Value Investing In The Philippine Stock Market: This Is What I Do!
In this post, two readers named Kendricke and Cris asked me the most common question I receive from my inbox regarding stocks investing. That is, how to invest in the Philippine Stock Market.
I love to answer these type of inquiries because it reminds me of how I started and the constant challenges I face everyday.
I was a total newbie way back then but with passion and dedication, I studied and learned stocks all by myself with the help of books and online media. I tried out the investing strategies I learned and found it to be profitable given a lot of patience and the right mindset.
Here are the questions I received from Kendricke and Cris;
Hello, Engineer, I am just starting out investing. I just graduated from college last year and I'm working for almost a year now. I was wondering how can I get started in stocks investing. I usually watch Youtube videos to learn about it but mostly, the videos are applied in other countries. I do not know what stocks are good to buy for beginners especially in the Philippines. If I may ask, what stocks are good to start with for a person with my level of investing experience? Also, what strategies can I use as a beginner to invest in the market? I am considering peso cost averaging as of the moment. Also, may I ask how can I get started in technical analysis and fundamental analysis on the stock market? If I may add, what skills do I need to acquire to be successful in the stock market? Thank you very much.
Hi! I'm a newbie with regards to stock market investing. I know I still have a lot to learn but where will I start? Thanks!
I decided to answer these questions in this post to share my experiences and perhaps, you can follow the process I did so that you can acquire the wisdom you're seeking for.
To quickly answer the questions above, I advise you to start with a Value Investing approach. Because this is what I do.
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How I Started My Investing Journey
Much of the basic things I learned during my newbie years came from the book of Bro. Bo, "My Maid Invests In The Stock Market". From his book, I came to a realization that;
- Saving money in the bank for the long-term is actually losing money. To create wealth, you have to save, then invest it.
- It doesn't matter how much money you make, but rather how much money you save as in the case of his former maid, Gina.
- Stocks are tiny pieces of a business and owning a stock makes you an owner of a business.
- You can invest in the stock market even in small amounts, putting into rest the most common notion that you need to have hundred thousands or millions of pesos to begin investing.
The book taught me so much wisdom. It fueled my desire so I decided to invest in stocks by opening a stockbroker account at COL Financial after trying out the 7-day trial. Having a broker account is a must. You can't invest if you don't have a broker account. This is the number one step to start investing. Call or visit their office and let them know your interest in investing so that they can assist you for the requirements and process of opening an account. You can also search for other brokers if you don't like their platform.
The next step I did is to learn the ins and outs of the stock market and the effective strategies investors use to increase their wealth overtime. This takes passion and dedication so be ready to invest a lot of time if it means to skipping out dine-outs with friends or dinner dates with your wife or girlfriend.
What I found out that works for me is Value Investing.
Value Investing: A System Of Buying Stocks That Are Priced Less Than Its Intrinsic Value
As my interest in stocks grew, so is my passion of learning all that needs to know about it to become a better investor. To achieve that, I looked for online resources and found many about technical and fundamental analysis.
Fundamental analysis piqued my interest because I felt good with numbers and formulas (that's what are engineers are for). My career involves doing electrical designs and cost estimates and these involves crunching out numbers in spreadsheets.
As I looked for resources and books about investing using fundamental approach, I came across Warren Buffett, one of the wealthiest persons in the world who built his fortune by buying and owning stocks of great businesses.
Warren Buffett is best known as the greatest value investor of this time. He has mastered the skill of finding undervalued stocks and selling them when the value is realized. His early days of investing strategy involves buying "cigar butt" stocks during his partnership days and evolved into buying wonderful cheap companies and holding them forever as what he's now doing at Berkshire Hathaway.
I was astounded by the amount of wisdom and accomplishment this old man has and from then on, I started reading everything about him. I recommend these books if you want to get a piece of his mind and learn his wisdom;
- Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The World’s Famous Investor
- The New Buffettology: The Proven Techniques for Investing Successfully in Changing Markets That Have Made Warren Buffett the World’s Most Famous Investor
- Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage
- The Warren Buffett Way
- Warren Buffett's Ground Rules: Words of Wisdom from the Partnership Letters of the World's Greatest Investor
- The Snowball: Warren Buffett and the Business of Life
I've read all of the books listed above. In the case of Buffettology, I read it constantly and use it as a form of reference.
I've also read his partnership letters. The Ground Rules is the best book out there that explains the wisdom of Buffett in his early years.
Buffett mentions a lot about his influences when he was young. Besides his father that he considers his hero, he mentions Benjamin Graham, considered to be the father of Value Investing, as the one who influenced his investing style during his early partnership days.
The Intelligent Investor is the less advanced version of Security Analysis. I recommend to Start reading Intelligent Investor and work your way up to Security Analysis. Pay attention to Chapter 14, 15 and 20 of the Intelligent Investor. In Security Analysis, pay close attention to Chapter 43.
How To Study To Become A Value Investor
if you don't have any background in accounting and finance, reading the books I recommended above will make no sense at all. Trust me. The way to get around with the confusing terminologies and accounting formulas is to look it up in Investopedia.
