Shariah Compliant Securities: Encouraging Muslim Investors

The Philippine Stocks Exchange has recently released a guideline for its Shariah stock market program. This aims to encourage Muslim Filipinos in the country, and also an estimated 1 trillion USD of global Islamic funds to invest in Philippine stocks. Shariah is the moral code of Islam which covers the rules, teachings and values adhered to by Muslims. The release of Shariah-compliant securities make it easier for Muslim investors to invest in the country, while also adhering to the teachings from their religion.

As of the initial list issued by PSE, there are 47 publicly-listed companies were considered Shariah-compliant based on these established criteria:

5 Tips to Avoid Serious Losses in Your Stocks Investment

We've seen the Philippine Stocks Index go up and down for the past several months. Being successful in your stocks investment not only require identifying where you can get the highest possible returns, but also protecting yourself in incurring huge losses.

Here are 5 tips to help you avoid making serious losses in your stocks investment:

1. Don't buy stocks you do not know. Are you the type of person who asks people in forums and social media on which stocks you should buy? Please stop it. They don't know your investment goals. Chances are they don't really care if you lose money. And you don't even know them to trust their investment advice. Buy stocks that you are comfortable holding on to. You owe it to yourself to sleep better at night.

Things You Should Know About Exchange Traded Funds (ETF)

In a recently concluded Exchange Traded Fund (ETF) seminar in Manila, Juanita Cueto, Commissioner for Securities and Exchange Commission made a fearless forecast that ETFs will be the next big thing in the Philippine investing industry. "There is no better time than now to educate investors on this product", she said in her keynote address on the said event. Others speakers agreed that availability of ETFs can spur growth in the country and may even attract more investors.

In this article we will list down the basics of ETFs and hope to answer why investment professionals are optimistic about this type of investment.

Taxes on Stocks Investment

Manny Pacquiao's tax case with the BIR was all over the news the last two weeks where the famous boxer is being accused of not paying over P2.2 billion pesos to the government. Don't worry, we will not dwell on each side's arguments on the matter. But I think this is the best opportunity to discuss the related taxes associated in being a stocks investor. This is an important lesson to understand for new investors, and what long-time investors should already know. We will focus our discussion to transactions involving individual investors.Let's dive in to answer some of the common questions asked by fellow investors:

1. What are the taxes applicable for stocks investing?

For BIR purposes, there is a distinction whether a stock is traded in a public exchange or not.

For stocks listed in PSE, our tax authority requires us to pay 1/2 of 1% of the gross selling price of every stock transaction sold. Here is an example to show you how to compute your tax.

It is important to note that the BIR also requires stock brokers to withhold the amount and directly remit it to them. If you are familiar with how the tax system works, corporations and businesses act as collecting agents
and they would automatically deduct any tax collectible and they would be the ones to remit it to BIR. If what I'm trying to say is still not clear, just think about why you have never received the full amount of your salaries from employment. That's right, your employer automatically deducts the taxes you owe to the government not because they want to, but because they were told to do so.

Effect of Shares Buyback on Stocks

What is a Share Buyback?

A share buyback is the repurchase of outstanding shares by a company of its own shares in the market. It reduces the total number of shares outstanding and the bought back stocks will be classified as treasury shares.

Buybacks can be carried out in two ways:


1. Shareholders may be presented with a tender offer whereby they have the option to submit (or tender) a portion or all of their shares within a certain time frame and at a premium to the current market price. This premium compensates investors for tendering their shares rather than holding on to them.

2. Companies buy back shares on the open market over an extended period of time.

Reasons for Buyback

A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market, buybacks increase the proportion of shares a company owns. This effectively boosts its share price, and gives shareholders capital gains.

Below table best illustrates how a share buyback can increase the value of the stock. Assuming that the stock price per share remained at Php5 before and after the buyback, earnings per share will  increase because treasury shares are not entitled to dividend or income allotment.

                       EPS        =        Net Income     /     Total Outstanding Shares

Companies will buy back shares to increase its value and can be a source of capital in the future. They will often reason that their current stock price is undervalued and as such, buying back shares may be beneficial because it can provide additional cash when the treasury shares are disposed at a higher price.

