing is not really a new  idea.

In the 1930 investment classic, “The Art of Speculation” (New York: John Wiley & Sons, 1930), the author Philip Carret offered a simple yet very insightful explanation of what causes a reversal from a bull to bear market by a striking analogy with boxing.

Philip Carret, a bond salesman, financial journalist and mutual fund manager who founded Fidelity Investment Trust, known today as Pioneer Fund with $2 billion in assets, has this to say on what causes bear markets:

“As simple and as good an explanation as any other is the inability of a majority of mankind to maintain a regimen of hard work in the face of easy living conditions. Just as in the realm of pugilism a few years of soft living will make a Dempsey (referring to Jack Dempsey)  an easy prey to a Tunney (James Tunney who defeated Dempsey twice for World Heavyweight Championship) so a period of prosperity contains the seeds of its own destruction.”

Well, how true this boxing connection is, can be easily gleamed from the array of former world boxing champions  who, refusing to quit the sport  in the midst of mounting distractions, suffered the ignominy of being forced to quit in the thick of a bear market in their careers.

With the seeming exception, of course, of a “black swan” named Manny Pacquiao who  initially looks as one who continues with a winning streak despite mounting distractions.

As we noted in a previous post, ”The Black Swan That Is Pacquiao and What Lesson Can Be Learned”, Pacquiao is  a “black swan”.

Bestselling author Nassim Nicholas Taleb (“The Black Swan: The Impact of the Highly Improbable”), defines “black swan” as an event or occurrence that is “unpredictable” and has a “massive impact.” Pacquiao undoubtedly fits in with the definition

In fact, Pacquiao’s  being a “black swan” by definition looks like a convenient explanation on why he seemed to defy all odds and avoid for a long time the onset of a bear market in his career.

Not anymore, as the guy currently, looks inexorably on the way to a bear market in his boxing career.

Just look at the many distractions Pacquiao piled up one over the other: having himself elected as a Congressman; having a regular daily TV show “Many Manny Prizes”; his dabbling in the realm of “preaching” as a Christian pastor  of some sort; and most recently, his spat on tax issues with the Bureau of Internal Revenue where, with much bravado, he vowed he would fight to the finish.

These are, of course, apart from  his much-gossiped occasional flirtings with starlets  or his being in constant company with some prominent men not known for virtuous living.

How one is able to maintain “a regimen of hard work” with such “horrendous” distractions is of course, something very doubtful.

No wonder Pacquiao’s super-trainer Freddie Roach complains once in a while, and his physical conditioning coach Alex Ariza not just complained, but even unceremoniously left the Pacquiao team  recently.

And no wonder Pacquiao’s last performance in his bout with the perennial opponent Juan Manuel Marquez left much to be desired and his win extensively questioned. The poor guy Marquez could only  claim of having been cheated of victory for the nth time.

There’s an interesting side issue here which borders in the realm of the esoteric or metaphysical as revealed by local  sportswriter/columnist Recah Trinidad in a recent article entitled “Twin Warnings for Manny Pacquiao” (Philippine Daily Inquirer 04/12/12).

Recah Trinidad mentioned that Pacquaio’s incoming bout with Timothy Bradley will be his 16th fight since losing to Erik Morales in their first encounter.

The columnist Trinidad then continued:

“Chronicler Marv Dumon of the International Boxing Examiner has noted that, since Pacquiao’s first pro loss to “Rustico Torrecampo in 1996, he has lost every 16th bout thereafter.”

For the record, Dumon continued, Pacquiao was stopped by Medgoen (3-K Battery) Singsurat in September 1999 to lose the WBC flyweight crown.

That defeat coincided with Pacquiao’s 16th fight since first losing to Torrecampo.”

There is something ominous, therefore, in this “16” number  for Paquiao , according to Trinidad.

Call it “jinx” or call it anything. You may believe it, ponder it or dismiss it as plain superstition. But add the horrendous distractions to the equation and the bull-bear connection persists in your mind.

Back to the issue of bulls and bears and pugilism, the comparison is of course limited. While bears eventually give rise to bulls, the waning boxer hardly ever rises again. He eventually becomes a has-been, usually poor and despondent, and oftentimes, a caricature of his former glorious self.

Unsolicited advice to Pacquiao?  Win or loss, make this bout with Timothy Bradley  your last and henceforth, focus on politics if that’s what stirs your soul.

You will save yourself the possibility of going deep into a bear market in your boxing career and in your finances (seemingly remote but possible).

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Why I Don’t Write Much About the Stock Market

Posted on April 29, 2012 by Romie Cahucom

I have noticed a recent spike or surge in search key phrases (on Google and other search engines)  dealing with stock market investing (as reported in my C-panel’s Awstat statistics). Among my regular OFW readers, I am quite sure some are wondering why I don’t seem to write  much about investing in the stock market.

The recent surge in the Philippine Stock Exchange (PSE) index to 5,000 and above seem to have triggered a surge in interest in the stock market among dear readers.

Among all investment vehicles, there is probably nothing as fascinating as investing in the stock market.

Throughout investing history, stock market has always been the center of attention of most investors. There is also nothing which offers as much potential for gain with manageable risk as investing in stocks.

Well, back to the issue of why I don’t write much about stock investing in my blog, I can offer a few reasons:

1.  Primary focus on the basics or ABCs

This blog’s primary focus is on the basics or the ABCs which is what investment literacy is all about. It’s about how to save upfront no matter how small the income is. It is about steering clear of debts,  staying away from unwanted burdens, avoiding “impossible earnings schemes”, investing in what you know and familiar with, and asking advice from those who know.

In other words the thrust of this blog is laying the foundation for funds accumulation and intelligent investing.

The point I want to make clear is that unless one is grounded on the basics, one cannot proceed let alone effectively invest in stock market and mutual funds.

