Ways to be debt free: How to correctly use your credit card

 source: http://www.creditcards.com

A lot of people now a days use the plastic.

If you are in the Philippines and you are employed by one of the top 1000 companies you might get a pre-approved credit card in the mail. I remember when I was working with Orica Philippines I got 7 pre-approved credit cards. I activated 4 or 5 but in the end close them and maintained my BPI Edge card.

The problem today is that most people who get such credit card in the mail don't really know how to use it. They thought that it is cool to go out and treat your group and show of that you have a "plastic" to charge your spending. Not so good idea.

Also many people only pay what the credit card say: Minimum payment. So they swipe their credit card for a flat screen TV, a new android phone, lunch at Burgoo, and a weekend gateaway in Boracay and their credit card statement only says Minimum payment is Php 980.00. They go to their bank or payment centers pay Php 980.00 and life goes on.

That is the very reason why so many are buried in debt. They don't know how credit card works thus they end up buried in credit card debt. And after being harassed by the credit card company they say credit card are bad and they wont get one anymore. 

So how can you and me really make well use of credit card?

Let's break it down to advantage and disadvantage and how to work on some ways how to avoid or turn around from its disadvantage:

Advantages of a credit card

1. Good for business by delaying cash outlay thus keeping your money in the bank and earning interest

If you are in business having the means to delay payments is a good means of leveraging. We call this OPM which stands for "Other People's Money". For example you are in the business of cake delivery, you can buy the Red Ribbon cake using your credit card, delivering it and receiving cash payment. You got cash right away, you are able to deliver, you get to hold your money in the bank, earn at a profit, and do another purchase but not worry of where to get the money to fund your business now. With all the on hand money you got from collections upon delivery you can put it on the bank and earn an interest and pay your credit card after a month.

2. Earning other perks

Most people purchase because of the free perks one gets when reaching an amount of purchases. Most credit card company tie up with airlines giving us mileage points like PAL's Mabuhay Mileage Program. So after charging some purchases you get to have a free flight, that is cool.

3. Establishing a credit record

Having a credit card is the easiest way to established a credit record. I remember when I first came here in Guam that they cannot give me a credit card because I don't have a credit record. Good thing my bank, Bank of Guam, allowed me to open a credit card by placing a security by opening another savings account(they required me a deposit of $1,000.00 equivalent to my credit limit) and handing them my passbook. After a year I requested release of my passbook all is well.

4. Good for emergency

It is a fact sometimes it is unavoidable thus having an easy access to pay will help.

5. Proof of identity

Some credit card act as one's proof of identity. Most offices can check your profile or identity through a check of your credit card record.

6. A good way of keeping spending record

Most people are lazy recording their expenditure but when one's spending is charge using credit card  one has an instant record. With online access one can check where have one spent such amount thus able to track one's spending.

7. Worry free from carrying cash

If you are traveling having a credit card is a good idea. It eliminates the burden of carrying cash which might get lost, the worry of converting and exchanging money, and easy tracking for your love one's when you get lost.

Disadvantages of a credit card and how to avoid or turn around 
from it

1. Getting buried on debt

Most people have no control of their spending thus they end up with huge credit card debt. Even worse is when one becomes so depending to the "plastic" when one pays another credit card minimum payment by taking cash advance form another card.

How to solve this?

It is sad to say that one has to impose self-control. Stop purchasing unnecessary stuff especially when it is a consumer goods like gadget, restaurant dining, signature clothing, and other "wants". It will give you withdrawal symptoms in the beginning but unless you discipline yourself you wont be able to  get out of debt.(click here to read more about this)

2. Paying more due to interest

This problem is brought about by paying only the "Minimum Payment" . There is a simple truth which most credit card holder ignore about Minimum Payments. Credit card companies show you the "Minimum Payment" so that you only pay a portion of your debt, incur interest on unpaid debt, and pay various charges due to your late payments. Various charges like late payment charges and the likes is where credit card company earns.

How to avoid paying more?

Pay the whole amount in your credit card statement. When you pay the whole amount you are able to avoid incurring interest and other charges at the same time avoiding having a bad record of non-payment. Cant pay the whole amount? Pay more than the minimum payment. Pay at least 50% of the entire statement amount to lessen the interest that credit card company will charged your debt.

3. Having lots of receipts to keep to be able to track spending

In order for one to control spending one has to keep receipts and be able to arrange and organize them but this sometimes become a hassle. Most have an online statement to solve this but you can also use other online programs which can help you track your expenses.

One is Mint.com

It is a free online service that simplifies your expense tracking and other finance stuff to take care of. You can visit their site at www.mint.com to learn more

4. Developing a spending addiction

With such power on hand you might not be able to tell your self when to buy and when not to buy. With the marketing machinery of credit card companies you cant just say no to a free movie ticket on the first screening of an upcoming movie only if you buy the latest clothing line of Levi's . Or maybe there is a raffle and the only way to enter it is to make a 1000.00 peso purchase to get one raffle ticket and so to join in you have to a lot of thousand bucks to get more tickets.

How to tame the green monster in you?

Set priorities. You have to list needs that you really need and only charge such needs to your card. Also always be ware that your credit card has a credit limit. Always spend only 50% of your credit limit never ever max it out or else you will fall to disadvantage number one.

As I remember Bob Procter saying "Make money the work for you not you working for money" we must make the best of credit cards. It is good for business as long as you are able to make timely payments and it could be a friend when you need it most so don't max it out and make sure you have enough funds to pay it when the due date comes not you have expected money to come to pay it on due date. 

Bible Quotes of the day: Equal level in the stock market

"Rich and poor have this in common: The LORD is the Maker of them all." 

Proverbs 22:2 

In the stock market it doesn't matter whether you are only investing 500.00 pesos or 5 million pesos. 

We all have abundant resources to use because God gave us all that we need,  He made us equal. The problem is our mentality. If you think you cant invest in the stock market because you only have small fund think again. 

God made us all He wouldn't favor one from the other..... it is the way we handled what He gave us that made us to what we are today.

Investing word of the day: Undervalued

source: http://themarketwatchers.com

I have been talking about APF Trading's Expert Stock Screener and I pointed out the importance of undervalued stock. What does undervalued mean anyways?

I am reading RLC's Amended 17-Q(click here to view report) and I quote the following:

source: http://www.robinsonsland.com

III. Financial Resources and Liquidity

Receivables went down by 40% due to collection of receivable from JGSHI. Subdivision Land and Condominium and Residential Units increased by 9% to P6.8 billion due to higher level of project completion. Accounts payable and accrued expenses increased by 4% mainly due to accrued interest payable on the P=15.0 billion loans. As of December 31, 2010, total assets of the Company stood at P54.3 billion while total equity amounted to P28.8 billion. RLC’s financial position remains solid, with a financial debt to equity ratio of 0.52:1 as of December 31, 2010 and 0.54:1 as of September 30, 2010 while cash stood at P7.6 billion and P5.5 billion as of December 31, 2010 and September 30, 2010, respectively. Earnings per share for the first three months amounted to P0.37 per share. Net book value excluding minority interest in consolidated subsidiary stood at P10.45 per share as of December 31, 2010 compared to P10.08 per share as of September 30, 2010.

I highlighted the last sentence to point out what undervalued means. If you see EPS or Earnings Per Share stands at P0.37 which brings Net Book Value to P10.45. Comparing Net Book Value to Market price which is at P12.40. The P2.00 difference is not that big but based on analysts consensus this stock should be valued P15.00

Now you see why RLC is seen by analysts as undervalued. It lies mostly on what we call perceived value. 

What is Perceived Value? 

Perceived value is the real value an investor sees on the stock. This means factoring future profitability on a stock. When we factor in future earnings of a company the book value per share of the stock increases. But according to law a company should not accumulate all its earnings unless it has specifically allotted such for project expansions, repayment of a debt, and others that would greatly benefit the company. 

The distribution of earnings which is called dividends is a way of sharing what the company earns to its investors. It is a return of investment. That is why you and me invest in a company because of the return of investment.


When a company has the capability to deliver steady returns investors and traders are interested on it and thus buy such stock. When a stock has price action meaning its price is moving up or down and demand for such rises as evidence by the volume of transactions it will soon go up based on the law of supply and demand.


When buying stock we buy when the stock's price is low or other put it us bottom price so that we can profit when it starts to go up.

source: http://theideaspot.blogspot.com

That is what we call undervalued. A stock whose perceived value is above its current price. I know you have a lot of question and one of them would be how on earth will I know that a stock is undervalued?

