Vision 2030 of the Kingdom of Saudi Arabia

http://vision2030.gov.sa/en

Saudi Arabia started to establish a long term vision by opening slowly its economy to international investors.

The kingdom plans to accumulate funds to be invested in different sectors such as petrochemical and mining to mention some. To be able for them to have this fund, the government would need to sell the 5 % of Aramco equity to start with which is worth trillions of Dollars. Many local companies are now establishing plans to be aligned to this vision. 

Some challenges would be as follows:

1. The expected fund inflow of foreign investors to the kingdom accompanies the entry of foreign competitors. Their affiliated companies would want to supply the demands of the new industries being established and might take the loyal customers of local companies.

2. Accelerating the Kingdom's transformation to a free trade market means a continues decrease in the government’s control over the prices of goods and services which will now be based on supply and demand in the local and international market. Diversification of trade activities of local companies is necessary to take advantage on the profitability of other products while decreasing the reliance on current products that are losing its profit as an expected effect of higher competition between private companies. 

3. The country’s vision would modernize the trading and e-commerce to cope up with the international standards. It is necessary for local companies to review and upgrade the current systems for purchasing, sales order processing and invoicing.

4. Privatization of some state assets like health, education, power distribution among others would propel the increase in the costs of living in the kingdom. Local companies will expect higher employee costs and utility expenses to mention some. To plan for continued optimization and upgrade of employees’ capabilities is necessary to minimize the expected higher salary demands in the coming years, considering also the entry of Saudi women labor force.

1.    5. With the country’s strategic location in between Asia, Europe in the north and Americas in the west and with lower government taxes, a big advantage is expected to be a trade partner to sell the additional products of the country at a lower costs to the international market. 

Brexit Effect

PSEI.PH was up by 1 % during the initial counting of Brexit ballots on June 24, 2016 pacific time, then suddenly, it followed the paths of the rest of Asia dumping stocks to nowhere. Foreign traders started selling down and i have to sell all my stocks also since i am not familiar with this kind of situation. UK currency dropped it's value for the first time in three decades and upon checking the EU equity markets, the drop were worse than Asia except for Japan's index.

Black Swan Theory applies to this wherein a rare situation causes uncertainty or difficulty in predicting what comes next. Many expected a remain vote so everything was calm in the markets until the unexpected tally started to become clearer as the votes are being counted.

Everybody are now searching what is this event all about in the internet. Many are posting their sentiments on Twitter and Facebook and it's not clear now what would happen next week as everybody seems to be on alert and panicking.

Many things are for sure, friendship between these geographically separated UK and EU will be affected from new economic, immigration,employment, financial policies among others. UK might suffer the consequences in the long run since the European Union is their top market. With the drop in Pounds, it would encourage more exports but the problem is that EU members might prefer other Euro products. Good luck to the UK economy, hoping it could still be a United kingdom.

Companies around the world are starting to review the prospective impacts of this event. Though it may take sometime to process all necessary documents, those directly trading with the UK started to brew something that cannot yet be predicted.

What to do During Recession

What Recession Is

Recession is the lowest part of the economic cycle. It occurs when there is economic decline where trade and industrial activities worldwide or particular country fell to their lowest points. Some visible results are decrease in sales demand of companies and they start to lose money resulting to government intervention through stimulus packages. This normal economic cycle can be triggered by wars, pandemic, revolutions, terrorism, natural disasters or collapse of major institutions.

Effects

During this time, earnings of companies continuous to slide down; media contents are related to fears, sufferings of people and problems of companies; people lose their jobs resulting to increase in unemployment rates; some becomes homeless; many falls into depression; protests sometimes happen against the government to do something and a lot more.

Few Tips to Do During Recession

1. When you feel how the rest of the investors around the world are fearing that a particular situation would soon result to economic disaster,  that's a hint, just relax and sell your stocks. When majority are done or tired of selling down or the market is steady at the bottom and investors are gaining confidence in the market,  start buying and accumulate shareholdings then wait for sometime to reap your passive income. In one way or another, the economy would recover in a matter of months or years.

