From time to time, I have received emails from my subscribers regarding a particular context of money return. Let me elaborate. Recently, one of my readers told me that by trading at FOREX, he was able to get a return of 20% in a month. He claimed that he has been able to do that consistently for many months.
I congratulated him. I praised him because he claims to achieve the impossible and through his reported claims he is going to be a billionaire very soon.

Let me give an example so that you might grasp the situation. Suppose you have RM1000. 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 and a half years. That kind growth is almost on par with that of Mark Zuckerberg who, having founded Facebook in 2004, became a billionaire in 2008.

Selling One Book Vs. Millions

Allow me to put things in a broader perspective right now and explain to you how I know claims like these are far from being true. Allow me to show you the reasoning behind it. For the sake of argument, imagine that you just ordered 12 copies of my book which costs precisely RM 39.90. As an appreciation for the bulk purchase, I grant you a discount of 50%. Each month, if you can persuade one person to buy my book at the retail price, you will be able to make a 100% gain immediately. Though you produced a yield of 100% from this simple mechanism, can you claim that the 100% you made this month was from “investment”?

Let’s continue the story. So, in this scenario imagine instead of selling only my book that you are also selling another 10 titles through the exact same process, but now the work has gotten a little bit harder than it was. When you figure out how to sell 1000 books, you get a small shop for it. Fast forward a bit. Imagine you get to sell a hundred thousand or a million copies a month. You own something like Amazon, one of the largest companies in the world.

In simpler words, I am genuinely not interested in a minuscule project where I would sell only one 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 RM1000, or RM100k, or RM1 million. That is the kind of venture I would like to participate. 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 investment that’s less hassle, less risk and still yield adequate return 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 seem. 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, Mr Warren Buffet, for example. He is one of those billionaires who tends to teach everything he knows at every chance he gets.

Since Buffett owned the majority share of the company Berkshire Hathaway in 1965, its market capitalisation has increased by ~20% annually till present. The total gain over the span of all these years he had control over the company seems to a whopping 20,000 times.

The Billionaire’s Guide to Invest for 20% Annual Return

In regard to the annual return, Warren Buffet, has a proven yet very simplistic guide. His advice contains some very fundamental aspects which every investor should know. I summarise his investment philosophy in these four elements.

1. Never Lose Money
The most fundamental rule is not letting your capital return to zero by losing money. Any number (even billions) multiplies 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.

2. Buy Great Assets by Paying the Right Price
You should always try to buy the productive assets at the 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 could be acquired for less.

3. Invest as Much as You Can!
While investing, try to go all in. You need to compound your full wealth, and not just a part of your wealth. The higher the capital, the higher the absolute return. 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 RM500 investment. But if it is 15% of RM1 million, that’s a sizable amount to sustain your lifestyle.

4. Let Compound Interest Works
That’s why investors should start as early as possible. If you get 15% return 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 large 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!


KCLau
KCLau

Personal finance author and trainer

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