Thursday, September 20, 2007

Replying to a Young Friend

by klse.8k
Translated by Felix Leong
[Link to original article (Simplified Chinese)]

The original question from a forum user:

Thank you, klse.8k, for your advice.

Actually I'm an administrator for a company. In the recent months I have read several books on investing and your articles, and these had influenced a change in my own thinking. I'm starting to have interest in investing and starting a business. Before I was exposed to such knowledge, I only thought about improving myself in my own field of work, in hopes of getting a better promotion or job opportunity. Now that my mindset had changed, I'm not sure whether is it for the good or bad?

I'm starting to feel fed up with my job, the management of the company is really bad and that I'm sadden by the fact. My work had been dull and I find myself doing nothing most of the time. But my company had compensated me well and had provided me with great benefits (from my own point of view). Currently I earned RM3000 per month (I'm now 30 years old), based on where I lived in, that's pretty good.

Now that I don't liked my job and that my mindset has changed, I think it's time for me to start my own business. But I don't know what I can do in such a vast marketplace: I never had any experience in doing business and am not sure where and how to start. I really needed your advice as I have great trust in you: with your experiences and thoughts that differed from others.

Could you give me any advice?

And there's another thing that I should let you know: all my other family members were business people, I'm the one being employed by others. But they deal in small businesses. Even though they were in the business for just a few years only, but their business was doing quite well.

Now I'm beginning to feel confused and not sure what's the next step. I had nobody to discuss this with and nobody ever gave me any advice. I hope that you are able to give me some guidance and tell me your experiences.

Thank you very much.

Reply from klse.8k:

You asked me for advice, but it took me two days to contemplate on your questions

To tell you the truth, I'm really not qualified enough to decide anything for you, because I'm not a financial adviser in any way. But, just not to let you down, I still decided to share my thoughts with you.

I am a businessman myself, although I'm now in a half-retirement state myself. But I still had keen interest in "being in business". Now stock market investing has became my main income source and my business became secondary. Therefore I consider myself to have become half-retired.

Most of my friends around me are business people in various different businesses. Among them there's some who started their own business on their own: some of them very successful, some of them so-so. Being in business for many years, I deeply understood the pros of having your own company and at the same time understanding the hardships of starting one. But, I know even better the fact that being a great entrepreneur is an extremely challenging task.

Building a small business is very easy, expanding that business to a medium enterprise wasn't that hard either. But to expand that medium enterprise into a large corporation is not something that any normal people is capable to achieve. Luckily not everyone wants to make it extremely big, most of them would be greatly satisfied to make their own company a medium sized one, because just by achieving the goal of making it a medium enterprise is enough to make you a millionaire.

To a normal employed person, being able to own a million dollars is considered very successful. But to a business owner, having a million is just something normal, the ability to make yourself among the people who amassed tens of millions can only be considered as being successful CEOs. But the problem is that being a millionaire of ten-millions boss is as scarce as millionaire employees.

To be extremely frank, if your aim is merely to become a millionaire, then being an entrepreneur is the shortcut. But if everyone wants to be the boss, then who would want to work for others?

Luckily the education system today only encourages young people to work for others. Ask any graduates about their future plans, their answer will almost be synonymous: to find a job that pays well, work hard; then further their studies and try to obtain a better remuneration package with such qualifications. Very few of them would want to become their own boss as they strongly believe that doing so would waste what they had learnt from the courses they took. Business ventures from graduates were often either taken as a last resort due to dire circumstances, or that the graduate were met with some sort of special influences and circumstances that leads them there.

From my own observation, to become your own boss, what it needs is courage, not knowledge.

And finally, it's time for the ultimate question: Should I encourage you to start a business?

As much as I'm interesting in entrepreneurship, I'm even more interested in stock investments. I always said that investing in the stock market is equivalent to doing business: by becoming a small shareholder in the company. To me, starting your own business and investing in stocks were the same, as it shares the same goal of getting financial returns.

So long you invest in companies that are profitable, that is already doing business! How much does your investment dollar earned can be identified using their EPS (Earning per Share). For example, own 100 lots* of EON for a price of RM12.20 is equivalent to investing RM122,000. (12.20 x 10000 = 122,000) EON's EPS is RM2.00, therefore the earnings obtained with your investment is RM20,000: which means your RM122,000 invested earns RM20,000 per year. That's the same as doing business! That's my investment mindset.

Now that you still haven't decide what kind of business you wanted to venture into, investing in the stock market would be your next best choice. Through stock investment, that would be the same as being in business! Until the time you had your own goals, you can sell your shares anytime and making it the seed capital for your venture. If you believe that your business will give you a return greater than through stock investment, then you can consider starting your own business.

In my case, the money I earned from my business is incapable to compete with the returns I obtained from the stock market, therefore stock investment being my main source of income is the natural outcome of such a situation.

As for your situation, only you will know best. But don't feel discouraged, the reason why stock investment can make you rich is because your investment can easily be doubled. So long that your technique is correct, doubling your investment income is not something that hard to do.

To make one million from 30k would only require you to doubling your investment five times. If doubling your investment would require three years, that's only a timeframe of 15 years for you to become a millionaire. And I'm sure most of the friends on Cari understood that feat wasn't impossible.

