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.

No comments: