Lately, I received an email from a subscriber of DividendVault.com:
What caught my attention is his mention of the phrase ‘temptations of trading’. It is an interesting description and I’ll like to pen down my thoughts on it in detail as it will offer an insight on what investors will like to achieve from investing in the long run, myself included.
Is Trading a Form of ‘Addiction’?
Today, we associate gambling as a form of addiction, a lust of money in absence of real production, exchange or enhancement of value.
But what about trading? How is it an addiction? After all, isn’t trading legit? You can’t possibly put trading and gambling in the same category, right? Or, could I?
Well, regardless of how you view the above, I find the two are similar in regards to what they intend to attain, which is monetary gains in the short run and they are both games of probabilities and are based on emotions like fear and greed.
Thus, for traders, their eyes are on the money.
They view stocks as means to be traded for short-term gains, profiting from the differential price movements as a result of emotional fluctuation in the market.
What do You ‘Really’ Think a Stock is?
I’m not asking for a textbook answer. It’s not about passing SPMs.
I’m asking all to think deeper, including myself, what we truly believe a stock is.
This is because our results will be determined by our actions, which in turn, will be influenced by our beliefs. It is actually the ‘Be-Do-Have’ concept. So, if one is interested to have a sizable portfolio and be financially free, it would be helpful for him to start by focusing on being a better investor himself. His ‘being’ would guide him to ‘do’ the things that savvy investors do and thus, would lead him to ‘have‘ the results achieved by savvy investors.
So, your vision is very important.
What you see yourself doing and having in the future is very important.
And, you have to be clear about it.
Do You See Yourself Doing This 10 Years From Now?
Okay, so let’s say, you are interested in stock trading.
You saw how gurus, friends, and family members had made great profits from a series of trading activities and you are thinking to yourself, ‘Hey, maybe I should try out stock trading to earn myself some additional income.’
And, that is cool.
Here, let me ask you:
‘If today, you plan to trade. How much capital will you put in to do a stock trade in the stock market?’
‘Is it around RM 5,000? RM 10,000? RM 25,000? or more for one stock?’
And, let’s say, your goal is to double your capital. So, this means, if you put in as much as RM 5,000 to trade 1 stock, you aim to get RM 10,000 and thus, making 100% in capital gains for each successful trade.
Here, let’s also assume that over time, you became good at this.
So, my next question is, ‘Will you put RM 50,000, 10 times your capital, to trade a stock to double your money to RM 100,000 ten years from now?’
Will you dump RM 100,000 into a stock to double your money to RM 200,000?
Or, how about RM 250,000 into a stock to double it to RM 500,000?
Can you see yourself doing that in 10 years from now?
If you say, ‘No la, it is too risky. If I have RM 50,000, I’ll still put in only RM 5,000 into trading 1 stock.’, then, here is the thing – Can you see that, in 10 years time, you will be doing the same thing as what you are doing today, which is trying to turn RM 5,000 into RM 10,000 for each successful trade.
I’m not against that. But, the question is, ‘Is that really what you want?’
Uncles & Aunties in Public Bank’s AGM
I’m sure you have heard stories of how Public Bank’s AGMs are frequented by a lot of uncles and aunties who have built some wealth with Public Bank’s shares. Some of them have been holding onto them for years or even decades.
So, let’s do a simple experiment.
I’m going to backtrack 10 years from today to 2011.
At that time, an investor wished to accumulate shares of Public Bank Bhd in the long term and had planned to invest in 1,000 shares of Public Bank Bhd on 31st December of each year over the next 10 years. Hence, by now, the investor had already invested RM 191,180 to accumulate 10,000 shares of Public Bank Bhd.
He now holds 50,000 shares of Public Bank Bhd after its recent 4:1 bonus issue. At its current price of RM 4.10 a share, the value of his 50,000 shares works out to be RM 205,000.
In addition, by now, he would have received RM 31,480 in dividends.
Also, as it stands, if Public Bank maintains its 2019 dividend of 14.6 sen which is adjusted for the 4:1 bonus issue in future years, his 50,000 shares will continue to pay him RM 7,300 a year in dividend income (without him doing anything). It is truly passive income to him.
What if I Backtrack to 20 Years from Today?
Of course, the results would be even more impressive.
If an uncle or an auntie did the above for 20 years starting in 2001, by now, that uncle or auntie would have invested RM 269,050 into Public Bank Bhd and over time, grown his or her investment to owning 100,000 shares worth RM 410,000 presently, which could yield them RM 14,600 a year in passive income.
Does it take a Master Degree or PhD to do the above?
Is the investment strategy a complicated one?
Does it require a state-of-the-art investment or trading software to do so?
Does he or she need to know how to time the market?
Then, what does it take?
It takes a belief that stock investing is about accumulation of good businesses.
It takes a vision of building a sizable stock portfolio over the long-term.
And, it takes emotional strength to hold onto your beliefs, your vision, and your stockholdings throughout the investment period over the 10 or 20 years. This is because there are many incidents that trigger many people to either buy or sell their shares in the stock market, causing stock prices to fluctuate in the period.
So, What Do You See Yourself Doing in 10 Years Time?
Will you become that uncle or that auntie who has RM 100,000, RM 200,000 or more worth of shares, earning a 5-figure dividend income each year?
Will you still be trading RM 5,000 in each stock trying to earn some ‘duit kopi’?
That, I’ll leave it to you to decide.
If you will like to find out more about my art of building a stock portfolio, you may check out the free training: