Tuesday, 6 March 2012

Where greed is good

Business Mirror

FOREIGNERS, investors and tourists alike find the Philippines very familiar and then go home wondering what that strange place was that they visited.
If it looks like the West, walks like the West, and sounds like the West, it must be Western. Wrong.

Many years ago the late Adrian Cristobal said to me upon learning that I had been in the Philippines 17 years: “So you now think you’re an expert, right? No one is an expert on this country.”

After many more years, I agree completely. In fact, I am beginning to wonder if there are any “experts,” domestic or foreign, on the Philippines.

Since it is on everyone’s mind, take the Philippines’s judicial system, for example. Countless references to US jurisprudence and case law have been made during the impeachment trial. An outside observer could honestly think that the Filipino system is but a mirror image of what happens in the US. If the law is basically the same, then why is the local judicial system seemingly inadequate at dispensing justice and is inefficient?

Although the Philippine judicial system looks, walks and talks like the US, it is not. Trials, both civil and criminal, in the US are totally different from those the Philippines for two reasons that may explain the different results.

Actually, judges in the US rarely “judge” anything except rules of law and the rules of court. In virtually all cases, except administrative such as impeachment or bankruptcy, judges are more like referees between the two opposing sides. Juries, which cannot be involved in the trial in any way, decide guilt and liability.

The second huge difference, which may explain why decisions often take years here, is that in the US, trials run on a “continuing hearing” basis. Judges do everything in their power to have day after day of trial until the verdict is reached. Then they move to the next case.

The Philippine Stock Exchange is not a Western “duck” either and that is for the better.

In 1987 a movie came out that, if you haven’t seen, you have heard about: Wall Street. In it, the character Gordon Gecko says, “Greed is good.” The most important part of his speech at an annual shareholders’ meeting, came long before “Greed is good,” but the “lugaw for brains” commentators have never read this part. Remember it is in 1987.

“America has become a second-rate power. Its trade deficit and its fiscal deficit are at nightmare proportions. Now, in the days of the free market, when our country was a top industrial power, there was accountability to the stockholder.”

The following is the key paragraph.

“The men that built this great industrial empire, made sure of it because it was their money at stake. Today, management has no stake in the company.”

And here is what has changed for the worse.

“All together, these men sitting up here (pointing to company management) own less than 3 percent of the company. And where does the chairman of the board put his million-dollar salary? Not in company stock; he owns less than 1 percent.

“You own the company. That’s right, you, the stockholder. And you are all being royally screwed over by these, these bureaucrats, with their steak lunches, their hunting and fishing trips, their corporate jets and golden parachutes.”

For the last 20 years, each year I have done a “net-profit margin” study of the 100 largest companies on the PSE. My study examines the preceding five years running, updated annually, through good, bad and worst-case government policy, natural disasters and all the global crises.

While there are always ups and downs and new winners and losers, the average net-profit margins of these 100 companies have always been around 15 percent.

Corporations in the West would kill for that kind of number. Why do these Filipino companies do so well? Because the owners are the managers and they have their own money in the company.

If you own and run your personal business, you know exactly what I mean. You aren’t there for the “fun” of it or the “big” salary. You are there to make the company successful, just like all the small and large taipans who own PSE listed firms.

That kind of greed is good for shareholders and that is why the PSE is an excellent investment, which the foreign money now knows. If you are of financial means, even smaller, and you are not in our local market, you are not optimizing the use of your financial resources.

On a personal note, e-mail me at john@mangunonmarkets.com for details on my upcoming stock-trading seminar. You will not be disappointed and will make more money because of it. Attendees get a complimentary one-month subscription to the Premium Area of MangunOnMarkets.com.

E-mail to mangun@gmail.com and Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.

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