Some of the subscribers of our Top Stock Picks were former subscribers of Bro. Bo Sanchez’s Truly Rich Club.
One of the first things they asked me was this: “What can you say about Cemex Holdings Philippines Inc. (CHP)?”
CHP is down by 71.98% since inception until June 18, 2018 at 12 PM.
Should you blame it to Bro. Bo Sanchez or the Truly Rich Club?
Don’t be quick to judge.
Let me tell you what I think the Truly Rich Club was thinking before they added CHP into their stock recommendations.
Based on my research, the Truly Rich Club added CHP into their Strategic Averaging Method (SAM) table last July 23, 2016.
Like Equilyst Analytics, the analysts of the Truly Rich Club are fundamentalists, too.
In layman’s terms, the Truly Rich Club studies the financials of the company to see if it is an undervalued company.
There are several valuation methods or models such as the PE Model, Discounted Cash Flow, and more.
I do not know which valuation method Truly Rich Club follows.
July 18, 2016 was CHP’s market debut.
It opened at P11.20 per share, hit an intraday high of P11.36, dove at the intraday low of P10.80, and finally closed at P11.10 apiece on its first trading day.
Fundamentally speaking, did CHP showcase an impressive net income growth a year before it debuted on the Philippine Stock Exchange?
By looking at the bars and digits below, one would understand why the Truly Rich Club found CHP to be a good stock for the long haul.
Did Bro. Bo Sanchez and his crew made a mistake by recommending CHP last July 23, 2016 to their Truly Rich Club subscribers?
I would say no.
There was nothing wrong with their bullish assessment of CHP on July 2016.
But there’s something that they could have done better.
And what is that?
They could have advised their subscribers to employ a trailing stop-loss with respect to each member’s personal risk tolerance.
When CHP’s net income dropped significantly in 2016 compared to the previous year, isn’t that enough to rethink your position and to cut your losses in tranches if you can’t sell at once?
Its net income dropped by a significant degree again in 2017.
The Problem with Peso Cost-Averaging
I know that the Truly Rich Club is a solid advocate of the the peso cost-averaging strategy.
The problem with the mindset that the peso cost-averaging strategy teaches is that it’s either you do not realize that there’s such thing called “cut loss” or it’s too late already by the time you’ve realized that you really have to cut your losses.
Risk Management: Where Have You Been All Night?
I know how the majority of retail investors think.
If you will just give them a Buy Below Price and keep the BUY rating, they will buy till kingdom come.
They are already hurting but they will continue to buy because they’ve have been taught that the share price of a company with a healthy financial statement will rebound sooner or later.
That kind of thinking is an outright violation of the law of Risk Management.
You need to draw the line when it is good to hold and when it is time to quit.
You have to cut your losses in tranches (especially if you have a sizable position) if the share price does not react positively to the quarterly financial statements. Yes, even if the financial reports are above expectations.
Staying in cash is a smart position sometimes.
Trailing Stop Loss: Preserve, Protect, Prevent
Here at Equilyst Analytics, we remind our Top Stock Picks subscribers to always include their investment horizon and risk tolerance in their decisions.
Follow a trailing stop-loss and not just the regular stop-loss.
A trailing stop-loss respects your investment horizon and risk tolerance.
Your trailing stop-loss increases as the share price advances but it does not decrease when the share price declines.
This is the reason why a trailing stop-loss does 3 Ps:
- preserves your capital
- protects your gains
- prevents losses beyond your risk tolerance
That means even if I retain my BUY rating for a downward trending stock that I recommend in our Top Stock Picks, you have to ask yourself, “Can I still stomach this paper loss?”
You are not a robot who will buy continuously even if your paper loss trespasses your risk tolerance already.
Long-term investing is good.
But long-term investing without risk management can turn into a long-term problem.
Was Bro. Bo Sanchez and his crew at the Truly Rich Club wrong with their recommendation to buy CHP on July 2016?
Is there anything they could have done in 2016 to prevent their CHP story become an LRI story in the making?
Here’s my bonus analysis for the CHP holders out there.
Support is at 2.95 while resistance is at 3.65. If and when it breaks below 2.95, especially with a heavy volume, CHP might kiss the 2.70-2.80 range. CHP is completely bearish for me. All the moving averages are above its market price.
If we’re talking about CHP, EAGLE, and HLCM, CHP would be the last stock I would trade at the moment. CHP’s valuation ratios are far from being attractive.
Foreign Fund Flow
On a 30-day trading period, CHP is on a Net Foreign Selling worth PHP181,409,310.00.
CHP has a LOW RISK level due to its risk percentage of 39.31%.
The biggest volume and the highest number of trades happened at the lower part of the Price-Volume Distribution chart. There’s a big chance that CHP will play below the 3.00 tomorrow.
If there’s one thing that will make you switch to Equilyst Analytics’ Top Stock Picks, it would be this kind of conversation in our forum.
I am not just going to plaster a table and tell you to buy till kingdom come for as long the market price of the recommended stocks are within their Buy Below Price and send you two newsletters a month.
I publish an end-of-day report for each of the stocks that we recommend in a language that you can understand.
Good recommendations and good executions must go hand in hand.
Recommended Article: Is the Top Stock Picks the Same as the Truly Rich Club of Bro. Bo Sanchez?