Well I really don't have a exact answer for that, many use the P/E ratio to determine if a stock is undervalued, that is if P/E ratio is 10 and below it is undervalued but you can use my model comparing EPS, BV, and Market Price to determine if it is undervalued or overvalued. You can also use the tool  from APF Trading, Expert Stock Screener, which collates the various research of leading analyst.


It could be a lot of work but it pays. Once you get the whole idea and the psychology of investing you will soon do stock picking so simple that you don't have to spend a lot of time researching because your past experience has sharpen your mind. 


So for now ask and learn, then try in small portions, and when you are brave enough try it big time. But remember the rule: Invest at your own risk. Don't blame me, the debt crisis in Europe, the Arab conflict, the rising price of oil, the low rating of Pnoy, the rumor your neighbor heard from the tricycle driver in the intersection of your barangay and the barangay of the adjacent town and other excuses. 

It's your call. Get undervalued stocks, accumulate and cost average if you have to, and sell when stock prices reaches your target price. 

Bible Quotes of the day: About sharing your blessings

"There will always be poor people in the land. Therefore I command you to be openhanded toward your brothers and toward the poor and needy in your land." 

Deuteronomy 15:11 

One thing we have to know when we are blessed in our finances is to share it. It could be in a form of good timing in your stock trade that you were able to profit on it thus you share by donating an amount to an orphanage like Tahanan ng Pagmamahal just like what my friend Aiko did.

Share your blessings... and God will bless you more abundantly because you cannot out give God in His game of giving blessings.

Value what is it?

 source: http://www.makemoneyonlineafast.com

I was reading Bo Sanchez's blog post and a line struck me. 

Here’s the equation: Problems create scarcity. And scarcity creates value. And value creates success.

 (to read Bo Sanchez's blog post click here)

Let's put that in logical argument:

Problem created Scarcity

Scarcity creates Value

Value creates Success

Therefore : Problem creates Success

Now there is one truth we can pull out from this logical argument, that is Scarcity creates Value. This line is actually what the Law of Supply and Demand teaches.

If you remember: if supply of a commodity is low demand for it rises, when demand for it rises people are willing to buy it at even higher price thus there is a need to raise its price to control such scarce commodity. It is also applicable to thew stock market.

When a certain stock has started to pick up volume after some favorable report or occurrence  the price will start to go upward as indicated in the MACD graph. Such reports like a higher reported quarterly bottom line than expected, a new investor putting in needed capital to enhance or expand the business, or probably a sudden favorable business opportunity that puts the company in a position to profit big can affect investor and speculator perception alike.

When everyone wanted that stock it starts to be scarce. Those who has it already will hold it until it reaches their target price before releasing. Big players will buy in blocks thus limiting the number of shares available. As this happens price action starts to go north and small players try to ride it leading to price trend upward.

source: http://www.clickjobs.com

When a commodity becomes scarce its value rises that is how many investors pocket big gains. Wise investors starts to accumulate stocks of value when they are not yet scarce meaning they are not yet in demand. They keep on accumulating and they are even happy when the price of the stock they are accumulating still goes down. But remember they don't just buy a stock, they have carefully analyze it and base on some analysis they believed that it will grow in the near future. They accumulate stocks with great potential thus they are unafraid to accumulate such stock.

source: http://radocracy.com

The Philippine stock market is now on the expected correction, this is one of the best time to accumulate fundamentally sound companies. So do your due diligence and don't wait for the time that the stock you want to accumulate becomes scarce. 

SCARCITY CREATES VALUE  

Value then is define as a status when it is in demand and when it is limited. That is why gold is valuable because we have to dig deep to get it. That is why experts charge us hefty fees for their advice and services. Valuable stocks are themselves valuable because everybody wants it and are willing to pay the price.

Bible Quotes of the day: The importance of information

Through wisdom a house is built, and by understanding it is established; and by knowledge the rooms shall be filled with all precious and pleasant riches. 

Proverbs 24:3-4

That is why it is important to do due diligence before investing in a stock. Don't just buy because it is a hot tip or it is the talk of the town. A stock's sudden price rise may be due to speculation and if you are caught up or what my stocker friends term as "ipit" then you might get burn and lose a lot.

I recall the SEC's propaganda in the past.... INVEST...... INVESTIGATE

How to use APF Trading's Expert Stock Screener

In my previous post I introduce you to some tools that you can use in your stock picking and one of them is APF Trading's Expert Stock Screener.(Click here for a sample of Expert Stock Screener)

Basically it is the condensed report of some listed stock of a certain stock market(I'll be using The Philippine Stock Exchange as my example) based on reports and analysis of various broker and analyst taking into consideration both fundamental and technical analysis. 

