Friday 4 March 2011

Why I choose to invest in stock market?

When you tell your friends or your family that you are investing in stock market, here are some possible negative messages you might received:

  • Is too risky, don't ever touch it! Which most likely coming from your parent or aunt/uncle, especially for those who suffered from economic crisis during 1997. My mum was one of the victims.
  • Why don't you invest in Penang/KL property? You can earn a lot from there. Or maybe gold? The price is keeping increasing. I think investing in stock market is just too risky.
  • Why don’t you let the professional do this for you, just invest in Public mutual or TA investment fund. Some of the funds giving me quite good return last year.
  • I just lose hundred thousand this year, I would never invest in stock market again! So do you!
  • Stock market like KLSE or Dow Jones is for those rich folks, 'small fish' like us would be swallowed by them.
 
For most of them who loss bunch of money in the stock market (this happen for 90% investors), most likely they would have been shadowed for the whole life and would never invest in stock market again.
 
While for those who never invest in stock market, in their mindset stock market is just too dangerous, and thinking that stock market is for those rich folks to make money.

For some who think stock investment is very high risk, I totally agree with them! However for me, stock investment is a high return investment with very minimum risk. Why I said so? Imagine if you know that there’s a treasure island, bunch of people will definitely rush for it. However, is a deserted island, which there is no route/path for you to drive/walk, resource of food are minimum and the weather is unpredictable. There are bunch of inexperienced person and experienced explorers with good surviving skill. So at the end, who do you think will be able to find the treasure? No doubt, the answer is the experienced explorer! For the experienced, the risk is very minimum and most likely they are going to enjoy the good return with the treasure discovered. However for those inexperienced, most likely they are going to lose their way in the jungle and might even lose their lives. So now you see, why I considered stock investment is safe and giving high return! With adequate knowledge and experience, you will be able to become the ultimate investor that going to have high return with minimum risk!

Why don’t I invest in other sectors such as property or commodity or even Public Mutual? They are giving good returns. 
Well, I do agree that investing in property is good and probably more stable than stock in most situations, but it would need more capital to start with. It would be good if you have cash on hand that is at least 50% of the buying price to prepare for economy downturn or surge of interest rate, just in case you have to hold the property on hand.
 
How about gold? Gold is a good investment though, which it had rose a lot since 2001, however if you look into long term, the price of gold across 36 years had appreciate up to 2104%! Wow, you might be thinking that is a great return! However, if you calculated the compound interest, it is only 9% each year. Which might be good enough for average investor, but it is definitely not good enough for you and me that aim to become an ultimate investor!

For mutual fund, people might think instead of investing in stock market by themselves. Why don’t they let the professional do this for them? Well, by hiring the professional to invest for you, you need to pay sales charge of 5%-6% with annual fees of 1.5%-2%. This mean that you will merely making any profit for the first year. Also from US mutual fund performance, only 3% of the mutual fund is outperform the S&P 500 over five years. Therefore to really gain in mutual fund, you need detail, while there are total ~700 mutual funds at Malaysia.

So why not you just analyze the stock market, either at KLSE or US stock market (Nasdaq/Dow Jones/S&P 500)? By choosing the winning stock, you will be double or triple your investment in just few years time. With just a little capital, you can invest in stock market. Indeed, Warren Buffet started his stock investment at the age of 11, and he had been continuing doing this until now for 69 years. He is the 3rd billionaire in the world ranking for 2010 and chairman & CEO for Berkshire Hathaway.

2 comments:

  1. Hi Daniel,
    See my comment:
    ---------------------
    Why don’t I invest in other sectors such as property or commodity or even Public Mutual?

    -Investing in Real Estate allows you to use financial leverage. The stock, normally, don't have this advantage.

    -Commodity is in bull market. If you ignore it you just give up making money opportunities.

    How about gold?

    -The bull market of gold started in 2001, not 2005. Compound rate of 9% is a very good return. If you calculate
    the stock market overall return, it less than 9% compound rate.

    -Mutual fund is suitable to some people, not professional investor.

    -Note that Warren Buffet also played with precious metals. He bought silver and sold it. I forget the time.

    So why not you just analyze the stock market, either at KLSE or US stock market (Nasdaq/Dow Jones/S&P 500)?

    -Note that you can't say the stock is definitely will make you earn good return. Very investment is speculation.

    -Many people also do well in other field. As long as you are good in a particular field, you can make money. It is not about only investing in one asset class - the stock. Many rich people have more than one asset class.

    Regards,
    Shinki
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  2. Hi Shinki, I do agree with you in some ways that on the property investment is good financial leverage tool, but providing that I have enough capital. To invest in property development, i will pick some REIT company with little capital for now.

    Commodity is still not what i prefer, especially gold, since i don't see the need of gold to be increased. India is the largest consumer but i'm wondering whether the youngster will still buy gold as investment. Yes, Warren Buffet did invest in silver once after he eyes on it for 30 years until he see the opportunity. :)

    For mutual fund, it might be suitable for some that are professional. However still we need to pick out a good mutual fund that really can perform. Is just like picking a stock for me. I will be attending a seminar regarding mutual fund next week. Probably will write a post after that.

    Lastly, i totally agree with you that most of the rich people having more than one asset class. I'm a bit too subjective, that my interest is on stock market only. Cause i believe that stock market will give me the highest return with very minimum risk.I will probably diversify after i hit my first financial goal from stock market first.

    Lastly, thx for reading and commenting on this post. Is a really good feedback to me.

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