In the first place, without having maximized savings rate, one cannot even accumulate funds sufficient enough to invest in stock market.

In the second place, without maximized savings, there hardly would be investable amount to speak of (investable amount having been defined as amount which one will not use for the next 3 to 5 years).

In the third place, without a grounding of the basics, one can hardly practice emotional control so necessary to isolate ones’ judgments from the turmoil and fears of frequent market movements.

2.  Stock investing not part of the basics or ABCs

The second reason is, of course a corollary of the first: stock investing is not part of the basics of investment literacy. The focus of this blog is on the basics of investment literacy and unfortunately, stock investing is not part of the basics or ABCs.

Having said that, it does not mean that we will not dwell substantially about stock investing. Stock investing is too important a topic to be left out. It is just that we have to get grounded first before we can even talk of flying, and that I feel I have not dwelt enough about the basics yet.

3. Most OFWs are not in a position to invest in stock market

With accumulated savings which would just rightly fit in as reserves, most OFWs probably will not be in a position to invest in the stock market.

In a previous post entitled, ”Are You Ready to Invest in Mutual Funds”, I mentioned three (3) requisites to determine readiness to invest in mutual funds. The same requisites apply to investing in stock market. One should have a home first, he should have investable money, and he should be able to practice emotional control.

Some investment experts say that a rough acid-test for determining readiness to invest in stocks is to ask whether one has the funds which he can afford to lose. Needless to say, only few can have this luxury of having funds which they can afford to lose.

4. Bull markets are not an ideal time to invest in stock market

The fourth reason for my not writing much about the stock market is the prevailing bullish sentiment or as some writers say, “exuberance” of the market.

Based on my knowledge and experience, a prevailing bullish market is generally not a good time to dabble in the markets. Bulls always precede bears which in turn, precede bulls. That has always been the case and I don’t think this time will be any different.

If you enter the markets in a bullish period, it will be very scary when the bears come. One can easily panic when he sees his stock investments clobbered down 30%  and even down to half of its original value.

There are techniques of course, like “stop-loss triggers”, but these are not easy to implement in real –life and definitely these are not for neophytes and dabblers; these are for advanced investors.

The safest and probably the best methods are still the “value-investing” model popularized by great investors Warren Buffett and mentor Benjamin Graham. This is essentially a  “buy and hold” strategy based on intrinsic values of stocks and where the core concept as per Buffett is that you are essentially buying a business, not a stock.

In any case these methods are difficult to implement in a bullish market awash with overvalued stocks, unlike in a bearish market where the universe is awash with “value” prospects and bargains.

In the ultimate analysis, the great John Templeton’s aphorism still holds true: “The time of worst pessimism is the best time to buy and the time of best optimism is the best time to sell.” Or something to that effect.

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Remittance Is Not the Enemy, Economic Reintegration of Returning OFWs Is

Posted on April 22, 2012 by Romie Cahucom

For this post, we get back to the OFW bank issue by offering a sort of brief rebuttal to the first two (2) objections of Bangko Sentral and the Department of Finance on the proposal of Vice-President Jejomar Binay for the formation of an OFW bank way back in 2010.

We recall that Vice-President Binay, way back on November 22, 2010, sent a formal letter to President Benigno Aquino III recommending the establishment of an OFW bank which “will provide an alternative yet viable economic financial and remittance institution for our kababayans at the local and international levels”.

As reports go, the Bangko Sentral and Department of Finance “had advised the Palace against the scheme, citing issues of cost, redundancy, administrative and regulatory unwieldiness, and sending signals that discourage current private-sector competition which, they claimed, already benefits OFWs by way of driving down transaction costs.”

President Aquino then, upholding the position of government regulators, did not approve the OFW bank proposal.

Vice-President Binay, despite the disapproval, vowed to work on with the OFW bank initiative “to encourage savings and investment among OFWs”.

It is presumably in this light that the Vice-President commissioned the Technical Working Group (as I mentioned in previous posts) to prepare a study for the establishment of an OFW Development Bank.

For purposes of this post, I assume that the recommendation  of Vice-President Binay is for an OFW bank  along  the same lines as the following report from dailies:

 “The OFW Bank project was first conceptualized in 2006 to consolidate the financial assets and operational capabilities of government financial institutions like the Land Bank of the Philippines (LBP), Development Bank of the Philippines (DBP), Overseas Workers Welfare Administration (OWWA), and the Philippine Postal Corporation (PPC), and the Philippine Postal Corporation (PPC), together with its subsidiary Philippine Postal Savings Bank (PPSB), as lead entities towards the creation of a financial institution for overseas Filipinos that is less expensive and more focused in its direction and services.”

Now for the brief general rebuttal on the first two (2) points raised by the government regulators (We shall take up the rest of the objections in a future post).

The Issue of Cost
 
Forget about the previous (2006) proposal involving Land Bank, DBP, Philippine Postal Corporation and the Philippine Postal Savings Bank. The solution is simply to buy an existing savings or thrift bank to jumpstart and start the OFW bank rolling. This is not a big deal as I am sure it is not difficult to find a small bank up for sale which should be based in Metro Manila or nearby.

And why should they worry about costs? OFWs bring in $20 billion in foreign exchange earnings annually. OWWA has billions of funds in trust for the OFWs which I think can be used for seed money for the bank, i.e. if the Administration is determined enough and creative enough to face whatever technical hurdles that lie in the way. As the saying goes, “if you are determined, you will do whatever it takes”.

 The Issue of Redundancy

The problem with most proposals for establishing an OFW bank is that they dwell so much about “remittance” issue as if this is all there is to the whole OFW bank issue. They want to reduce the cost of remittance to this or to that, etc. They want to reduce something that has long been reduced to the bare bones.

Yes, the remittance issue is redundant. This has long been taken cared  of and the private sector has more than amply provided for this.

Remittance is never the problem that elicits the need for an OFW bank. The insistence on remittance as the lead reason for establishing an OFW bank is a product of a shallow thinking on what ails the OFW on the economic side.

This is a product of  thinking by OFW bank proponents who are either not OFWs themselves or who have only a very superficial view of the OFW economic problem which is massive. I can only surmise that the prime stakeholders on this issue – the OFWs themselves- were either totally left out or not properly consulted in drafting the OFW bank proposal.

First Pacific/PLDT Group tycoon Manny V. Pangilinan recently said a line about mining which has become famous: ”Mining is not the enemy, poverty is”. Well, paraphrasing MVP: “Remittance is not the enemy, economic reintegration of returning OFWs is”.

Economic reintegration of returning OFWs – this is where an OFW bank is so badly needed. An OFW just returns home for good after years of toil in a foreign land and wants to put up a business. But he has nowhere to turn to for guidance, assistance and additional capital.

Come to think about it, we have POEA -an institution taking care of departing OFWs and we have OWWA which has welfare officers at worksites. But for returning reintegrating OFWs needing financial guidance and assistance, is there any institution taking care of this?

None, nada. Forget OWWA, it’s never in its mandate to handle economic reintegration.

We are very good and efficient at sending OFWs abroad and yet we are very rude and irresponsible to them by not having an institution that takes care of them when they come back.

It is as if OFWs have outlived their usefulness when they return and they are now left to fend for themselves. “Pagkatapos pinakinabangan, basta na lang pabayaan.”

There is no telling how many billions of pesos of resources of returning OFWs are lost annually to scammers, Ponzi schemers, credit card induced overspending,   non-paying borrowers, and outright business failures.

Needless to say, if these billions of resources are intelligently tapped through government help via an OFW bank, who knows the economic multiplier effect thereof? 

I have talked about this at length in “Two Wheels for the Reintegration Cart, a Concept Paper on OFW Economic Reintegration”.

It is in this dire need for an institution to take care and help returning/reintegrating OFWs that an OFW bank can provide and fill in the necessary gap. It is not a complete solution but it’s a good start.

They need economic guidance, the OFW bank should provide seminars and one-on one financial counseling; they want to know where they should put their savings, the OFW bank should have higher-yield savings/time deposit programs for that; they need a loan for a business, the OFW bank should be able to guide them on which businesses to go into and should provide the loan with minimal requirements. And so on.

In fact the OFW bank should have a program for every conceivable situation that relates to OFW economic reintegration: savings generation; investment/business literacy; higher-yielding savings/time deposits; low-interest loans for micro-business; livelihood loans; soft bridge-loans for distressed workers wanting to go back abroad.

The focus should be on economic reintegration of OFWs, not on the redundant issue of remittance.

Having said that, it does not necessarily mean that OFW bank will not get into remittance business at a later time. Let there be an OFW bank first, then we can talk about remittance business.

My point is to forget about remittance issue in the meantime because this is not what is most relevant. Furthermore, this remittance issue will never sell at this early stage and insisting on it will only strengthen or magnify opposition.

And where should the seed money come from? OWWA. The capital should come from OWWA and the bulk of OWWA funds should be deposited thereof, providing either low-cost or non-interest-bearing deposits.

“Render unto Ceasar what belongs to Ceasar and render unto OFWs what belong to OFWs” (with due apologies for taking liberties with a Biblical passage).

OWWA funds belong to OFWs so what’s the big deal in putting these in an OFW bank to primarily serve OFWs?

 

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There’s Something in Gold or Treasures That Draws Out the Worst in Men

Posted on April 15, 2012 by Romie Cahucom

Since the start of this blog, I have never seen any blog post or topic eliciting so many keyphrase “searches” made on search engines and captured and reported in statistics in my C-panel’s Awstats (don’t bother about these words).

Not until I wrote and posted the article, “Is There Such a Thing as Yamashita Treasure in the Philippines.” The topic on Yamashita treasures elicited far more searches in the web’s search engines than any other blog topic I ever wrote about.

This just shows the kind of interest any talk about gold or treasures engenders.

For this post, let us take up and elaborate on one telling paragraph or passage in the aforementioned article. The telling paragraph reads:

“Treasures or the reports of them, cause otherwise decent men to get wild, get crazy or worse, get just plain murderous. There must be something in treasures that draws out the darkest and basest instincts of men.”

Well, here let us have one actual real-life story that serves to validate the above  thesis.

Sometime during the 1980s a small-time gold prospector named Juanito Kaluoy (not the real name) found a small gold vein in a hilly place in a small island in the Visayas. He then proceeded to make the moves to develop the “find” into a small mine.

But just as soon he got the necessary permits and invited a couple of friends to assist him in the venture, word spread around like wildfire that he struck a very rich vein and have started to find nuggets of gold.

The poor guy had barely started digging his hole and was spending a small fortune for his modest mobilization efforts and there broke out news that “he found gold nuggets a number of times and is on the road to becoming fabulously wealthy.”

Pretty soon, the place was swarming  with people and everybody was trying to dig his own hole everywhere in the vicinity.

Shortly after, military men started visiting the area and asking questions.

One day, an errand boy sent by the military   from a detachment along the highway several miles away,  approached Juanito Kaluoy if it was possible that the “detachment guys” be given their own time to dig so that they too would find gold nuggets and participate in the riches that Kaluoy is now enjoying.

The poor small miner politely told the errand boy that he has found no gold nuggets and that in fact, he has not found anything substantial yet in his small mine. He told the errand boy that he cannot allow any outsider to take turns in his hole since he has barely started, he has already spent money which he has to recover and has not found any significant quantity of gold yet.

