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Every Journey Has a Beginning (Dollars & Sense)
May 13, 2019
From Equity Research To Fund Management. Terence Wong Of Azure Capital Shares The Difference Between Doing Research To Investing Millions In The Capital Market #myfirsttrade
Terence Wong, who manages his own fund Azure Capital, shares with us his experience investing a portfolio worth millions of dollars – and what retail investors can learn from the professionals.
his article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, February 2018). All views expressed in the article are the independent opinion of DollarsAndSense.sg
Terence Wong is not new to the investment community in Singapore. Many investors would recognise him as the former CEO and Chief Investment Analyst of SIAS Research. After SIAS Research, Terence moved to DMG & Partners Securities to manage the investment bank’s multi-award-winning research team in Singapore, where he spent his time covering listed companies on the Singapore Exchange (SGX) as well as regional markets.
After more than a decade in equity research and writing reports for both retail and institutional investors in Singapore, Terence made a switch in his career. He stayed in the investment field but instead of doing research and issuing reports for others to read , he started his own fund management company, Azure Capital, to put his wealth of research experience into good use by investing into the companies that he researched on.
In this edition of #myfirstrade, we spoke to Terence to find out what prompted him to make this career change, and what he has learnt about the differences between doing research for others to read and rely on, versus actually investing millions of dollars behind the research that he produces.
DollarsAndSense (DNS): We like to start off every interview with this question. Can you still remember your very first trade, and how did it end up performing for you? #myfirsttrade
Terence Wong (TW): Yes, I do! Actually, I would like to share two separate “first” trades which I made.
Unofficially, the first trade I ever made was what I would classify as a random and uninformed punt. It was a company that just had its initial public offering (IPO). I didn’t get any shares during the IPO, so I bought it on the Singapore Exchange (SGX) during its first trading day. I sold it quickly after and made for myself a few hundred dollars. I remembered thinking to myself then – this is easy, I can see myself doing this often!
Of course, things weren’t so rosy after that. In what I would consider my first proper trade, I ended up losing money. The irony was that I was an equity analyst by then and was supposed to be proficient in analysing stocks. I bought into Raffles Holding during its IPO after consulting with a colleague (who was also an analyst) and was convinced it would do well.
It didn’t and I realised my losses after a few years.
The lesson I learnt then was that I couldn’t just blindly trust these analysts’ reports!
DNS: How did you get into finance, particularly in the investment field? Was this something you always knew from young that you would end up doing?
TW: Yes, I knew from a young age that I was going to get into the investment field.
My interest started at the age of 12. I was preparing for my PSLE and my parents were always making sure that I am spending time preparing for my exams instead of skiving off. This was also the time when Black Monday (October 19, 1987) occurred. Stock markets around the world were losing 20% or more of their valuations in a single day.
I remembered my parents being distracted by the market during this period and an interesting thought floated through my mind. Anything that could distract my parents away from me and my exams must be a good thing!
I read up a lot about investing during secondary school and when I was studying in Canada during university, I found out about starting a career as an equity analyst where you are hired to research on stocks. I read up more about the job description and it married all the passions which I have. It was perfect for me, with lots of reading and writing to be done, frequent calculations plus it’s not a deskbound job.
Getting my first job as an equity analyst wasn’t easy. After a few months of holding temporary jobs, I decided to write my own research reports and send it to some of the brokerage houses as a way to showcase my interest and (limited) knowledge. I must have done something right because I got a full-time job after that.
DNS: What prompted you to switch from a career in equity research to fund management?
TW: I think it’s a natural progression. After spending more than a decade in the equity research sector covering stocks and meeting companies on a regular basis, I wanted to go from simply doing research, to actually investing money based on the research that I have.
One thing which I did do differently though, is that instead of joining an established fund house, I started my own fund which is way riskier. I took that leap of faith just after my third child arrived, so the timing wasn’t great either, from a personal risk management standpoint.
DNS: Can you share with us some notable differences between research and fund management that you have experienced?
TW: The main difference in my opinion are the stakes at risk. The truth is that as an analyst, you have no (or little) skin in the game. You do your research and issue reports based on the insights that you have. If things change for the company fundamentally or the sector after that, you change your call if required. It’s not your responsibility because everyone knows that businesses evolve all the time.
When it comes to fund management, the stakes are much higher. If an investment goes south because of unforeseen circumstances, you can’t just explain away the problem. Instead, you are accountable to your investors and there is less room for mistakes.
DNS: You have more than 15 years of experience in the investment field. How would you describe your investment philosophy today?
TW: The investments that we make are grounded based on research. I make it a point to not only understand the company well from a financial standpoint, but also to know the management of the company well.
I do have a biasness towards smaller companies. This could be due to my background as an equity analyst when I frequently covered smaller companies. I think if you invest in the right small or mid-cap companies, your returns can potentially be much higher compared to established blue-chip stocks.
DNS: Stocks, bonds, REITs or other investments? From the point of view of a fund manager, how do you decide what you should be investing in for your fund?
TW: We are very equity-focused. That’s my passion and that is where I think we can value-add the most to our clients. We also focus heavily in the Singapore and South East Asia market.
If our clients want exposure to other markets, or other safer instruments such as bonds, there are other funds out there which they can also invest in.
DNS: Would a retail investor be able to copy the portfolio created by that a fund manager? And if they could, should they be doing so?
TW: To some extent, it’s possible.
However, you may not know everything that a portfolio manager is investing in or thinking about. For example, you may know the top five holdings that a fund manager has in his portfolio. However, there could also be a lot of value to be found in the sixth to tenth holdings of the portfolio. Also, when fund managers make adjustments to their portfolio, you will only know about it within a few months later, so there is going to be a lag factor that you need to consider.
As a retail investor however, you can afford to be nimble. If you do your homework, it’s possible that you can get a return which is higher than what professionals can achieve.
As professionals, we are managing millions of dollars, so a large part of our responsibility is also to protect the wealth that we manage. If you are a retail investor with $10,000 to play around, you can afford to take higher risk and get higher returns.
DNS: You meet up frequently with CEOs of listed companies in Singapore to chat with them about their business. How helpful are these conversations in determining what you should invest in?
TW: Among all the investments that I make, about 90% of them are in companies that I am familiar with. In my opinion, to be comfortable with investing in a company, you first have to be comfortable with the management.
DNS: If you meet your younger self today before you have made your first trade, what advice would you give to him?
TW: Always do your own research and don’t blindly trust analysts’ reports.
Through our conversation with Terence, one of the things which stood out for us was how candid he was in admitting that he knew very little when he was starting out, even though he was already working full-time as an analyst.
Learning is a lifelong journey. To become a better investor, there are many things you can do. The first is to make it a habit to be researching, reading and processing information for yourself. There are many avenues you can turn to. The SGX website is one trusted source where you can find accurate information for yourself.
It’s also good to understand the macro economic environment around you. Companies such as IG offer both traders and investors a quick overview on financial events and economic calendar. Of course, you can also choose to trade through a live trading account or a demo account, if you wish to get familiar with using the IG platform before putting in actual money.
As what Terence himself experienced, volatility is another key component of the financial market. Ups and downs in the market are just par for the course. However, we can also think of volatility as opportunities as well – investors can buy into stocks when market prices fall below what they think should be the fair value. At the same time, you can also trade volatility on a shorter-term basis to profit from market fluctuations. In the same way knowledge helps to improve our investing decisions, it will also aid in improving our trading decisions.
To help you learn more on how to trade in a volatile market, IG has partnered with Bloomberg to create an exclusive free eBook on Volatility.