From time to time, I receive a lot of emails from my subscribers on the topic of financial returns. Let me elaborate. There was one time when one of my readers told me that through FOREX trading, he was able to get a return of 20% a month! He claimed that he has been able to do that consistently for many months. I congratulated him. I did so because he claimed to have achieved the impossible and also went on to say that he was set to become a billionaire.
Allow me to give you an example – suppose you have RM1,000. If you compound it by 20% every month you are going to be a millionaire in 38 months and a billionaire in 77 months which is equal to 6.5 years. That kind of growth is almost on par with that of Mark Zuckerberg, who, having founded Facebook in 2004, became a billionaire in 2008.
Allow me to put things in a wider perspective right now and explain to you how I know claims like these are eons from being true. Allow me to show you the reasoning behind it. For the sake of the argument, let’s assume you just ordered 12 copies of my book which costs precisely RM 39.90 each. As an appreciation for the bulk purchase, I grant you a discount of 40%. Each month, if you are able to just persuade 1 person to buy my book at 20% discount from the retail price, you will be able to immediately make a 20% return. Though you made a return of 20% from this simple mechanism, can you actually claim that the 20% you made this month was from this little “investment”?
Let’s continue. In this scenario, imagine that instead of selling only my book, you are also selling another 10 titles through the exact same process, but now the work has gotten a little bit harder than it used to be. When you figure out how to sell 1,000 books, you get a little shop for it. Fast forward a bit. Imagine you have to sell a hundred thousand or a million copies a month. You make something like Amazon, one of the largest companies in the world.
Simply put, I am genuinely not interested in a minuscule project where I would sell only 1 item every month at a profit margin of 50%. For investing, I want to know that the process of return is the same and it will yield in 20% return, regardless of whether I invest RM1,000, or RM100,000 or even RM1 million. That is the kind of venture I would like to invest in.
I want something that can scale big, even with the same process. Instead of targeting short term high profit that can’t be scaled higher, deeper, bigger, you should instead focus on long-term investments that cause less hassle, less risk, and still yield adequate returns like 15%-20% a year.
So where exactly do you learn to do these things? When you wrap your head around it, you will see it’s not as hard as it might be. The past is loaded with examples of billionaires who successfully went through this and excelled.
Let’s look at the life of one of the most vocal billionaires, Warren Buffet, for example. He is one billionaire who tends to share everything he knows at every opportunity he gets. Since Buffett owned the majority share of the company Berkshire Hathaway in 1965, its market capitalisation has increased by 21.6% annually till 2014. The total gain over the span of all these years he had control over the company seems to a whopping 1,826,163%. His annual return was around 20%.
With regard to the annual returns, Buffet, has proven yet a very simplistic guide. His guide contains some very fundamental aspects which every investor should know. I summarise his investment philosophy as follows:
Never Lose Money
The most fundamental rule is not letting your capital return to zero by losing money. Any number (even billions) times zero, equals zero. Therefore, extra caution should be given to check the fact that there is a chance for the investment to revert to a zero figure. An investment like these should be avoided at any cost no matter what.
Buy Great Assets By Paying The Right Price
You should always try to buy good assets at a proper price. Good assets don’t make good investments if you pay too high a price. Always look for discounts while you are at it. Never overpay for what you think might be acquired for less.
Invest as Much as You Can!
While investing, try to go all out. You need to compound your full wealth, and not just a part of your wealth. The higher the capital, the higher the absolute returns. That is why after evaluation if you think the project or the asset is proper, then you should always try to invest as much as you can, without jeopardising your situation. There is nothing to shout about if you get 20% from an RM 500 investment. But if it is 15% of RM1 million, that’s a sizable amount to sustain your lifestyle.
Let Compounded Interest Work
That’s why making investments should begin as early as possible. If you get 15% returns annually from your investment, you will be able to double the money you invested within a very short span of 5 years. For this, the focus goes back to the point of investing as much money as possible, preferably all of it for a higher return.
The best billionaires didn’t reach this stage just like that. They had the best plans regarding their investments which always turned out to be long-term business plans. Short term goals with a bulky amount of profit might seem very lucrative at certain times, but you need to understand that the target shouldn’t be to make money as quickly as possible. If there is anything quick about money, it is losing it!