The errand boy left and said he will tell the “sergeant”  about it. 

One Sunday morning, Kaluoy decided to visit his minesite even if there was no work. He was alone, and after spending an hour or two of earnest reflection on whether he was doing the right thing, he proceeded to go down the hill back to the highway for his way home where he planned to eat lunch.

On the trail way down, he met a group of military men one of whom promptly asked him if he came from the mining area, and if he saw the guy named Juanito Kaluoy there.

Suddenly, fear struck him like a bolt of lightning. It instantly dawned on the poor guy that his life was in very grave danger. In a rare, desperate flash of quick-witted survival genius, the guy said: “Yes, I saw Kaluoy standing right in the entrance of his hole”.

The military men quickly proceeded uphill, but not after one blurted out,”We’ll teach this guy Kaluoy a lesson for not sharing his gold with us! He will get buried right in his own hole.” 

No sooner had the military men proceeded uphill than Kaluoy ran as quickly as he could, downhill. He could not count how many times he stumbled on the small rocks, and slipped on the grassy slopes. Nor could he count the number of times he slammed his face or his frail body at the small trees and bushes along the trail.

He reached the highway barely catching his breath and promptly rode on a passing jeepney to his hometown several miles away.

At home, he promptly embraced his surprised wife and kids and then dropped on folded knees to thank the Almighty for having lived to tell of his “horror of horrors”- his very close brush with death, right in his own mining hole.

The poor guy stopped visiting his small mine. He lost money trying to strike it rich.

As he told me and a group of friends of his story, he could not help a tear or two dropping from his weary eyes.

Well, this may sound like fiction but it’s all true.

The investment-related moral of the story  is this: One may seek fortunes with honest effort and hard work, but with respect to gold, whether through small mining or digging for treasures, one has to be very, very careful.

One fine morning a friend may ask you to fund a small gold mine or finance the digging for gold treasure. Think a thousand times or better still, turn it down politely.

Remember, danger lurks wherever gold is. And danger lurks even more so if there is no gold at all.

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The Biggest Obstacle to Establishing an OFW Bank

Posted on April 7, 2012 by Romie Cahucom

I  originally intended to continue writing about Yamashita treasures for this post, but I have to interrupt the planned series for an important piece about the OFW Bank.
 
A reader of this blog, researching about establishing an OFW bank for her masteral thesis in Financial Journalism, has asked me:

“What, in your opinion, is the biggest obstacle to establishing this OFW Bank?”

Well, this is exactly the type of intelligent query I would love to answer. Sometimes we get lost on the nitty-gritty of an issue that we overlook or forget the most essential ones. This question puts the most essential aspect at the top and stimulates intelligent discussion.
 
The answer to this query is “hinted” in a paragraph in my first post on the OFW bank issue,” The OFW Bank – An Idea That Never Dies” which  reads:
 
“One, at least, it is a comforting thought that  somebody big enough in the government is spearheading something along this line. A Vice-President doing an OFW bank initiative is far more interesting to me (for obvious reasons) than a Congressman or a Senator drafting a bill about the same project.”
 
As far as I am concerned, the biggest obstacle to establishing an OFW bank has been the lack of somebody big enough in the government to “champion” this cause. By “big enough” I mean someone in the level of a President or at least a Vice-President of the country.
 
The championing of this cause by a Senator or Congressman would certainly help. However, by himself alone, this will not cut it. The issue needs somebody strong enough and powerful enough to overcome the tremendous obstacles that lie in the path. Ideally, it should be the President, but absent that, the Vice-President can do it if committed/determined enough.
 
For a time, during the GMA administration, it looked like she (GMA) was really championing the same cause. Only to prove later that it was all for a “show”. It was all “politics” by a troubled and besieged President all bent on surviving at all costs.

Now comes Vice -President Jejomar Binay, the Presidential Adviser for OFW Affairs, taking the initiative for the formation of the OFW bank.

Well, it looks like he is really serious on championing this issue. In the first place, he immediately took action by forming a Technical Working Group (TWG) for a study on the feasibility thereof. His actions seem to match – or were even better – than his words on the issue.

In other words, based on his pronouncements and body language, it seems like the Vice-President will not waver on his commitment to this cause. And that’s what makes me excited and that’s what every OFW should be excited about.

You may ask, of course,  whether or not this is just part of the usual posturings by a key politician with the Presidency in mind for the 2016 elections.

Maybe. But I have just a couple of points in mind.

One, the Vice-President is the Presidential Adviser on OFWs so it is but the natural part of his job to take care of anything  relating to OFWs. The OFW bank issue therefore just falls squarely on the ambit of things he should be concerned about.

Two, I would not care and I am sure you would not care too, if he has the OFW vote in mind for 2016 as long as he delivers something substantial and concrete on OFW issues.

While there are a myriad complex issues facing OFWs which the Vice-President certainly will not be able to solve, putting the OFW bank into a reality will be a big accomplishment by any measure.

Personally, I think he is sincere in this endeavor . Hence, going back to the question on the biggest obstacle to establishing an OFW bank, I think the biggest obstacle is en route to get hurdled.

Of course, I can be wrong and it remains to be seen how things eventually work out.

It remains for the Vice-President to prove that he is really an “executive champion” to the OFW bank cause.

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Is There Such a Thing as Yamashita Treasure in the Philippines

Posted on March 25, 2012 by Romie Cahucom

For this post, we depart from the usual fare and go for something a little exotic or intriguingly unusual. Let us take a trip to less charted waters by discussing something about “gold treasures”.

I am quite sure everybody has heard something about it: the persistent rumors of so-called “Yamashita’s gold” or “Yamashita treasure” in the Philippines.

