How I Invest

Below is how I think about investing in stocks. It may not fit everyone, but whether you're just starting out or already investing and looking for a clearer way to think about it, it should give you a framework for how to think about investing and how to actually execute on it.

Why I Invest (and Why You Should Too)

TL;DR: I invest so I have money when I get old.

Like many people, I lived paycheck to paycheck for most of my adult life. It wasn't because my salary was small, but because I spent it all. As my salary grew, I always ended up spending all of it anyway. Looking back, I think I did that because I genuinely believed I would be in my 20s forever and the checks would just keep coming.

But in my mid-30s, reality hit me hard. I started noticing my body changing and breaking down a bit, and I finally saw the reality of growing old. It hit me that one day, this body won't be able to do any job anymore, and the paychecks will stop. Then what? That’s when I finally opened my eyes to financial literacy and realized I needed to personally prepare for old age.

My goal is very simple. I am investing to build a cash flow for the day I can no longer work. I just want to make sure I can still eat, pay for the necessities, and live a life with dignity.

This goal is important to me. Every single decision I make about investing is driven by these core objectives:

• I need a steady stream of income coming in when I retire that is enough to cover all my basic needs.
• I don't want a large pool of money that I constantly have to withdraw from, risking the chance that it will eventually run out.
• My priority is to maximize my cash flow for when I am old, not necessarily to maximize my cash flow right now.

What I Consider an Investment

TL;DR: Assets that give cash without selling them.

When it comes to investing, my approach is simple: I prefer an "apples to apples" comparison.

Apples to Apples (Cash In, Cash Out)

I look for assets where I put money in, and the asset automatically generates cash back to me without me needing to sell anything:

• Fixed Income: I use my money to buy the asset, and it pays me back in interest.
• Stocks: I use my money to buy shares, and they pay me back in dividends.
• Real Estate: I buy a property with cash, and it pays me back in rent without me needing to sell the land.

In both cases, I receive cash while completely keeping the underlying asset.

Apples to Oranges (Cash In, Asset Out)

Contrast that with other popular assets where you don't get actual cash flow unless you give up the asset itself:

• Gold: I pay money for gold, but it doesn't produce any cash on its own. The only way to get money back is to sell the actual gold.
• Crypto: It might occasionally give you a reward, but you are just getting more crypto instead of cash. To get actual money to spend, you still have to sell it.

Why This Matters

This brings everything back to my main goal of having money for when I get old. I want assets that naturally yield cash on their own. If I have to sell the asset itself just to get cash to live on, I risk depleting my assets until it completely runs out.

Why I Focus on Stocks

TL;DR: Stocks give good yield without the high costs or time requirements of other investments.

Since I want "apples to apples" investments that pay cash flow, there are a few options out there. Here's why I ruled out the others:

• Fixed Income: This is very safe, but the yields are on the lower side. Because I started investing late, low returns won't help me catch up to my goals in time. However, as I get closer to retirement age, it might be smart for me to gradually shift into this.
• Real Estate: Property is a very good investment with high returns, but it requires a lot of capital (millions) that I just don't have right now. Plus, it requires a lot of expertise. You have to master it and study it for a long time to truly understand the ins and outs of making good money.
• Starting a Business: Business offers high rewards, but it is incredibly complex and requires a massive skillset. Since I already have dependents, I can't just leave my secure job to start a company. At the same time, having a full-time job and a business is just too hard to execute.

Why Stocks

This is the perfect compromise for me. I have a high interest in business, but I lack the time and skills to manage one myself. Buying stocks lets me own a piece of a great business anyway. Unlike real estate, it doesn't need high capital, so I can start small right now. Plus, the yields can be very, very good depending on the situation.

The Big Picture

TL;DR: Instead of inventing my own, I use value investing principles with a focus on wonderful dividend-paying stocks.

There are many strategies in stock investing, and each has its own merits and problems, just like anything else in life. One thing I learned from the years I have been studying this is that there is no need to reinvent the wheel. There is so much timeless wisdom out there already from many greats of the past. It is really just about picking a method that suits you and executing it well.

