Financial Adviser: 5 Investing Lessons Everyone Can Learn From the "Warren Buffett of PH" Wilson Sy
Wilson Sy first learned about stock investing when he took a summer job as a trainee working in the equity trading desk of an investment management company.
He found the experience of trading in the stock market promising that he wanted to learn more. Right after he graduated from college, Sy applied for employment with Bancom, the largest investment company at the time, to work in its stockbrokerage house.
As a newly hired fresh graduate, Sy was trained to do company research and write investment reports for clients. He would also learn how to time buying and selling of stocks from traders whom he assisted in his work.
Soon, as he learned more about investing, Sy started attending weekly investment meetings and made fairly accurate stock recommendations. His early success in stock picking led him to get more clients who have asked him to manage their funds.
The growth in the business eventually promoted Sy to become general manager of the company in less than seven years. Although he was successful in his career, Sy found personal investing more challenging.
In 1986, right after the EDSA revolution, Sy left his corporate day job to put up his own stockbrokerage firm called Wealth Securities. As the stock market was booming at that time, becoming an entrepreneur enabled Sy to build his client base and expand his investment portfolio.
As business grew over the years, the increase in individual client investments had become difficult to manage. Sy thought that the only way to do this efficiently is to put up a mutual fund where the management of funds is centralized.
In 1994, with the support of several stockbrokers from Manila Stock Exchange, Sy founded Philequity Fund with an initial seed capital of P50 million. The fund enabled not only clients with sizeable savings but anyone with at least P5,000 to invest in a basket of stocks at minimal costs.
Today, Philequity fund is one of the largest and best performing mutual funds in the industry with total investments of P12 billion and growing at 16 percent annual returns for the last 23 years.
How did Sy, who has been dubbed as the Warren Buffett of the Philippines, manage to grow his Philequity fund? What are his investment philosophies when selecting a stock to buy?
Here are the five investment lessons every stock market investor can learn from Wilson Sy, founder of Philequity Fund:
1| Know the business model of the company before you invest
The first thing every investor needs to know about a company is to understand how it makes money.
The easier it is to understand the operations of the business, the better. Knowing the fundamentals of the company can help you clearly identify the value proposition that the business offers.
“I look for the business model of a company because it is the most critical,” he says. “I normally prefer stocks whose business model is to generate recurring income. For example, SM Prime Holdings, which is in the retail leasing business, is a cash cow company. Jollibee is another one with a good business model. You need to look for companies whose ability to generate cash flows cannot be easily eroded.”
2| Know the people behind the company before you invest
Evaluating the quality of management the company has is an important step in assessing the risk of the stock. Management makes a difference in selecting a stock because they are the people who chart the future of the company.
“If I were to choose between a family-owned and a non-family-owned company, I would choose the one that is managed by family members because I think the returns would be better,” he says.
“When family members manage their company, they are more committed because their family name is at stake. They will work their heart out because it is something they will die for.
“When I was in the board of directors of Jollibee, the management would always serve us Yumburger and Spaghetti for lunch and that’s it. I thought that this was good because management don’t like to spend unnecessarily.”
3| Know the potential value of the company before you invest
No one wants to invest in a company that has no future.
Before you invest your hard-earned money, it is important that you take time to research about the company and assess its earnings growth in the future.
You must understand a little bit about financial analysis to appreciate the numbers so you can have a basis when you try to estimate the potential value of a stock.
“One of my best trades happened in 1986 when the stock of PLDT was only trading at P30 per share,” he shares.
“I found out that that the stock was doing at only 3x P/E ratio when other telecom stocks abroad were trading at 16x P/E. So I thought that if the stock were to be valued correctly, the stock could hit P1,000 in the future. It was a no-brainer and I had a basis for valuing the stock, but nobody believed me.”
Indeed, in retrospect, the share price of PLDT stock went up 33 times from P30 per share in 1986 to P1,000 in 1993.
4| Know how to differentiate between investment and speculation
If you are interested in keeping your money somewhere safe with the expectation of earning a return, you are investing, but if you are interested in making money by quick appreciation of capital, you must be speculating.
Recently, Bitcoin and other cryptocurrencies have been hogging the headlines because their market prices have skyrocketed in just a few weeks and expectations are high that prices may continue to go up.
Should you join the crowd and invest?
“It is something that I don’t fully understand,” Sy says. “What I know is that the supply and demand is very limited. I think it’s around 21 million but the available supply in the market is very limited so the price may go haywire. It’s hard to value something we cannot easily discern unlike a company, which we can value. How can I invest in something I cannot value? All we know is that the supply and demand situation favors the price to go up because of limited supply and there is so much demand.
“I understand it is the blockchain that makes it work,” he adds. “I think we should look for a company that is in the business of blockchain, not Bitcoin because it is just pure demand and supply. It can go up any price. And what drives the demand? Greed.”
5| Know how to protect your capital by managing your investments
Every investor has a different tolerance to risk and this affects how each splits their money between long-term and short-term investment in stocks to meet their investment objectives.
“In my investments, I have a core portfolio and a trading portfolio,” Sy says. “Most of the time, I don’t make so much money from my trading portfolio. It is my core portfolio where I make the most money. I just keep adding stocks I want to hold for the long-term to my core portfolio especially if the trend is going up.
“Normally, people would sell the moment they make money. When the trend is up, I just let it run. I wait until it starts to show some weakness. I don’t mind selling late. I probably sell late than early and I don’t regret it.”
Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice [email protected] or follow him on Twitter @henryong888