2. Minimizing expenditures. Spend only on what you need and not on what you want. Other people and companies are doing the same thing like cost optimization and cost reduction.

3. Higher unemployment are expected at this time so exert more effort on your jobs since you might be the first on the waiting list for lay-off approval by the top management or company owners.

4. Start learning new things like taking masters degree, review for new professional license or take online courses like simple Photoshop or other technical skills.

5. Plan for new potential businesses, analyze, and select the best where you are good at then start the business plan or technical research. Excel or word file or notebook with pen are the only things needed to summarize the ideas.

6. Learn new habits like cooking, backyard gardening or just simply re-arrange home furniture.

7. Family moments should be one of the best things to spend time. It maybe harder to live at this period but the comforts of relatives and friends are incomparable.

8. Realize that health/term/life insurance are of high importance as it mitigates the risk of incurring more losses for you and your love ones. 

9. One of the best to remember is that health is wealth. Eat healthy foods or have some walks or jogging to divert your minds from stress. 

10. When you feel stressed from lay-off or feel that your situation might fall into depression,  don't hesitate to call a friend or family member or visit a psychiatrist for prescriptions. In addition, practice meditation, a way to rebuild the lost inner sense of peace and strength: (I updated this blog to insert one relaxing music video below that i made 2 days ago: 

                      ( for more music subscribe to: https://www.youtube.com/user/jonathangayuchan)

Final Note

When the fear is over, the benefit is yours.

Ten Axioms in Financial Manangement

Ten Axioms of Financial Management

1. The risk-return trade-off

2. The time value of money
3. Cash- not profits- is king

4. Incremental cash flows

5. The curse of competitive markets

6. Efficient capital markets

7. The agency problem
8. Taxes bias business decisions
9. All risk is not equal
10. Ethical behavior is doing the right thing, and ethical dilemmas are everywhere in finance

1. The risk-return trade-off. This means that the higher the risk, the higher the return. Investing an amount of money in a time deposit account would mean an almost no risk at all and an interest of around 3 % annually is expected as return. Investing in stocks or other marketable securities accompanies a higher risks like decline in market value of stocks; government policies could affect the industry; market recession and bankruptcy. The loss would only be a paper loss unless you sell the securities realizing an actual negative rate of return on investments. When the value of stocks increases, big profits are expected as long as a risk taker knows the technicalities for entry and exit in stock trading. Investments could double or could even be 10 times more the initial investment after some years.

2. The time value of money. The value of a dollar received today is worth more that the value of a dollar received in the future. This is due to inflation where the price of goods and services will increase as time goes by. If the inflation rate is higher than the interest rate being received from savings or time deposit accounts, you lose the value of your money.

3. Cash not profit is king. An accounting income or loss are only paper figures but it does not coincide with the actual cash inflows. Losing cash accompanies a higher borrowing costs that could decrease the profit. High profit does not always mean an ability to pay maturing loans, or emergency cash outflows, or cash dividends to shareholders.

4. Incremental Cash Flows. This factor is a guide when making decision on where and how to invest in business. In capital budgeting decisions, the first thing to consider is whether a proposed investment or project’s additional cash inflow in the future is justifiable.

5. The curse of competitive market. When a business is profitable, expect that many will copy the same business. This causes competition which lowers profitability in the long run. Continuous innovation, research and development and more improved customer service should be taken into consideration to mitigate the losses.

6. Efficient capital markets. This is a market where the actual and current market value of share prices are reflected which could change quickly with new and relevant information. As many investors says, “it’s impossible to beat the market.”

7. The agency problem. This is a conflict of interest between the management (agent) and the shareholders (principal). Managers won’t work for the owners unless it is in their best interest or they make decisions that are not aligned with the goal of maximizing the shareholder’s wealth.

8. Taxes bias business decisions. Decision making of managers regarding investments should always consider the after-tax effects.

9. All risk is not equal. Do not put all funds in one project since it could lead to a big loss. Even a single risk could jeopardize the whole company. Diversification of investments should be considered in order to minimize the high risks that could affect other investments.

