Wednesday, February 20, 2008

How To Identify Areas of Investment With Return of 15%?

Valerie said...
Hi, am just an employee earning a small income in Malaysia. However, setting aside RM500 sounds okay. And after reading your article, I decided to start to plan ahead.However, you keep on saying to invest with an average return of 15%. My question is - how do we identify areas of investment which can generates such return? If you can name them, and are sure on the numbers, I would say everyone would set aside more than they could afford to shorten the time to reach the desired return. Your advise please, thanks.
February 17, 2008 5:28 AM

Seane Lynch said...
Valerie, great to hear that you realise the benefits of investment and decide to plan ahead. Starting early is equally important. To take a stab in answering your question on how to identify areas of investment with return of 15%, I would say that you have the following available options:

(a) Invest in mutual funds that are aggresive in nature. Aggresive in nature means that the bulk of the monies will be invested in stock market, be in local or overseas. Bulk could be as much as 80%. Be prepared to stomach volatility in the value of your investment though.

(b) Invest in stock market directly. If you would like to avoid fees and other charges that may be incurred when you invest in a mutual funds (which could be as high as 5-6% upfront), you may want to research on how to invest in the stock market directly. There are many school of thoughts on how to predict and time the market movement with the objective of buying low and selling high (chartist and technical analyst for example), those that calculate how much the stocks are worth and buy/sell when stocks are undervalued/overvalued (the fundamental based investors), and of course not forgetting the punters. Uncles and Aunties in both Singapore and Malaysia made up for a high proportion of punters in the stock market.

As you can probably gauge from the above options, stock market remains the best possible long term investment that can provide you a return of 15% or more, hopefully. Quoting lessons from Peter Lynch, don't try to time the market movement as market is extremely difficult to predict even for smart fund managers or analysts. Instead, view yourself as a business investor and focus on identifying companies that you understand well and have good business model. You are in actual fact owning a small piece of the company when you buy their shares. As long as the story line of the companies is good in terms of having the ability to derive good profits (from the business model), the stock price will rise in the long run.

It may sound difficult but it is interesting and satisfying if you are willing to invest some of your time in understanding the companies that you want to invest in. Again, have a long term horizon set in your mind and be patient as watched stock never boils.

You may have heard Uncle and Aunties buy stocks like nobody businesses but may deliberate for days or weeks or even months if they want to buy a TV or a refrigerator. They keep researching for better brands, look for warranty period and other features before placing their money. Invest at least as much time and effort in choosing companies to invest as you would in choosing a TV or a refrigerator.

p/s: Sorry Uncle and Aunties for using you guys as examples of punters. I can't think any better ones.

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