• Value Investing: Many legendary investors have already proven this strategy works, meaning I don't have to reinvent the wheel.
• A Scientific Approach: Aiming for high returns does not mean I should invest with reckless abandon. I do my best to rely on fundamental analysis, using data, evidence, facts, and logic to find truly wonderful businesses that help me achieve my goals.
• Focus on Dividend Payers: In the Philippine market, I find that targeting stable, dividend-paying stocks is the best way to filter my investment universe.

These words might seem a bit uncommon or intimidating to you right now, but I am going to expound on all of these concepts below.

Understanding Value Investing

TL;DR: Two rules: buy a wonderful business, and don't overpay for it.

Everyone has their own definition of value investing, and people frequently debate what it truly means. As a practitioner, I like to keep things simple. At a high level, it comes down to two core principles:

1. Buy a wonderful business: The key to doing well is being extremely selective. And so, only a few stocks should ever pass my strict quality criteria.
2. Do not overpay for it: Even a great company becomes a bad investment if you buy it at the wrong price. The key is waiting patiently for the market to offer a price that gives solid upside.

Wonderful Business

TL;DR: The traits that make a business predictable, durable, and worth trusting with my money.

I've been following the greats such as Warren Buffett, Charlie Munger, and Terry Smith for many years. Here are some curated characteristics of a wonderful business:

• Predictability - Have you ever wondered why Buffett typically invests in the most boring companies, yet his track record has produced decades of consistent, high returns?

  • This quality is an investor's greatest friend. Without it, you have no idea where the company is heading, and you'll struggle to have the conviction to bet big money and win.
  • Some companies keep growing for years, even reaching hundreds of billions in value, then suddenly fade into obscurity within a year or two. This is not what I want.
  • I want businesses with a high probability of being around for many years, with an extremely low chance of being disrupted by new technology, and a very low chance of bad surprises. As Buffett jokes, the internet won't change the way we chew gum.
  • I can't measure something that's unpredictable or erratic. My aim is to confidently predict a modest growth rate and estimate how valuable the company will be in the years to come, so I can make good judgments.

• Growing - By definition, every stock investor should only buy growing companies, otherwise it isn't really investing.

  • Newbie value investors focus on formulas to find cheap bargains, and later find themselves trapped or lose big money.
  • Investing in stagnant or declining companies, no matter how attractive the price, is asking for headaches and trouble.

• Based on Deep Consumer Behavior Patterns - Understanding a company isn't just about understanding the numbers and having a good grasp of the math and ratios.

  • Understanding a company means understanding its customers.
  • You know the behavior of customers and why they keep coming back for the company's goods and services.
  • Their decision-making is ingrained, a hard-to-unwire behavior.
  • This creates solid loyalty, which makes the business more predictable.

• Good Industry or Business - This means the business naturally faces fewer hardships.

  • The company isn't in an industry prone to price wars, like commodity manufacturing, where undercutting can win fast growth and market share but fails to translate into good profits, and worse, someone can always undercut further and wipe out those gains entirely.
  • It's typically asset-light, meaning it doesn't need to shell out a lot of money now to earn much more in the future. Asset-light companies tend to grow faster naturally.
  • It can raise prices every year without losing market share or sales volume, and often even gains volume.
  • It has good margins that hold steady or keep improving over the years.

• Moat
  • Businesses that make lots of money attract competitors, and competitors will always come to take away the customer base. Having a moat means the business has so many advantages that even when competitors arrive in the years to come, they can't take away its customers, and the business continues to grow instead. Why is it called a moat? In old times, a wealthy city was always at risk of invaders coming to plunder everything it had. A moat was the water and obstruction built around it to keep them out. In modern business, it means the company is protected from competitors trying to plunder its customers and sales.
  • Without a moat, predictability breaks down. The business could be growing today and enjoying huge profits. Then suddenly, a competitor takes away a huge chunk of the customer base, and revenue and income drop significantly. Or the business keeps its customers but is forced to cut prices so badly that profits shrink to almost nothing. Either way, the economics of the company get destroyed. Without a moat, there's no predictability, and that's the most important thing to protect.
  • Common types of moats include:
    • Brand power
      • Imagine your wife's favorite chocolate is a certain brand. Even if the price goes up every year, you won't cheap out and give her a different brand for her birthday. That's brand power.
      • Now imagine you send a package to your wife's office and you always use Lalamove. If tomorrow you hear about a cheaper, equally reliable alternative, you'd switch instantly without hesitation. That's a lack of brand power, and it turns into a race to the bottom, where companies fight on price and nobody wins.
      • Same with the iPhone: consumers around the world stay loyal even as prices have quadrupled over the past 20 years. Compare that to Chinese Android brands. One year Xiaomi is the market share king, then it's Realme, then Oppo, then whoever else. Whoever has the lowest price wins the moment, and none of that is good, sustainable profit.
    • Network effects
      • Imagine you want to build an e-commerce site to rival Shopee or Lazada in the Philippines. The biggest hurdle is chicken and egg. No seller signs up because there are no visitors, and no visitor comes because there are no sellers. The incumbents have spent years building a network that's very, very hard to break into.
      • It's the same with social media. Even Google gave up despite having so much money, because platforms like Facebook, IG, and Twitter (now X) already have everyone's attention. If you launch a new social platform, why would anyone sign up when there's no one there yet? Same chicken and egg problem.
    • Switching costs
      • A large corporation like Ayala or Jollibee uses proprietary software like Oracle or Microsoft databases, and the cost is very high. Even though there are much cheaper or even free alternatives like MySQL or Postgres, they won't simply switch, because doing so would massively disrupt daily operations and risk failures and losses. And if the cost of that software is just 1% of their revenue, they won't bother replacing it with something cheaper or free.
      • Same with Adobe. Many people have complained for decades about how wild the price increases are, but studios have no choice. All their people are trained on Adobe software, and switching to a cheaper alternative means months of lost productivity while everyone retrains. That's a massive business risk, and that's the moat: it's painful for the customer to switch.
    • Cost advantage
      • Many small sari sari store distributors, the bulk wholesalers that only supply one branch at a time, closed down once Puregold became widespread. Why? Because a big grocery chain like Puregold can pressure suppliers to sell cheaper due to its bulk orders, then pass that lower cost on to sari sari stores.
      • Electronics and appliances are so much cheaper when produced in Shenzhen, China, because every small parts supplier is within minutes' reach. This lets manufacturers build appliances cheaper than anyone else. Other manufacturers have to import parts at high cost.
      • Pryce Corp built plants all around Visayas and Mindanao, so they don't need to transport LPG over long, expensive distances, while their competitors have to travel much farther and eat the fuel cost.
    • Intangible assets
      • Patents, licenses, regulatory approvals, or franchises that legally block competitors from entering.
      • You can't build another water line in Manila Water's service area since regulators simply won't permit it. Same with Meralco and electricity in its area.
      • A new medicine gets a patent for several years, during which no other company can produce it. Same with mining, you're only approved for a specific area, and no one else can touch it.
      • Broadcast franchises are another good Philippine example. A company can't operate a TV or radio network without a congressional franchise, and that approval process alone keeps most competitors out.
    • Too hard to replicate
      • Sometimes a business is protected simply because what it does is too hard for anyone else to pull off. ASML, the company that builds the machines used to manufacture computer chips, is the classic example. They're the only company in the world that can do it. Even if they explained exactly how, competitors would still need decades to catch up.
    • High barriers to entry
      • Heavy capital requirements, regulatory hurdles, or long lead times make it impractical for new competitors to enter at all. Globe and Smart enjoyed a duopoly for many years because any new entrant would need to spend hundreds of billions of pesos just to compete, with an uphill battle the whole way. DITO had the courage to try, but is still struggling with the pain of that entry.
      • Another example is the railroad Warren Buffett bought. There's simply no way for another company to build a railroad along the same route. It's practically impossible to get the land rights, on top of the sheer capital required.
  • And there's so much more you'll encounter on your own journey, but these are the basics. No matter how attractive an investment looks, you need to see the moat, or the lack of one. A painful lesson I learned firsthand: I invested heavily in a company after seeing the massive growth of one of its popular pizza brands. But I failed to realize that within a few years, competitors had copied the recipe because there was nothing protecting it.

• Financial Strength TL;DR: Avoid debt that can kill the company.

  • Whether you're a beginner or a seasoned investor, there's a natural tendency to get excited about a company and focus mostly on analyzing the income statement and its profitability. But if you look at how Warren Buffett actually analyzes a business, that isn't his first priority.