The Yamashita part of the name is taken from General Tomoyuki Yamashita who was the commanding general of Japanese forces in the Philippines during World War II.

The “treasures” (consisting  mainly of gold bars, with some jewelries, precious stones and various  artifacts) are reported to have been looted from various parts of Southeast Asia which were occupied by the Japanese forces.

As the stories go, these treasures were  transported to the Philippines where the Japanese hope to ship  the loot further to Japan. The resurging dominance of US submarines in the sea lanes plus US superior air power  upon return of the US forces under General McArthur in 1944, forced the Japanese to hurriedly bury the bulk of the loot in the Philippines.

That, in gist, is how the story goes.

The late dictator Philippine President Ferdinand Marcos is  rumored to have discovered and dug several major sites in the Philippines. This is aside from reports of having grabbed a famed Golden Buddha find by treasure hunter Rogelio Roxas many years back.

Critics of Marcos, particularly the left, claim that the Marcos treasure find is a big myth and that, on the contrary, the fabulous sums he reportedly accumulated were a result of two decades of kleptocracy protected by Martial rule.

Some Philippine historians also dispute the account on the supposed transport of the Japanese loot to the Philippines, saying, “there is no credible evidence behind these claims.”

Imelda Marcos, the flamboyant former First Lady, on the other hand, says that the wealth that her husband possessed really came from “buried treasures”. 

According to Imelda,  even while still a bachelor, Marcos already had a very deep fascination for gold. Marcos reportedly found and dug with the help of some Japanese living witnesses, some fabulous Yamashita treasure sites and that’s where his riches came from.

Or something to that effect.

Is there truth to the persistent stories or rumors of Yamashita treasures in the Philippines? Did the Japanese really bring to the Philippines boatloads of treasures of gold bars supposedly looted from various Asian countries they conquered during World War II?

Did the Philippine archipelago serve as convenient burying ground for tons of gold bars by the retreating Japanese forces unable to bring much of their loot to Japan?

Hmm, this sounds really interesting!

But I am not out to prove anything here (nobody can prove anything about it in any case).

My purpose is just to give the readers a glimpse of the exotic, or whet the readers’ appetite for something intriguingly fascinating. And there’s hardly anything more fascinating than stories about “treasure.”

The thought of gold, let alone treasures of gold bars, is always fascinating and the pursuit of gold or treasures has been a preoccupation of humans since time immemorial.

Now, back to the issue: Is there really such a thing as Yamashita treasure or  is this  just pure figment of the imagination?

Even if we try to, nobody will be able to prove anything about treasures whether buried or sunken or stashed elsewhere. In every report of gold treasures, there will always be denial and the denial will always be the last say.

Of course, that should it be. Who would be foolish enough to claim that he has found gold treasure and is now in possession thereof?

Everybody will be after your neck if you claim so, and pretty soon, you will lose not only the gold but your life as well. That is the ironical thing about it.

A treasure hunter friend once told me that  “treasure” should never be discussed within the hearing distance of anybody. Because anybody who hears about it gets reduced to the level of a “dog”.

A “dog,” according to the friend, while relaxed or at rest, has his ears folded and drooping. But as soon as a dog hears the bark of another dog or hears any stimulus  that excites it, its ears suddenly stands up and it gets ready for action.

Treasures or the reports of them, cause otherwise decent men to get wild, get crazy, or worse, get just plain murderous. There must be something in treasures that draws out the darkest and basest instincts of men.

I remember one  chilling instance when a military man, a sergeant, told me and some friends about an incident when he was trying to pound a concrete slab to pieces in the belief that in the concrete slab were imbedded a treasure  of gold bars.

The sergeant was part of the contingent of military men and civilians who operated on the purported concrete slab, taking it ashore from the bottom of the sea in the belief that gold bars were imbedded in it.

The burly sergeant said, “If I then did see something that glittered in the concrete slab, I will then have no more superior officers and colleagues. I would have them all killed and take all the gold.”

Well, this is a true story I would prefer to expand and tell in all its inglorious details in a future post.

Back to the issue of whether treasures are true or not, again, I say, nobody can offer any indisputable proof at all for a myriad of reasons.

But it would not be difficult to figure out, if you think that, since time immemorial when wars are fought between tribes or groups of men, and later, between nations, the victors or the winners almost always engage in looting.

The victorious side almost always gather and bring with them whatever things of value (including humans to be sold as slaves).

Thus, comes the expression, “ To the victors belong the spoils”. And what better spoils are there than those lodged in the  banks, treasuries and chests of vanquished nations?

Did the Japanese loot the treasuries of Indochina and the occupied countries during the second world war?

The answer sounds  like a “no-brainer”.

But did the Japanese bring  the loot to the Philippines?

You are free to draw your own inferences, but we hope to take up this  and related  issues further in  future posts.

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The Three “Musts” of an OFW Bank

Posted on March 17, 2012 by Romie Cahucom

After listing down the lessons we can learn on the OFW bank fiasco on the last post, it looks natural and even incumbent upon us now to figure out what an OFW bank should be.

If we are to set up an OFW bank – given that this is an idea that never really dies -  how should it look like? How do we make sure that the bank survives? What should be its strongest selling point?

What should be its main features? Should it look like a commercial bank? A savings bank? Or should it be more like a rural bank or a cooperative bank?,

Well, frankly, nobody can claim to have all the answers.

But I can cite three basic features that an OFW bank must have. I call these the three “musts” of an OFW bank.

Here the three “musts” are:

1.   It must be the main depositary bank of OWWA funds.

This is an absolute pre-requisite for an OFW bank to have at least a fighting chance for survival. Any charter for the formation of an OFW bank should contain this provision as an “absolute prerequisite” or, a “conditio sine qua non” (to use a legal jargon) for an OFW bank.