Caution!

Investors will have to be watchful as companies may opt for buybacks merely to improve its financial ratios or manipulate its stocks price to go up. It is important that the actions of the management are analyzed so as not to deceive the investing public of their true intentions. Finally, as with anything with Mr. Market, there is no certainty that the stock price of a company which entered into a buyback program will be profitable.    

Who is Warren Buffett?

Everybody who is remotely familiar in investing have mostly likely heard or read the name Warren Buffett. Most people know and consider him as the most successful investor of this century. An American investor, business magnate, and philosopher, Warren Buffett is the chairman and CEO of multinational holding company Berkshire Hathaway.

Financially Adept

Warren Buffett was born on August 30, 1930 in Omaha, Nebraska, the second of three children and only son of a US congressman. When he finished high school, his yearbook picture read: "Likes math; a future stockbroker."

Buffett has displayed an interest in saving and making money even at a young age. He went door-to-door selling chewing gum, refreshments, stamps newspapers or magazines and worked in his grandfather's grocery store for a while. He filed his first income tax at the age of fourteen and took a deduction claiming expenses for the use of his bicycle and watch when delivering. His interest in the stock market started at the age of ten. He visit the New York Stock Echange or spend time in a nearby stock brokerage. The first documented stock he bought was of Cities Services preferred shares, buying three shares at the age of 11.

After graduating in college with a business administration degree, he decided to enroll in Columbia Business School after learning that famous securities analysts Benjamin Graham and David Dodd taught there. He would be greatly influenced by Graham, also an author of "The Intelligent Investor" and "Securities Analysis", two books which are considered the holy bible of investing.

Business and Employment

Between 1951 to 1969, Buffett has worked as an investment salesman, security analyst, and professor before eventually starting Berkshire Hathaway Inc. in 1970. By 1960, he had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. The following year, he was able to pool fund and invested most of it in Sanborn Map company.  He explained that in 1958 Sanborn stock sold at only $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant that buyers valued Sanborn stock at "minus $20" per share and were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing. This earned him a spot on the board of Sanborn. Eventually, he consolidated his partnerships and had over $1,025,000 remaining for himself.

Berkshire Hathaway

Buffett invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway. Buffett's partnerships began purchasing shares at $7.60 per share but later on had to pay $14.86 per share as he aggressively continued to purchase. The company had working capital of $19 per share. This did not include the value of fixed assets (factory and equipment). Buffett took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company. 

Buffett announced his first investment in a private business under Berkshire — Hochschild, Kohn and Co, a privately owned Baltimore department store. In 1967, his company paid out its first and only dividend of 10 cents. In 1970, as chairman of Berkshire Hathaway, Buffett began writing his now-famous annual letters to shareholders. However, he lived solely on his salary of $50,000 per year, and his outside investment income. In 1979, Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett's net worth reached $620 million, placing him on the Forbes 400 for the first time. Also in the same year, Berkshire began to acquire stock in ABC. Capital Cities announced $3.5 billion purchase of ABC on March 18, 1985  which surprised the media industry, as ABC was four times bigger than Capital Cities at the time. Buffett helped finance the deal in return for a 25% stake in the combined company. He became a billionaire on paper when Berkshire Hathaway began selling class A shares on May 29, 1990, when the market closed at $7,175 a share. His company is still aggressively in pursuit of new businesses to invest in or acquire.

His Legacy

Warren Buffett have had a number of recognition under his name. In 1999, he was named the top money manager of the Twentieth Century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton. In 2007, he was listed among Time's 100 Most Influential People in the world. In 2011, President Barack Obama awarded him the Presidential Medal of Freedom. Most recently, Buffett, along with Bill Gates, was named the most influential global thinker in Foreign Policy's 2010 report. He also became famous by his annual letter to shareholders, giving them updates and insights on the current position of the company and the economic outlook in general. Often referred to as "The Oracle of Omaha", Warren Buffett has truly been influential not only as an investor, but also as an inspiration for other generations.