  • There are two major killers of a company. One is competition, which slowly eats away at you until you're gone. The other is an unsustainable debt burden.

  • Imagine a company with so much debt that even all of its cash flow isn't enough to cover the interest. What happens next? There are two possible outcomes.

    • Either it can't pay the excess interest, so it gets added to the principal, which grows the debt even bigger, which means even higher interest the following year, a death spiral.
    • Or it sells off assets just to pay the interest, but then it has fewer assets left to earn money with, which means less cash flow, which means an even bigger deficit it still can't cover, so it sells more assets. Another vicious cycle.
    • Both scenarios are horrific to go through.

  • No matter how exciting the prospect looks, the most important thing is avoiding a potential headache. Defensiveness has to come first. This is exactly what Buffett means when he says strength matters above all.

  • The ratio I use is simple, high-level stuff. Debt-to-equity must be less than 1. This basically means your debt has to be smaller than what you actually own. It might not fully click yet, but this is a topic we'll dig into much deeper down the road.

  • Another quick check is interest coverage. The formula is simply operating profit divided by interest expense, and I want this at 10 or above. That means your profit has to be much, much bigger than what you owe in interest. A lot of finance textbooks say 3 is considered safe, but I don't think that's enough. At 10 and above, you're genuinely far less likely to run into a headache.

  • And remember, avoiding the headache really is the best outcome. It's just not worth putting yourself through the agony of watching your investment spiral down and lose value. Better to take the more conservative route here.

• High Returns on Capital (ROE/ROIC)

  • Let's say there are two businesses in your neighborhood. If you give the first one an extra 1 million to expand, it generates 500k in additional profit. If you give the second one the same 1 million, it only generates 200k. Which one do you think is the better business? Obviously the first one.

  • A business with a high return on capital takes its extra profits, reinvests them, generates even more profit from that, and reinvests again. The end result is growth that compounds so fast it leaves other companies in the dust.

  • This is something a lot of investors overlook, because most people focus on the present. Today, a company might already look attractive at its current stock price, or it might already be paying out a good dividend. The mistake is forgetting that time moves. The real focus has to be the future: how much profit or dividends this company can generate years from now.

  • A good example is ICTSI, the port company. Years ago, if you bought the stock, the dividend yield looked unremarkable. But over the following 10 years, they grew their dividends more than tenfold. What matters isn't how the company looks today, it's temporary. What matters is where it's headed, because a few years down the line, our investment should be in a much, much better place.

  • Investing is a bit like buying a car for a race. A high return on capital means you're buying the car with the more powerful engine. Even if it's a bit behind at the start, it will easily catch up and overtake the rest. It's a powerful concept, and one worth keeping in mind always.

• Pricing Power

  • This is a tool many legendary investors rely on, yet it's something a lot of people aren't familiar with or simply overlook. It's a small detail with a huge impact.
  • So many restaurant stocks struggled after the 2020 pandemic. The problem was inflation, the cost of ingredients went up unusually high. But restaurants couldn't raise their prices to match, because customers simply wouldn't be able to afford it. Two things happened from there.
    • Those who did raise prices to match the higher cost of ingredients lost a lot of order volume. Revenue plummeted, and the bottom line suffered badly.
    • Others chose to absorb some of the increase instead, only passing on a small price hike to customers. This protected their volume, but their profits shrank badly as a result.
  • Wonderful companies are the ones that can raise prices to match inflation, or even exceed it, and customers still keep coming. Volume stays steady, or even keeps growing, instead of dropping.
  • It sounds almost too good to be true, but such companies do exist. A few well-known international names come to mind: See's Candies, Ferrari, and Hermes. All three have raised prices consistently over the years, yet demand never seems to fade.
  • Seeing this pattern play out again and again in these companies is what makes pricing power worth paying attention to in the first place.
  • In the Philippine setting though, this is genuinely hard to find. Competition is always lurking, and most businesses simply can't raise prices without losing customers to a cheaper alternative. That's exactly what makes true pricing power so valuable. Part of the fun in investing is hunting for the rare company that has it.