So how do really use this tool anyways?

First of all it is a report in an excel format thus where there is excel this is a filter function. In the far right of the report there is a column with a heading of ALIGNMENT. Click the dropdown arrow and unmark everything and then mark "YES" to filter stocks with an alignment status meaning the Fundamental and Technical analysis aligned as per APF Tradings criteria.

Then from the filtered list you can chose which stocks to pick up for a buy or for a sell. You can further filter the selection by adding another filter.

You can either use the FAIR VALUE DEVIATION as your criteria of a buy consideration. The stock with the highest value means that the various analyst value the stock higher than its current price. What does this mean. Let use FPH(First Philippine Holdings) as an example. FPH has price on May 20, 2011 at 63.75 pesos/share with a FV deviation of 46% this means that the analyst has a target price of 93.075 pesos/share. This is the fundamental side of the analysis. Various analyst have different criteria and methods of determining Target Price but it all boils down to the company's financials taking into consideration future cashflows anf profitability.

After determining the Target Price the next question one has is when to buy FPH. This is a hard question to answer because remember the truth about the stock market:NOBODY CAN ACCURATE PREDICT WHEN WILL THE STOCK BE UP OR DOWN ONLY A PROBABLE TREND CAN BE MADE.

With that in mind one can turn to the Technical analysis columns DAILY, WEEKLY, and MONTHLY. These columns indicate the bullishness of the stock(when it is positive) or bearishness(when it is negative) On this columns we can make to guidelines. 

1. Buy when the stock is at its bottom and about to go north

2. Sell once the stock's price starts to fall

The two above rule are basics of the Demand and Supply Law.

It is a common mistake of small and newbie investors to buy when the stock has already gone halfway its upward trend as well as when the stock is still going down. Though it is always a premise that there is no wrong timing in the stock market it could have been profitable when you are able to buy the stock at a very cheap price and sell it at a high price. 

By comparing the Daily, Weekly, and Monthly bullishness indicator you can determine where is the start of the stocks upward price point; that is the point in which you start to accumulate until it goes up more and breakout from its resistance level. 

I guess those are the basics in using APF Trading's Expert Stock Screener. If you are interested or want to learn more about APF Trading Expert Stock Screener click here

My Personal analysis: Robinsons Land Corporation (RLC)

This is a short one.

Been holding to RLC(Robinsons Land Corporation) and it seems the market is starting to pick up on this real estate stock.

Price graph indicates it is still below its 3 SMAs indicating a buy consideration. Target price for some analyst sets it at 14.50.

Let's cross our fingers on this.

Zombieland attitude in investing

Have you ever seen the movie Zombieland? 

Just watched it in my laptop awhile ago and it made me laugh. But along the movie if you were still able to catch it while laughing and freaking out at the same time on the chasing zombies I think you have the investor attitude.

Remember the rules? 

source: http://rasjacobson.wordpress.com/

Yup Ohio has a list of rules. Rule 1 and 2 are always mentioned. Rule 1 is Cardio while rule 2 is Double tap. How are they connected to investing you ask? Cardio means having the stamina to continuously run. In the world of investing you can't stop. You have to be on your toes because everybody is running thus you need a good cardio to last it. 

Double tap means being sure. Don't just check it once, check it twice or even thrice as long as you are sure of your buys or sell decisions.

How about rule 22: When in doubt, know your way out. 

 source: http://artzthings.com

In technical lingo set your cut loss price. Often times we are trapped in our wrong buys  and hard headed as we are we keep on holding that is why one should have an exit plan. A stock's price may be down but according to your analysis it would bounce back but for how long will it stay there? That is where you have to set that line called "cut loss" so that instead of losing you can divert your funds  to a better stock and then go back if the situation is already trending up to your expectations.

source: http://www.polyvore.com

Also in stock investing you must always "Limber up" that is rule number 18. You might need to make some small stretching to tackle the task at hand. Planning when to enter and exit and making necessary other action plans to pursue your target price. You could test it first by buying small shares then jumping into another similar shares before you finally do what you have been cooking up in your brain.