An OFW bank should not depend on the public at large for deposits. In fact it should not even depend on OFWs as a source of deposits. It should have a built-in mechanism that provides cheap sources of funds and there is no better way than to have the bulk of OWWA funds deposited in it.

The mandatory deposit of at least, the bulk of billions of OWWA funds will ensure that the bank will always have available cheap or low-cost sources of funds for the bank’s lending operations.

The availability of low-cost sources of funds is a very crucial factor for any bank to be able to survive. This is particularly so in the face of the highly cartelized situation of the local banking industry (It’s not just the local banking industry but the whole global banking industry that is moving towards cartelization).

You will be facing giants in an extremely competitive, even brutal banking environment where spreads (the margin between source and use of funds or simplistically, deposits as against loans) are getting thinner and thinner. The thrust nowadays has been in the retail sector in which you have no choice but to play and compete toe-to-toe.

You lack cheap sources of funds, you will not stay long in the banking game. Any banker knows that.

Without this condition of being the depositary of OWWA funds, I don’t think an OFW bank will have any chance of surviving.

2.   It must primarily serve the OFW sector

By its very name, an OFW bank should primarily serve the OFW sector which includes, of course the dependents of OFWs, and by necessary extension, the overseas Filipinos.

This means that, on the sources of funds side, it should be able to offer the OFWs preferential deposit rates or interest rates (for savings and time deposits) at least equal to better than those offered by savings banks, development banks and even cooperative banks.

How the OFW bank should be able to do this without jacking up its lending rates? That is definitely a challenge, but the presence of the captive OWWA deposits should make this possible if the OFW bank management is creative enough.

On the use of funds or lending side, it should be able to have a lending window, again with preferential rates, for every category of lending need by OFWs, dependents and returning/reintegrating OFWs.

This means that OFWs who run out of funds for returning abroad to worksites should easily obtain loans at preferential rates. The same should be true for distressed OFWs or those who suffered dislocations at troubled worksites like Libya and Syria.

Of course, lending relating to distressed OFWs should be closely coordinated with OWWA which upon creation of the OFW bank, should be stripped of whatever lending function it has.

More importantly, the OFW bank should be able to provide preferential lending rates to reintegrating OFWs – those who want to start businesses after years of toil abroad. Apart from preferential rates it should be able to provide advisory services to reintegrating OFWs.

This brings us to the next “must”.

3.  The bank must have a developmental character and orientation.

Any OFW bank should be developmental in character and orientation. It should serve to uplift the lot of OFWs, overseas Filipinos, their dependents and the greater society in general.

By “developmental”, this does not just mean it should look and behave like a development bank (like Development Bank of the Philippines or Planters Development Bank), although that should be included in it.

This means that it is not enough that it caters to the needs of OFWs; it should help the OFW sector develop and graduate from a “consumer sector” to an “investment and entrepreneurial sector.”

It should help wean the OFW sector from a “consumer mentality” to an “investment or entrepreneurial mentality.” It should help OFWs become investors and entrepreneurs rather than just mere consumers.

Easier said than done? Of course it is, but the OFW bank can be a potent force towards this end. It should have a program along this line.

I mean, it should be part and parcel of the whole program for the comprehensive economic reintegration of OFWs which I have been talking about in this blog.

It should not just be a bank; it should be a force in society. It should not just be a lender; it should also be a molder of minds of OFWS.

This is what I mean by being “developmental” in character and orientation.

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The Lessons We Can Learn from the OFW Bank Fiasco

Posted on March 8, 2012 by Romie Cahucom

Just like I said in the last post, there are lessons to learn from the OFW Bank fiasco, several years back. 

We need  to point them out now, not for the purpose of blaming the proponents‘ ineptitude. That would hardly serve much useful purpose, although that should be a legitimate exercise for those who lost money in the fiasco.

It is for the purpose of inculcating awareness and internalizing some simple lessons, so that those who were taken for a ride and lost money may not repeat the mistakes they made. And those who are not aware of the case may not duplicate the mistakes previously made by some people.

There are simple lessons to learn. But make no mistake about their simplicity. Some of them reveal patterns or templates (to use a computer term) that one should be aware of or be watchful for.

We may now therefore proceed to see what these lessons are:

Lesson 1.  Be careful of too much hype, or the  “big-bang” start in any investment scheme or project.

As far as I’m concerned, there generally appears to be an inverse correlation between hype and investment success. The more hype and publicity a project or investment scheme engenders, the greater the likelihood the scheme will flop.

This is especially true in investment rackets like Ponzi pyramiding schemes which depend  so much on the innocent being hyped or conned into thinking that the scheme is a passport to “quick riches.”

With respect to the OFW bank project, the proponents  were everywhere, peddling and hyping their wares in the cyberspace, in the Mid-East dailies, and they even had the bravado to conduct “roadshows”.

In fairness, I think they were sincere in their intentions of really putting up a bank for OFWs. But as the saying goes, “The road to hell is paved with good intentions”.

Sincere intentions alone, of course, would not compensate for  delusion and ineptitude. What you lack in terms of capability, you cannot simply compensate by making so much  hoopla, bravado or just plain big noise.

Lesson 2.  Be extra careful with investment solicitations using grandiose words like “empowerment”.

I have no problems with the word “empowerment” or  “OFW empowerment” as used in voluntary “causes” like “absentee voting”, “reduction of pre-departure fees”, “greater benefits from OWWA,” “greater protection at host countries”, “fund-raising for victims of natural disasters”, and so on.

By all means, we should contribute to causes that help us OFWs or turn us into a potent force in our society.

I have, however, every problem with those peddling investment schemes and using the word “OFW empowerment” to solicit investors.