Whenever I get across items that I don't understand, I look up the definition in the site. It took me a couple of months to get myself familiarized especially the financial ratios commonly used like the Price To Earnings, Return On Equity, Debt To Equity ratio and a lot more.
I spend my evenings reading books and applying what I read from doing my own company analysis. From 6PM to 12MN, I just read and enjoy what I'm doing. On weekends, I look for Youtube videos about Warren Buffett and watch anything I came across. I must admit, my life became boring LOL. I freed up some of my time I spend on social activities to focus on studying stocks. That's right, the keyword here is FOCUS. When I get exhausted, I go out and have a drink with friends,
If you read all the books I recommended and did some detective work on accounting terminologies and formulas, I would expect that you now know how to read and interpret a financial statement. This is the point where I spend most of my downtime studying. You can't become a value investor if you don't know how to interpret the numbers in a balance sheet or an income statement.
You should spend more time studying if you still have a hard time identifying the items in these documents. Once you are confident enough, the only way to become an independent investor is to apply what you learned in your portfolio.
Applying Value Investing In The Philippine Stock Market
I realized that by studying financial statements, I also get to learn how to analyze a business. By analyzing stocks on a business perspective, I get to find stocks that are undervalued, compounders or income stocks.
My investing strategy involves analyzing the "moat" of the business. By using qualitative and quantitative analysis, I can easily arrive at a company's intrinsic value or what brokers call fair value. If I like the business, I buy it at prices adjusted to a margin of safety I think will mitigate the risk of permanent loss of capital.
I also exercise a lot of patience. I consider market gyrations as opportunities to lower my risk by buying more shares at attractive prices. If I buy a stock trading at P5/share and drops at P3/share next month, I buy more to lower my average cost and increase upside potential. I only do this on stocks I think have a high upside.
The only time I sell is if I think the price is already trading above its intrinsic value. If it underperforms, I hold it and buy more if I feel necessary. I also sell if I find a better stock where I can make a higher return than the previous one.
By studying the business through its financials, you get to find a lot of opportunities. The challenging part in this strategy is the proper allocation of capital.
Currently, I hold a concentrated portfolio of three stocks; a compounder, a stock that's trading below net current asset value with a high dividend yield, and a wonderful real-estate giant selling at prices below intrinsic value. I'm also looking to buy another stock similar to the second criteria and two more compounder stocks.
I plan to limit my holdings at three to six stocks at most. Ten would be the maximum I think.
I do my valuations myself and make decisions based on what I think the stock is valued at. I don't chase prices. I don't buy the hot stock of the day. I feel that it's too risky.
I also don't buy unprofitable companies. The only way I would buy an unprofitable company is if it trades below net asset value.
But most of these businesses trades at prices I can't explain. So if the stock price doesn't make business sense, I skip it even if it rises at insane prices tomorrow or the next month. I don't care if I'm left behind.
In my opinion, buying stocks without the proper due diligence is speculation. I only speculate if I think I have the highest chance of certainty that I'm right based on fundamental factors.
If you focus on a specific set of strategy just like what I do, whether that's short-term trading or long-term investing, you'll be successful.
In my experience, I was better at doing Value Investing; following Buffett and Graham's wisdom. It turned out to be profitable to me. What's best about this is that you don't have to stress yourself in the everyday ups and downs of the market. I just let the market gyrations fly by. I get to sleep soundly everyday knowing that my investments are strong and stable. Every quarter, I just re-evaluate my holdings based on recent earnings reports and decide for myself what to do with it.
My goal is to beat the market year-on-year, not to make quick profits. Risk aversion is my number one priority, profits come in after.
Alternative Strategies For Time-Strapped Investors
If life gets in the way or your career, family and personal obligations takes too much of your time, I advise that you just do passive investing by buying a low-cost index fund.
Historically, the PSEi has increased its value. It reached an all time high of 8127.48 in April of 2015 and a record low of 129.52 in February of 1986.
If you invest in an index fund, your investment will follow the performance of the PSEi. In the long-term, you'll do well overtime.
Some of the index funds available for purchase on COL's platform include;
- PAMI Equity Index Fund
- Philequity PSE Index Fund
- Philippine Stock Index Fund
- Sun Life Prosperity Philippine Stock Index Fund
If you want to engage in active investing but are unwilling or do not have the time and energy to study the stock market, then you can just follow your broker's recommendations. COL Financial release these kind of reports everyday for investors to see.
You can also subscribe to Truly Rich Club and follow the "Strategic Averaging Method" on a portfolio level.
Or you can follow PinoyInvestor's Model Portfolio. A sample of the recent report as of this post can be found here.
I recommend these resources for aspiring active investors. I'm a subscriber of both of these services and I find it helpful when I get busy at work or run out of investment ideas.
Your Journey Starts Today
As a final advice, look for smart and honest mentors. It doesn't have to be a living person right beside you. It can be in the form of video tutorials, books or training seminars.
Find the best authors out there and read their books.
Find the best teachers and enroll in their courses.
Absorb their wisdom and apply the strategies you learn from them. Learn, learn and learn non-stop. Make investing your passion. That's what I'm doing today.
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