Layman Investor vs Sophisticated Investor

Have been talking to some close friends who are readers of the blog recently. Two contrasting 'needs' have been discovered. I group them as Layman Investor and Sophisticated Investor.

My Layman Investor friends have somehow complained about the complexity of the Daily Financial Teasers that comprised daily compilation of financial news worldwide. I heard them echoed "Don't know what the heck you are talking about". Fair enough. Most of the news are beyond the level of understanding of a Layman Investor. Not that they are stupid. Just that they are not really into understanding or knowing the worldwide financial industry in depth. They are more concerned particularly the impact of what is happening on their investments which bulk are equities in KLCI.

On the other hand, my Sophisticated Investor friends found that the Daily Financial Teasers are convenient for them in the sense that they could pick on headlines that they are interested. They understand the stories and it makes sense for them to read in details by clicking the links to the original source of the articles which are most quoted from CNN, Washington Post, CNBC, Bloomberg, Financial Times and other major financial news provider.

In this regard, I would like to please both my fellow Layman Investor and Sophisticated Investor friends by continuing posting the Daily Financial Teasers and other more technical financial articles. And to not confused the Layman Investor, I have decided to tag articles by either "Layman" or "Sophisticated" to reflect the level of depthness in the contents of the articles.

Too Long.....................???

First step to be taken is to determine the monthly allocation for building the first million worth of assets. I think generally RM500 per month is quite a comfortable amount that can be set aside by most who are employed. Hence I would choose to illustrate below how RM500 saved every month will grow under different rates of return within 30 years:

(a) Without any return on investment at all - Merely RM180k (or the principal amount)
(b) At 5% annual compounded rate of return - RM410k (2.3 times the principal amount)
(c) At 8% annual compounded rate of return - RM709k (3.9 times the principal amount)
(d) At 15% annual compounded rate of return - RM2.8 million (15.7 times principal amount)
(e) At 25% annual compounded rate of return - RM21.9 million (121.7 times principal amount)

The above numbers tell me that if I can grow my assets at 15% per annum on compounded basis, I will be able to reach RM1 million before 30 years. To be frank, I was totally demotivated when the numbers say that I can only probably achieve my aim of having RM1 million worth of assets between 20 to 30 years from now on if I start to save RM500. That is also provided that I can continue to achieve 15% annual compounded rate of return. It's too long a time horizon to look at.

Most of the people I talked to have the same thinking that saving RM500 per month (in which is quite a huge amount for those who are employed and not earning huge salaries) and only able to reach RM1 million dream in 20 - 30 years is a long time horizon. However, the funny thing is they know how difficult it is to achieve but they decide not to even do it!

Bottom line is let's not procrastinate and think how much we can allocate every month for long term investment purpose. Generally, financial consultants/planners advise to allocate from 15% up to 20% of gross income for investment purpose. I leave that to you on how much you want to allocate. I am gonna start off with RM500.

If you are not too well versed with calculation of returns based on amount of allocation other than RM500, let me know as I can assist in providing you the numbers.

(p/s: I have excluded other form of forced savings such as contributions to Central Provident Funds in Singapore or Employees Provident Funds in Malaysia in the above discussion. Of course these contributions will also help to achieve RM1 million sooner than the above timeline. Reason for exclusion is that you can't really do much with the rate of return of the funds. I prefer to concentrate on the monthly allocation and how you can maximise it's growth rate by investing in accordance to fundamental investment principles.)

Kicking Off

"Kick off" is the buzzword that investment bankers, lawyers, accountants, other relevant advisers and not forgetting the companies themselves, use to signify the beginning of most corporate exercises. During a "Kick off" meeting, investment bankers essentially tell their clients "Hey look. We are darn serious about billing you the fat fees that we are supposed to earn from this simple transaction in which you will see how we complicate it through our advices. So, let's get started with this boring meeting and our legal adviser will bring you through this stack of legal document where you will see how scary the penalties are, if you try to be funny by hiding information or doze off during subsequent meetings. We call it the due diligence planning memorandum."

Abit of a side track of how advisers and their clients kick start corporate exercises, at least formally. What I would like to say to "Kick off" my blog is simply that I will be sharing investment decisions that I will take on a long term basis to achieve my first million worth of assets. I believe there are many out there who aspire to build their first million too. No intention of being an expert or make investment recommendations here. Being a keen follower of Warren Buffett and Peter Lynch, I believe in fundamental investing. My objective is to apply these principles in making my first million. Various other principles and strategies will also be adopted and they are by no means ideas of mine but more of applying and testing them.

I do not have rich family background and earn my income through employment. Without going into debate on how to maximise income through other sources, I would like to concentrate on achieving the first million through constant allocation of monthly income for investment purposes. Although I may not be residing in Malaysia, I am particularly interested in the asset classes in Malaysia. Many friends warn that fundamental investing in Bursa Malaysia holds no water as it is a market full of speculators. Being a contrarian at heart, I choose to believe otherwise. Not for the sake of going against common beliefs but I do believe that Malaysia has alot of potential and the presence of speculators is seen as a good element in stock market as they will overvalue and undervalue stocks through greed and fear. That is when fundamental investor takes opportunity by buying undervalued stocks and of course, selling overvalued stocks. Another class of asset that I am particularly interested in is the property sector. Coupled with other available asset classes like gold, mutual funds and structured products alike, I will try to take a hit in achieving the first million, the D-I-Y style.

Lastly, before any naive readers make losses by using the information in this blog, I would like to ring fence my a**hole by quoting a disclaimer which read "The information and views expressed herin are the author's personal interpretations and thoughts and in no event should be taken as investment recommendations. The author will not be responsible for any losses incurred by adopting and/or using the information disclosed herein. Supportive comments are widely encouraged though if profits are made by adopting and/or using the information disclosed herein.