• Quality of Management

  • When we invest in stocks, we have no direct control over the business. Yes, we can vote, but honestly, our vote is negligible. The reality is, investing means entrusting our money to management and just observing from the sidelines. That's why the quality of the people we entrust it to matters above almost everything else.

  • Integrity comes first. The CEO, CFO, COO, and board of directors all need to be people of the highest integrity.

    • If there's even a shred of doubt, especially if we know of some bad history, we won't sleep well at night holding the stock. And that's not good. No matter how much we like the business, integrity has to come before everything else.
    • I remember a certain group of stocks, owned by a certain businessman, that looked like they were doing well, with an attractive price to match. Then, one by one, the businesses suddenly crashed, and so did the price. Nobody touched them afterward, because everyone already knew they couldn't be trusted.

  • Capability matters just as much. Management needs to be skilled and savvy enough to navigate the ever-difficult world of business, year after year. They need to know how to execute well and how to build a real competitive advantage. Skill alone isn't enough either. It has to be paired with the kind of business ethics that builds trust, retains customers, and turns into stable, recurring revenue.

  • Alignment with shareholder interest.

    • This is more of an issue with stocks listed in the US, where many companies are run by people who are just salaried employees, not shareholders themselves.
    • Management can be talented and capable, but if they don't own a stake, they might optimize for their own bonuses instead of what's good for shareholders. Think reckless spending they don't feel personally, or taking on huge debt that pays off big for them if it works, but leaves the company in ruins if it doesn't.
    • What we want are people with real personal stake in the business, so their decisions naturally align with its long-term good.
    • This usually isn't a problem in the Philippines, since most listed companies here are majority-owned by a single family who also runs the business.

  • Minority Friendly

    • This is the other side of the alignment issue, and it's a real PH problem. Here, management often owns a huge stake in the company. Good in theory, but it can also work against us. When management is also the majority shareholder, they can make decisions that benefit them, at the expense of us minority shareholders.
    • Withholding dividends even when the company has no real use for the cash, just letting it pile up on the balance sheet.
    • Launching a tender offer during a market crash to buy back public shares at a price even lower than the original IPO price.
    • Stacking the board and top management with family members regardless of merit, weakening independent oversight.
    • Related-party transactions, where the company buys from or sells to another business owned by the same family, often at terms an independent buyer would never agree to.
    • Taking loans from an affiliate company owned by the same family, at interest rates worse than what a bank would offer, or lending company cash out to a sister company at rates below market. Either way, value quietly leaks out to the family group at the minority shareholders' expense.
    • This is exactly why it matters to look for management that rewards minority shareholders too, like consistently raising dividends when cash flow and the business genuinely allow for it.

• Reinvestment Runway

  • A wonderful business isn't just great today, it needs somewhere to go for many years, ideally decades, into the future. That runway can come from raising volume, raising prices, or both, continuously, without hitting a wall.

  • Age has nothing to do with it. Coca-Cola was already close to a century old when Buffett bought it. Yet it still had a long runway ahead: new countries to enter, new categories to expand into, prices it could still raise. What matters isn't how old the company is. It's how much room is left to grow.

  • Being small and young doesn't automatically mean there's runway either. I've seen companies that are small, with plenty of room in their industry to grow into, yet the management seems content just staying where they are. No ambition to expand, no drive to take more market share. Without that hunger, all that available room means nothing.

  • The key question I always ask: years from now, will this company still have room to grow, or will it have already run out of road?

Do Not Overpay

TL;DR: Even a wonderful business is a bad investment at the wrong price.

This is the second pillar of value investing. We already discussed the first: only buy wonderful companies. The second part is just as important. We don't buy them at just any price. We only pull the trigger when the price comes to us at a level that's actually attractive.

• Overpaying Destroys Opportunity

  • The best way to understand why overpaying matters is to look at the opposite case.
  • Imagine there's a good property in your area for sale, but the owner is asking 3x the market price. Would it be wise to buy that purely as an investment? No, right? Because the odds of finding someone else willing to pay you even more than that are extremely slim.
  • Same logic with stocks. If a business earns 1 peso per share, would you pay 100,000 pesos for a single share? That's ludicrous.
  • In everything in life, math always wins. When you pay too much for too little return, the math isn't on your side, and you're likely to lose.
  • Buffett has looked at countless wonderful businesses over the decades, businesses he already knew were great. But he didn't always buy them right away. He waited for the price to come to him. Coca-Cola, as we discussed earlier, is one example. American Express is another. Buffett backed it hard during the Salad Oil Scandal in 1963, after the stock got crushed on fears the company would be wiped out by a subsidiary's fraud losses. The business itself was still wonderful, the price had just become attractive.