Frankly,  I feel a sense of foreboding for our countrymen when such words are used  to solicit and entice investors for whatever scheme, enterprise or project by any group.

I hate to say this (and the OFW bank fiasco bears this out), but the use of such words seem to easily mesmerize our fellow OFWs into parting hard-earned money without thinking.

Contribute to OFW causes if you must, but when it comes to investing hard-earned money, you should draw the line.

Contribution is contribution and investment is investment. We should never confuse or mistake one for the other.

Lesson 3.   Always steer clear  of the herd.

Admit it or not, one reason why the failed OFW bank gathered so many investors is “herd mentality.”

“My friends invested in it, I might as well join”, that’s how the thinking goes.

The herd mentality is a phenomenon we never get tired of discussing in this blog.

Herds almost always follow or result from too much hype . Or too much hype almost always precede a stampeding herd.  In fact, hypes and herds  belong to each other like husband and wife.

As I often mentioned, we know where herds eventually lead to.  For cattles, they lead either to the milking barns (the image of being milked looks just too irresistibly apt) or the slaughterhouse .

In case of sheeps, well, they eventually lead to the shearing contraptions where the poor meek creatures  emerge bald, stripped of  their thick wool to feed the textile industry.

It may seem a wonder how, otherwise intelligent men join the OFW bank fray and readily parted with their US$1,000 dollars to invest in the said project without much thought.

Much of it is the herd mentality at work. It is a “template” by which the uninitiated gets parted with his money.

That is where the importance of investment literacy comes in. Someone who is not literate in investment is  like a ship without a rudder; it just drifts with the waves and the wind.

Lesson 4.  Always investigate and make your “Due Diligence” before parting with your money.

What is the project all about? Is it feasible?

Investigate  out who proponents are. What are their backgrounds? Do  they have a track record in the very project they are hyping about.

You don’t know the answers? Let us go to the next lesson.

Lesson 5.   Always consult with people who know.

Well, this is actually a principle enshrined in the Babylonian wealth classic “The Richest Man in Babylon.” The book refers this as the 3rd Law of Gold which says:

“Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling”.

You don’t know or have no idea about it? Ask somebody who knows. You don’t know anybody who knows, find one.  And don’t take any action until you can find and consult with one.

This is not rocket science. Actually, it’s plain common sense.

Next time, I bet you will hear again, some other  groups peddling investment schemes with grandiose, if motherhood, pronouncements about “empowering  the OFW” by establishing an “OFW bank,” an “ OFW mutual fund,” an “OFW taxi company,” an “OFW airline,” an “OFW this” or an “OFW that”.

If you hear something like that, I suggest that you better be very, very fearful. Or better still, get lost or run away as quickly as you can.

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The OFW Bank – An Idea That Never Dies

Posted on February 28, 2012 by Romie Cahucom

Since the start of this blog more than a year ago, I always have in mind that someday I have to discuss something about the OFW Bank idea.

This seems to be an idea that never dies. It first hit the OFW consciousness way back in  early 2000’s and then faded from view a few years after.

During the Arroyo administration, I heard there were several  bills filed by lawmakers  resurrecting  the idea this time with the support of the government. There were even noises heard about  converting the Philippine Postal Bank into a  sort of OFW Bank, or something like that. Then the noises died down once again with nothing concrete.

With the current administration, I have heard that Vice-President Jejomar Binay, the Presidential Adviser for OFWs, has organized a Technical Working Group to make a study on the feasibility of an OFW Development Bank of sorts.

Looks very interesting to me for several reasons.

One, at least, it is a comforting thought that  somebody big enough in the government is spearheading something along this line. A Vice-President doing an OFW bank initiative is far more interesting to me (for obvious reasons) than a Congressman or a Senator drafting a bill about the same project.

Two, I have always maintained, from the first time this idea hit the waves particularly in the Kingdom way back in 2001 or 2002, that an OFW Bank will never take off nor survive without government support.

My contention is that a purely private OFW-driven initiative along this line does not stand a chance in the heavily cartelized banking industry. I have actually a ton to say on this point in future posts.

Three, the addition of the term “development” makes it even more interesting. I have in mind that an OFW bank should not be an “also-run” bank doing what everybody else is doing but should act more like a development bank for OFWs and dependents, with a strong bias for small and micro-enterprise initiatives.

Four, what makes it even more interesting to me is that the task is being silently done, at least in the initial stages. I have known all through these years that silence is a most valuable tool in the initial stages of a project or at least while the project is still being studied.

My observation of the world  through all these years is that projects started in silence have good chance of not just making it but of ending with success and a big bang.

Conversely, projects started with a big bang, more often than not,  end-up  with  a whimper or with the pop of a bubble and get lost into nothingness and oblivion.

On this point, I can’t help but recall the first OFW bank initiative way back in early 2000’s.This is a story  worth telling briefly here.

The  first OFW bank project started with a big bang. The project proponents were all over the mailing groups in OFW cyberspace and, every now and then, they were in the Filipino section of  Middle East dailies, announcing and hyping every move they make.

They were even conducting “roadshows” and urging OFWs to contribute to the “empowerment” of OFWs and invest or be a stockholder of the OFW bank.  Or something to that effect.

At that time, the OFW Investors Society (OFWINS) which I founded, was already in the thick of conducting monthly investment literacy seminars with the auspices of the Philippine Overseas Labor Office (POLO) in the Kingdom’s central and eastern regions.

From the time the proponents of the OFW bank hit the newsreels with their campaigns of getting investors for the project, I always end up being asked by  seminar participants on what I think of the OFW bank project.

They asked whether it was advisable for them to invest in the said project. I always end up telling the participants that  without the government support in the picture,  the initiative was bound to fail.

I also explained in detail the reasons why it has no chance without government support. The reasons are fairly easy to figure out but I reserve it to future posts to discuss them.