10. Ethical behavior is doing the right thing, and ethical dilemmas are everywhere in finance. Business ethics should always be incorporated with every decision making. This would not only maximize the wealth of the shareholders but will also gain the trust and loyalty of stakeholders.

How to invest in Stock Market

Increase your Financial Quotient and stop being hesitant. Here is a simple online booklet for additional knowledge.

Introduction

Being a licensed accountant and a finance graduate is a big advantage in investing in the stock market, forex, bond market or any other kind of investments since it is part of our curriculum but it DOESN'T mean that an engineer or a nurse or anyone cannot learn how to invest. We just have to open our minds on seeking what we don’t know, or expand our horizon beyond the risk averse or pure employee mindset and start earning passive income aside from our fixed payroll income. A highly intellectual individual does not immediately correlate to having a high financial quotient. In simple words, anybody can be more intelligent when it comes to finance or business.

Investing in Stocks

Stocks is a more common investment product. First of all, there’s a misconception of investment in stocks as a scam. The truth is all countries have stock markets with established rules and regulations being implemented by government agencies like Securities and Exchange Commission for the welfare of the general investing public. All material business transactions of public companies are required to be disclosed and readily available in the stock exchange website like IPO; stockholders’ minutes of meeting; new business ventures; newspaper printout explanation; dividend declaration; top 100 investors; and one of the most important; the financial statements per quarter and audited yearly financial reports. We have a lot of audit firms who practice due diligence in certifying the fairness of the financial position and performance of the companies. With these reports, we could be able to use in our fundamental analysis of companies’ and industries’ market prices.

Once we understood well the concepts or metaphorically the anatomy or structural health of the companies, we could now be confident to choose which companies are good for earning passive income. As we progress in our knowledge and experience, we will definitely understand and learn the technical analysis of the market, the industry and every individual stock. In other words, the current, the historical and potential movement of the market prices are the demands and supply analysis which will teach us the trend when to invest and when to sell. Fundamental analysis is the physical company and technical analysis is the psychological or emotions of investors that creates indicators for trends.

Owning a share of companies like Apple, Proctor and Gamble or Facebook means owning technically a portion of that company. If it happens that you own a majority stock or a have a significant influence of any particular company, you can be one of the board of directors, the president or CEO or simply the boss. If not, receiving quarterly or yearly dividend income is much higher than interest income from deposit accounts. By the way, our money in the banks are being utilized by them to invest still in stocks and other investment opportunities. Yearly inflation rate is usually higher than the interest given by banks on our deposits, meaning, we lose the value of our money over time. Let’s not forget that the purchasing power of a currency today is less than its original value after 1 year.

Aside from the dividends, whether cash or property or stocks, public company share price changes every trading day. It is not at a constant amount or it could even change immediately every second or minute, and you can sell anytime if you consider it as a short term investment. If in case the price went down, just let it be there, it’s only an unrealized or paper loss and besides, you will still receive the declared dividends anyway. You just have to control yourself when this happens and not to react immediately. In fact, many successful investors are losing money by letting their emotions prevail.

To warn the new investors, investing is addictive in the beginning and that we have to learn how to control greed and emotions.

How it Started

This is how I started in a country where more than 90% of individuals are not investing in stocks. Way back in 2007, one of my professor in a finance class collected money from us with the intent of investing in 2 penny stocks under our instructor’s account. She showed to us then the receipts after buying and told us that these will be sold at the end of the semester. Unfortunately, the stock prices of the class investment went down and our professor returned the actual money we contributed before semester break. Being curious about what we did in the class, I searched the locations of the nearest stock brokerage firm in the internet and listed it down. While I was searching in the business district, I asked some people like security guards and nearby employees where are these stock brokerages. Surprisingly, nobody knows and the problem was that I did not list the exact building name and by the way, the internet we have before was dial up at home so I cannot easily browse a smartphone which is not yet available during that time. I continued a thick face of asking more people until I reached a bank whose security guard is familiar with it and directed the way. I remembered the building name then and actually it was the same building where the bank was.