• Valuation

  • The core reason it's called value investing is right there in the name: value.
  • It means you buy something when its value is greater than its price. There's a saying for this. Price is what you pay, value is what you get.
  • Buffett bought See's Candy for around 25 million dollars. That single investment has since returned him billions.
  • With Coca-Cola, Buffett has already collected multiples of his original purchase price back in dividends alone, and he still owns the entire position.
  • What we're aiming for is a mathematically sound estimate of what a stock is actually worth, then only buying when the price is well below that number.

• Valuation Method

  • To value a company, you need some kind of formula. But as Buffett and other legends have said, there's no single universal formula. There are too many factors to consider before deciding what's appropriate for a given case.
  • A good starting point is what's called multiples. I'll focus on the different flavors of the price-to-earnings ratio, or P/E, for now.
    • The idea is simple. If you buy a stock for 10 pesos that earns 1 peso a year, versus another for 15 pesos that also earns 1 peso a year, and assume no growth for either, the first pays back your investment in 10 years, the second in 15. Lower is clearly better here.
    • The simplest version is the standard P/E ratio, using the clean earnings left after all expenses and deductions. This is the most well-known version.
    • Another version is price to cash flow, or price to free cash flow. This is a more conservative way of looking at earnings, since reported earnings can be adjusted through accounting choices, while cash is harder to dress up.
  • Discounted Cash Flow (DCF)
    • A more conservative flavor. Think of all the cash a company will generate over the next several years, add a conservative guess at what it could be sold for at the end of that period, then discount it all back, since cash further into the future is worth less than cash today.
    • What you're left with is the value you can compare against the current price.
  • These are just a starting point, not the full picture of what valuation is. It's part math, part art. A lot of people think value investing simply means buying the lowest multiple you can find. That's not it at all.

• Adjusting for Growth

  • Another key factor is estimating how much a company will grow. This is exactly why we set such a strict bar for predictability earlier. The more predictable a business is, the better we can project its future. We'll never be perfectly accurate, but we can get close.
  • Instead of just looking at today's P/E or price to cash flow, we look at what those numbers could look like 5 or 10 years from now.
  • Say a stock trades at 20 pesos and earns 1 peso a share. At first glance, that looks expensive if you're used to a P/E of 10.
  • But say we estimate that in 10 years, it could be earning 10 pesos a share.
  • Against today's 20 peso purchase price, that's effectively a P/E of 2 on future earnings.
  • If the market is then willing to pay 15 times earnings at that point, that's 15 x 10, or 150 pesos a share.
  • Buy at 20, sell at 150.

• Simple Business

  • As I keep repeating, success in investing comes down to good prediction, and prediction is easier when the business itself is predictable.
  • Buffett almost never buys highly innovative or very young businesses, because both are much harder to predict, even for a mind like his.
  • Instead, he sticks to simple, basic businesses tied to everyday human habits. Shaving. Soft drinks. Railroads that have been running for over a century.
  • Nokia is the counter-example. Massive growth, a genuinely great business, and then it collapsed within a year or two. Plenty of tech companies have had a great five-year run before suddenly falling apart.
  • Simpler businesses are just easier to predict. It's part of why people are amazed at Buffett. He buys companies that seem so regular and mundane, yet the gains speak for themselves.

• Probability

  • The last piece of valuation, at a high level, is really a mental model for better investing decisions. It's about not thinking in terms of certainty.
  • In reality, we don't know exactly what will happen. We do our best, but we can and will be wrong sometimes.
  • Munger has said that he and Buffett think in probabilities. What are the odds of failure? The odds of a moderate win? The odds of a big win?
  • After weighing all the possible outcomes, we only place a bet when the odds are genuinely stacked in our favor.

Dividend Investing

TL;DR: The twist value investors need for the Philippine market.