In the end, I always told the participants that those who will invest or may have already invested (a number of seminar participants have already invested in the scheme) should consider their money as having already been “lost” and write it off their minds so as not to feel bad about it.

As a parting shot, I always told the seminar participants that, among other things, they should hold on to their savings and not entrust them to people they don’t even know.

I told them that if the project proponents were proven experts in the chosen field and had track records of success in initiating and growing businesses like a John Gokongwei or a Tony Tan Cack Tiong of Jollibee, or experts in handling investors money like a Wilson Sy of Philequity, for instance, then they may entrust their hard-earned savings.

But entrusting hard-earned savings to complete novices and amateurs (hardly anyone in the proponents ranks were bankers) putting up a bank, Oh great Heavens, I told the participants, “you might as well kiss your money goodbye.”

I knew I was on collision course with the OFW bank proponents and I know one day they will  curse me but I steeled myself knowing I would not have been faithful to my “advocacy” if I did not say my piece.

To make a long story short, I was eventually indeed, viciously attacked by the proponents. But colleagues in the Kingdom’s banking community and some other  leaders eventually joined  in voicing out their opposition to the initiative as unfeasible.

As the opposition mounted, the OFW bank bubble started to unravel and eventually burst. Worse, the government authorities admonished them to stop soliciting investors since they had no “secondary license” and were actually violating the law.

The investors money ended up being spent for the supposed upkeep of the proponents network until it was all gone. Exactly as I predicted, the money from hundreds (probably thousands) of OFW investors were gone  and there were no returns.

That was a sad story worth further future discussions to see what lessons we can learn.

Back to this latest “OFW Development Bank” initiative by Vice-President Binay, at least, they have made the right moves, initially.

We can only hope this latest initiative will prosper.

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About Minimizing Risks and Maximizing Returns

Posted on February 20, 2012 by Romie Cahucom

After the somewhat explosive and scary issue of the last post,  it is high time to pause,  go philosophical once again and take a deeper look about this thing called “risk” and its opposite twin called “return”.

First, what exactly is this thing called “risk”?

Forget about high-sounding definitions in which the world of finance is fond of. In very simple terms, “risk” is  the possibility or threat of loss,  damage, injury, liability or any negative occurrence in anything.

If there is any chance or possibility you will lose your job due to recession then that is “risk”. If there is a possibility your kid will not graduate college at all, because you and your wife are both working abroad and the kid is left in the care of a relative and often does his own thing, then that is “risk”.

There is risk almost everywhere and there is even risk for doing nothing, but that is another story. What we are interested in is risk as applied to investment.

We all know of course that in every investment undertaking – be it going into business, putting one’s money in stocks or mutual funds, or just plain lending money to people or firms like banks do – there is always the possibility that, instead of gaining or having profit, you sustain losses.

In some cases, you may even loss your shirt like the friend in the previous post, “The Friend Who Lost His Shirt in the Transport Business”.

In banks or institutions engaged in lending money, risk is a byword and some banks even have a “risk department” to highlight their obsession or paranoia with risk.
 
For lending officers of banks, recommendations whether or not to approve a loan or credit facility will almost always carry a  section called “Risk Analysis”. This is usually the penultimate section, prior to the final section which is usually “Recommendation”.

In the “risk analysis” section, you enumerate all risk possibilities your mind can conjure up with, and then proceed to list down and explain factors or measures that reduce or mitigate such risks.

In any investment undertaking, a clear view or study of the risks involved is an absolute requisite in order for your investment to have any chance of succeeding.

On the other side of the coin, there is a thread which co-exists with risk and they call this “return.” This simply means profit or gain.

If someone asks why we invest at all, the simplest answer would be: we are after “return” or “returns.” “No return, no investment,” as the slogan goes.

The problem with this thing called return is that it  can never be realized without facing the accompanying “risk”.

“Behold the turtle; it makes progress only when it sticks its neck out,” says an anonymous proverb. In fact, we humans are very much like turtles; we can never move, produce returns  or make progress at all without facing risks.

Let us step back a little bit and recall Graham’s definition of what an investment is. Graham said that an investment is one in which, “after thorough study, promises safety of the principal and an adequate return.”

“Return” is therefore mentioned and embedded in the very definition of what investment is. But what is not mentioned but equally embedded is “risk”. To be theoretical about it, returns and risks are two faces of the same coin that is investment.
 
In general, the higher the risk the higher the returns. Conversely, the lower the risk the lower the returns. 

Now, can we do it in such a way that we minimize risk while at the same time maximizing returns?

Yes, of course. In fact, that is what whole business of studying investment boils down to. The whole business of investment comes down to tackling one issue: how to maximize returns and minimize risk.

This is where the phrase “after thorough study” in Grahams definition comes in.

You want to minimize risk? You have to study. And the more thorough you study the more you lessen the risk.

And when do you study? You study before you invest, while you invest and after you invest. It is a continuing activity while you are in the business of investing.

In fact, your results or returns will often reflect the amount of study you made in your investment.

A lot of times, after you study, you figure out that the expected returns are not worth the risk at all. Or that some industries like the transport business offer only risks, and hardly any return at all.

After reading my series of posts on the transport business, for instance,  you realize that the transport business is just an alluring trap where you can only end up losing your shirt.

You abort your plan of going home for good and investing in several units of taxi. You just aborted a disaster scenario for your lifetime savings. You not just minimized risk but eliminated it, and move on to try to find another outlet for your hard-earned savings.

The business world has a term for this study and this is required for every project to be undertaken. They call it “Due Diligence.”

All these things boil down to one point: There is only one tried and tested way to reduce risk and maximize returns – study.

The more you study, the more you reduce risk and the more you maximize return. It is as simple as that.

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