That's all I would like to say for now.

*Translation notes: One lot is now 100 units of shares as of 2007. It used to be in units of 1,000 shares when the article was first posted.

Friday, September 7, 2007

Requiring Little Needs, But Having Too Many Wants

by klse.8k
Translated by Felix Leong
[Link to original article (Simplified Chinese)]

Comparing a pair of Nike shoes worth $199 and a pair of normal sports shoes worth $59, which do you think is a "need" and which is a "want"? I had once asked a girl who had just done with her part-time job during the holidays, and she asked me rhetorically: A woman bought one kilogram of rice* daily, do you think that she "needs" it or "wanted" it?

I later realized that she often encountered the same customer with such buying habits when she was working there. At one time, with great curiosity, she asked the woman why she didn't buy the five kilogram pack of rice as it was cheaper. The woman then asked her back: Do you think this is what I wanted?

To that poor woman, the ability to buy five kilograms of rice is already a "want", due to the fact that she can't afford it, she had to resolve for the lesser and only bought the one kilogram of rice that she "needed".

At first when I heard my famous friend telling me that "A person doesn't need a lot, but our desires are never satisfiable", it had me thinking for several nights. If you want to learn how to manage your finances and become rich, this quote must be kept to heart. In order to pursue what they "wanted" but not something that they needed, many people didn't hesitate to borrow their "future money" (read: taking up loans) in order to satisfy their impulses.

Such behaviour is like the person XXXXX* described in his book who took up a bank loan in order to beautify the gate of his bungalow: such renovations will only attract thieves, was such a spending of his future dollars was really "needed"? Being able to live in a bungalow must be someone capable, even such a person is incapable to manage his money properly, don't you think such personal finance knowledge is lacking among the people around us?

Physical things can easily be identified as "needs" and "wants", however there are some things that aren't as clear cut. Say, for example, smoking and drinking. One of my friends who smoked a lot told me that cigarettes is a "need" and not a "want", if you don't believe it you can ask the ones who smoked. Later on another friend who successfully quit smoking told me that before you are addicted to it, it's not a need and not a want, until the time you are addicted it had became a need: those who were addicted to smoke will more willing to eat less but never wanted to smoke less.

The reason that I'm suddenly concerned with the ones who smoked is because I noticed smokers spent almost $200 a month* just to satisfy their urges: quite a large amount of great concern. When you start to add up such small numbers and assuming that the money was used for investments that carries a 12% return, we only needed 35 years to become a millionaire (See table below).

Therefore, to those who haven't started smoking or those who had just started, I'd like to strongly advise to avoid them at all cost if you wanted to become rich sooner.

That reminds me of a party many years ago, all my friends on my table was wearing a Rolex and I'm the odd one out, then I realized that it's time to "need" one for myself. But at that time I only knew to use my money to invest in the stock market and that I don't even have any spare cash to buy one Rolex. Therefore I promised myself that once I reached my goal in the future I'll definitely buy one of the best Rolex. Later on I finally bought one gold Rolex and felt the immense satisfaction of attaining something after my own hardwork, I'll definitely will tell that to my friend on day.

Therefore I dared to say this at the expense of a risk being called as a "show-off".


*Translator notes:
#1: In most East Asian countries, rice is a dietary staple of the people. Therefore the significance of rice was very prevalent in these countries and was often used as a symbol of quality of life.

#2: XXXXX is refering to Azizi Ali, which he mentioned this story in his book "MILLIONAIRES are from a different PLANET!"

#3: Note that this article was written at 2001, with the constant sin tax hike on cigarettes, I won't be surprised if the present value would have already doubled at the time of translation (2007)

#4: For those interested about klse.8k's calculation of return, here's my explanation: The yearly total is calculated with the formula (previous year's total * 112%) + current year's saving. Which equates to the assumption that the yearly savings was made at the end of the year as a lump sum and therefore does not bear any returns.

So what would be the return if the yearly lump sum savings was broken down as a monthly saving instead, assuming the same annual return of 12%? Using the "How much will my savings be worth?" calculator provided by The Montley Fool (with the tax and inflation rates set as 0%), the amount came up to be $1,286,192! That's a whopping 250k addition to your savings!

That should give you a more compelling reason to start early :).

Saturday, September 1, 2007

HLeBroking: Now serving news from Reuters

Just accessed my HLeBroking account, and I was pleasantly surprised with their new page layout and more importantly: the Reuters logo. According to the announcement, the world market news will now be provided by Reuters.

So, what does it means to us?

From my unofficial mouse-clicking browsing, it seemed that the archive only goes as far back as August 2007, which means only one months worth of news archive. That's a sign that HLeBroking's subscription was pretty limited at the moment, which, at its present state, might not be as useful as we would think. So as much they do provide a search feature that searches based on stock code, it would only be quite useful for large-cap companies which has more news coverage with only a month's archive.

Hopefully, HLeBroking would opt for a subscription package that allows its users so access a larger archive, that would prove to be a useful tool for investors having an account there.

If you have an account at HLeBroking, you can access Reuter's news archive under the Research menu.