A mistake I see a lot of new value investors make is applying what they learned from articles teaching Buffett and other US-style value investors directly to the PH market. But the US and the Philippines are different markets, with different realities and different participant behavior. Over the years I've invested here, I've had to adjust to what actually works, and that's how I landed on dividend investing. Even other styles of investors and traders here are reverting to dividend investing with simpler valuation methods, because they've seen it just fits better in this environment.

But first, how do I define dividend investing? It's investing in stocks with three qualities:

• Pays a stable dividend
• Pays an increasing dividend every year
• Has a very high chance of keeping this up for years, even decades, to come

That's it. Now, the why.

• Value Trap

  • The core idea of value investing is buying a stock below its true value, and waiting for the price to eventually catch up.
  • But the Philippine market is very small, and that wait for a price correction can take years, sometimes decades.
  • You can be completely right about the value and still bleed opportunity cost the whole time, watching years go by with no profit and no clean exit, simply because nobody else in the market cares yet.
  • A dividend-paying stock naturally attracts income-focused investors. That gives you a much better chance of eventually selling at a higher price, especially once the market notices the business improving and the dividend growing every year.

• Minority Protection

  • It's very possible for a majority family owner to just sit on cash in the balance sheet, waiting for the right opportunity to delist the company cheaply down the road and keep everything for themselves. Or worse, use that cash to pay themselves outsized bonuses.
  • As I mentioned earlier, most PH-listed companies are majority-owned by a single family. Paying out dividends is a good sign that the majority owner is actually willing to share real cash with minority shareholders like us.
  • A great example is the Consunji family, behind DMCI Holdings and Semirara Mining. In 2022, when both companies posted strong earnings, they willingly paid out tens of billions of pesos combined in dividends to shareholders, DMCI alone hit its highest payout ever that year. That kind of generosity tells you they actually value their retail investors.

• Conservative Valuation and a Safer Price Target

  • Nothing beats cash actually landing in our pocket.
  • Valuing a company based on how much cash it hands back to us is a conservative, low-risk way to look at it.
  • This isn't about chasing the highest yield we can find. A sky-high yield is usually a warning sign, not an opportunity, the market pricing in a coming dividend cut or a business in trouble. What we're after is stability, predictability, and a dividend that keeps growing over the long term. The definition at the top of this section already filters that out for us.
  • A lot of investors today simply target a 5-7% annual dividend yield on stable, growing payers. It's simple, and it works.
  • There's no formula simpler than this: divide the annual dividend by the price you paid. High and stable is good. That simplicity is exactly why so many investors, even complete beginners, land on it.
  • It also makes it much easier to set a conservative future price target. Say you believe a stock will be paying 10 pesos a year in dividends 10 years from now. Someone out there will be willing to pay 15-20x that, or 150-200 pesos a share, because that still gives them an attractive 5-7% yield.

• Psychological Advantage

  • The market will always go up and down. Nobody can time it perfectly, some years feel rough, some years feel great.
  • It's hard to stay focused when we're watching the value of our portfolio swing around.
  • Dividends always feel good when they land, regardless of how the price is moving that month.
  • Staying invested for a very long time is what actually builds real wealth, since we get more years to compound. But some people lose the motivation to keep going when nothing reinforces that they're on the right track. Dividends keep us motivated to keep going, no matter what the market is doing.

• Guaranteed Reinvestment Snowball Effect

  • When we focus on stable dividend income each year, that income becomes something we can count on.
  • When we only buy companies with a high chance of paying more dividends every year, we get more cash coming in, year after year.
  • When we use that cash to buy even more shares of dividend-paying stocks, we end up with even more shares paying us even more money.
  • This grows faster over time and starts to snowball. In the early years, it's barely noticeable, but wait 10 years or more, and you'll really feel it kick in.
  • Staying invested for the long haul, focused on collecting cash and reinvesting it, is a solid, methodical way to do well even in a chaotic market.

• Easy Goal Setting for Retirement

  • At the end of the day, this solves my original goal: having enough income by the time I'm older, say 60.
  • We can set a real target, like 1 million pesos a year in investment income.
  • As the years go by, we can actually see how far or how close we are to that goal.
  • That visibility keeps us motivated to stay focused on the long term, especially once we start seeing the number actually move.