Prudence N. Barnes, Contributor
Vice-President, NCB Capital Markets (NCBCM), Debra Lopez, fields a question during her presentaion at NCBCM's Wealth Management Seminar on Thursday, March 3, 2005, at the Mona Vistors' Lodge, University of the West Indies. - WINSTON SILL/FREELANCE PHOTOGRAPHER
Debra Lopez says starting your own business or investing in successful ones is the best option for wealth creation.
DEBRA LOPEZ, vice-president of Wealth Management and Distribution at NCB Capital Markets Limited, has suggested that investors take a businesslike approach to equity investment rather than engaging in 'frenetic' buying and selling of stocks based entirely on price movement. This entrepreneurial approach, she noted, is the best way to guarantee sustainable wealth creation, adding that this business model has been the approach used by some of the world's wealthiest people.
"In buying stocks, look at yourself as a business owner rather than as a unit holder," Ms. Lopez said, quoting from Warren Buffet, one of the world's richest men in adding "that investors should buy stocks as if you are buying the entire company."
NCB Capital Markets Limited, whose primary business is wealth management, creation and protection, was established out of a merger between Edward Gayle Limited, one of the oldest stockbrokerage houses in Jamaica and NCB Investments Limited in 2002. The alliance, however, had its beginning in 1994 when Edward Gayle and Company Limited became a partly-owned subsidiary of the NCB Group, and in 2001 when it became a wholly-owned subsidiary of the NCB Group and by extension the Micheal Lee Chin-led AIC (a major mutual funds company based in Canada), which by then had acquired NCB. In 2003, the investment arm of the NCB group was rebranded as NCB Capital Markets Limited.
RANGE OF PRODUCTS OFFERED
NCB manages in excess of $42.5 billion on the money market side of its business, and as it relates to the equity portfolio NCB Capital Markets Limited is the largest, in terms of value, and the second largest, in terms of volume, Miss Lopez said, adding that NCB can also lay claim to being the largest dealer in primary debt offerings by the Government of Jamaica.
Among the range of products offered by the company are: money market instruments; JSE equities; AIC Mutual Funds; local, global and corporate bonds. NCB Capital Markets Limited recently successfully raised some $1.8 billion through a private equity placement for Supreme Ventures Limited, Miss Lopez said.
Noting that the company's wealth management services include private portfolio management, Ms. Lopez observed that, "the greatest asset of NCB Capital Markets Limited is showing people how wealth is created. The needs of the client are paramount, she said, adding that "whatever the needs of the clients are, we create a road map by choosing the proper investments and meeting the client regularly to ensure they are still on target."
There are two main ways of creating wealth, establishing your own business or investing in some of the most successful companies, she said. For persons who are not able or interested in establishing their own company, the stock market is the best avenue to wealth creation, she added.
In emphasising the business approach, Ms. Lopez observed that some of the wealthiest persons in Jamaica and around the world created their wealth by owning a handful of businesses in a few growth areas, in industries that they fully understand and which they own for the long term. "It should therefore ring true that we as investors should take that entrepreneurial approach to investment," she said.
She recommends owning a few stocks in excellent businesses that have prospects for growth over time, preferably holding those stocks for a period of five to seven years. A proven track record, with solid fundamentals, needs to be looked at when assessing the prospects of a company, she said.
Among the fundamentals, Ms. Lopez explained are: excellent management in terms of an effective strategy, execution and integrity; breadth of products and services/revenue diversification; substantial, growing and free cash flow; high return on invested capital; capital allocation prowess and a predictable business model. Another suggestion is identifying growth industries and identifying the industry leaders.
UNINFORMED DIVERSIFICATION
Ms. Lopez warned against uninformed diversification, noting that this could lead to 'diworsification'.
"Diversification is supposed to minimise risk, but if you spread your funds across too many different investments without having the time or opportunity to fully understand all of them, you can spread yourself too thinly, because you can't know all that you need to know about all of them. If you don't know what you need to know about all of them, then you are speculating," she said.
The NCB Capital Markets philosophy is underpinned by the view that "successful business leaders and companies operate with specific guiding principles.
"Our investment philosophy is based on the five principles of wealth creation: set a goal; use other people's brain (the expertise); use other people's money; pay yourself first and invest for the long-term," according to the corporate brochure.
THE BUY AND HOLD PHILOSOPHY
Expanding on the NCB mantra, she explained that the "pay yourself first philosophy" meant putting aside at least 10 per cent of one's income monthly" for long-term investment before doing anything else. As it relates to using other people's money, the idea behind this is to leverage borrowed and pooled money, such as mortgages and mutual funds in order to maximise assets and wealth.
"We are not order takers, we pride ourselves in the buy and hold philosophy", also noting that NCB Capital Investment did not engage in speculating and did not subscribe to the "sky is falling approach".
She emphasised however, that they would recommend that their clients sell stocks if there was something fundamentally negative happening in a company or in an industry that could impact on a client's investment which she emphasised their team of researchers had the capacity to know.
Lopez said NCB has an experienced team of researchers whose duty it is to do extensive market analysis on all the product areas, and make recommendations.
Unlike many countries which had ageing populations, Jamaica had a young population, she said, noting that this meant that the environment was ripe for individuals to start developing a wealth management plan.
While observing that economic downturn and certain negative incidents in the stock market had made some persons gun-shy about the equities market, she maintained that the stock market always outperformed other instruments in the long-term.
NCB Capital Investments candidly observed that: "no one can guarantee success in the markets. However, the possibility of success can be improved if before investing in stocks, you:
Collect and study as much information as possible about the company in which you intend to invest.
Seek investment advice from a broker or other qualified persons.
Learn to read and understand the basic financial statements and reports which the companies listed on the stock exchange are required to publish.
Develop the habit of reading and understanding financial publications.
After buying shares monitor and track your investments.