Before entering the firm in the 6^th floor, I shifted my ignorant student-look, if there’s a term like that, to a professional one. My entrance is noticeable and all the people are looking at me like saying “who the hell is this young guy.” Majority of them are of old age so I asked myself, “Am I entering a senior citizens’ party?” I pretended still to be cool and become at ease when I seated on the couch. The screens were showing red and green things and at the top, the codes and numbers were moving to the left. 

I humbled myself and started asking like a first grade pupil about what are all these stuffs like the buy, sell, a bunch of codes which was making me stupid. Then suddenly, I realized that they are accommodating and willing to share their long experiences and the companies’ recent updates. The feeling is that they are like the grandparents sharing stories at night. I opened an account and there it is, an actual investment class away from the theories of the 4-walled classrooms. I started appreciating the succeeding finance and accounting subjects as I could be able to use it when I start earning money from work. My first cash out amounts to PhP 15,000 only for testing and just followed an advice to buy one real estate company shares named Megaworld Corp., my first gain actually. This was an actual introduction of a lifetime hobby.

An actual PSEi online stock trading screenshot.

I started bringing some classmates and people I know to visit the brokerage and they brought also their friends until a lot especially in my college batch opened accounts in the brokerage firm. The feeling is good to share the experience and not become successful someday by yourself only. Some of them are now known today as professional financial consultants speaking also in public. 

Many finance professional do not invest due to some reasons like it might only be in theory or there’s a huge risk of losing money or no time to monitor or they have to pursue master’s degree or law or not their forte at all. Interest in something is being built and it starts from trying out first like a food testing or watching a particular game.

One funny experience I had was sharing to some people that we have to buy a particular stock because it is declaring 100 % stock dividends written in the brokerage board. We bought then and suddenly after sometimes, our shares doubled but the share price reduced to half. We just laugh at it if we remember it again but at least we understood well the meaning of stock split theory thought in school.

Market Recession

We were not that familiar or well-informed and ready yet on the so called “recession” during those years before the 2008-2009 market crash. We are not knowledgeable about the crises started to build up in 2007 with the sub-prime mortgage crisis in the US. The timing of our entry was unfortunate but it thought us a lot of lessons to ponder. The two things I learned much was about controlling greed and managing cash properly.

The more we increase our earnings, the more we want to add money in our portfolio as a general rule. I went on beyond the limit to be considered as greedy and living within my means as student was forgotten. I borrowed money from relatives and applied for loan in a cooperative just to place it in the stock market. After the collapse and bankruptcy of many institutions in the US which is the biggest economy, the effect triggered a worldwide recession. Many investors panicked and dumped their stocks realizing their paper losses and a lot of people lost their jobs and run out of money.

Individual depression was felt from all corners of the world including myself since I don’t have available cash anymore to pay my due debts. I ended up then selling some of my stocks realizing some big losses but I don’t care at all. It was big since I was a student back then living with allowances from our parents. When I received my check, I immediately went to a Chinese grocery store to buy and exchange my check but I have to talk first to a manager in their back office to accept it since it is post-dated for 3 more days. It’s a total relief that she accepted it, and at the back of my mind, someone is shouting, “with this thick but angelic face, I can’t convince her?"

There was a theory that can never be forgotten thought by our college professor which was one axiom in a Finance 1 subject, Cash is King, not profit. We always think where to get profit but we forget to include what’s more important which is to consider also our sources of cash and manage cash flow properly. Profit will just be a paper figure that cannot pay bills or dues immediately and losing cash accompanies more finance costs of borrowing or investment losses. A common quote to remember is, "Rule No.1 is never lose money. Rule No. 2 is never forget rule number one."

Final Message

First axiom in finance is the “Risk-Return Trade Off.” To explain further, the higher the risk the higher the return and no additional passive income if no risk was taken. When investing in the stock market, we are actually buying an operating company so think as a prospective investor or owner. Invest like a shy person and not like a person controlled by emotion. Once you become a successful investor, inspire people not to lose their time in front of television or smartphones and inspire them to invest for their future children or family.