And lastly the best of the rules, rule number 32: Enjoy the little things. 

source: http://stores.ebay.com/tshirtbordello

Investing can be so exciting and sometimes so depressing. To keep you sane celebrate in the most simplest way to give yourself that feel good experience like eating a twinkie.

 

 source: http://iareawesomeness.wordpress.com

As my stock investor friends will say "pa-cheese burger ka naman" (treat as with cheese burger). Be happy and be victorious with the small things like a gallon of Selecta ice cream Ube flavor(Purple Yam my favorite) for  your family, a pizza with your friends, or a movie date with your special someone. 

So keep your eye open and be alert for you don't know when will a zombie in the backseat attacked you, this is rule number 31 which only means be ready for the least expected.

Investing word of the day: Secondary market

source: http://richard-wilson.blogspot.com

What is a secondary market?

As per PSE:

exchanges and OTC markets where securities are bought and sold subsequent to original issuance which took place in the primary market. Also called "aftermarket". source: www.pse.com.ph

So secondary market refers to the the next change of hand from the original source. So in the case of stocks the origin was from the company and the one traded in the stock exchange is already the second change of hand thus stock markets are often called secondary market. 

When the company issued the stocks to one of its subscriber that is called the first market. When the particular stock is listed in an exchange and the subscriber/investor sells his stocks through the stock exchange there is a change of owner of the stock thus it is deemed that such transaction is after the first issuance.

In the case of IPO it is considered as a primary market since banks only act as underwriters of the company that is why the transfer from the underwriter bank to an investor in an IPO is not a secondary market. It only becomes secondary market when the investor will trade his newly acquired stock.

How to read a Price Graph

source: http://www.att-trade.com

A stock's price graph is one of the tools a stock trader or investor needs to understand to make that decision to buy or sell.

Price graph is a historical data showing the price movement of a stock. In technical analysis price is the driving factor that makes an investor or trader buy or sell. Stock investors and traders have different techniques in their stock picking. Some buy when the stock price is below their valuation, some buy when the stock is about to go north, and some buy when the stock indicates a downtrend.

You might ask how in the world did they know that? They are able to do that by interpreting the price graph.

Again let me re-iterate that nobody can predict stock movement; only a probable trend can be made based on what is the current market demand-supply level.

Let us use the below price graph and other graph of CHIB as our example.

Most charting software has three to four graphs. The above is take from Citiseconline's charting in there website.


The graphs in the above picture are:
1. Price graph
2. Volume graph
3. MACD
4. Stochastic


Now let us focus on the Price graph

Legend:
SMA3 - Simple Moving Average 130 days
SMA2 - Simple Moving Average 65 days
SMA1 - Simple Moving Average 32 days
CHIB - Stock Code


Simple moving average as the name says is the average price of the stock for the specified number of days. So in the legend SMA1 is nearly the average for a month, SMA2 is for 2 months, and SMA3 is for nearly 5 months.


Why are these important?


These are used as indicator meaning they give an idea where is the direction of the stock. It also defines where are the possible support and resistance. I know these words seems gibberish, click here and here to know more.

Now you know that the 3 SMA's are the average of the stock's price for a certain period, compare such averages to the current price. If the Current price is above all it indicates that the stock going stronger thus it surpasses its average prices. This means the stock's price is trending up thus a good time to profit when you already have the stock. You can hold the stock for a while or as you wait for it to reach your estimated target price(which you can set by using some stock computation tool). Sell when the stock has reached your target price.

On the other when the current price crosses below the averages it means its price is trending down. If you have bought the stock lower than the current price it could be a good chance to take profits. But if you have bought it while it was above the average it is the best time to cost average. 


With this knowledge also remember that you have to verify such price trend. This could be verified in the Volume graph. The volume graph indicates the activeness of the stock. If the current price crosses the averages upward but there is no increase in volume then such movement is not verified thus it could only be that the stock is being played or such price uptrend is just circumstantial.


Other indicators are always included for further verification. MACD or Moving Average Convergence Divergence indicates whether the stock price has a bigger or smaller price change while Stochastic indicates whether the stock is overbought or oversold.

Again nobody can predict the exact movement of the stock; only probable outcomes. The price graph is a guide but no matter what happens it is still your call as an investor or trader to chose sell or buy button.


(I would like to thank my mommy Krissy for the volume verification, Tatay John316 for lessons on when to buy and sell, and Johnny Rocky for his explanation on the moving average)