29 November 2013

KLSE.8k's Idea to achieve Financial Freedom by Stock Market Investment: A Review

KLSE.8K (a.k.a. 8K) is an experienced and famous investor in Malaysia. Based on 8K's insight, having one million assets in our life is achievable. Firstly, we need to understand the power of compounding.

The Power of Compounding

If your initial capital is RM10,000.00 and your target is RM1,000,000.00, all you need to do is to find 7 undervalued businesses that provide at least 100% potential profits as follows:
0: RM   10,000
1: RM   20,000
2: RM   40,000
3: RM   80,000
4: RM  160,000
5: RM  320,000
6: RM  640,000
7: RM1,280,000
Apparently, this target is achievable.

Time is Money

However, the problem is - how long should we take to achieve 100% return in one business. This really depends on the ability of your investment as follows: 
Return of Investment rate:   5% -> time taken to achieve 100% capital appreciation: 14 years
Return of Investment rate: 10% -> time taken to achieve 100% capital appreciation:  7 years
Return of Investment rate: 15% -> time taken to achieve 100% capital appreciation:  5 years
Return of Investment rate: 20% -> time taken to achieve 100% capital appreciation:  4 years
Return of Investment rate: 25% -> time taken to achieve 100% capital appreciation:  3 years
Personally, I think the average return of investment rate of 10~15% is achievable by people who are seriously do their homework.  

Capital + Time + Compound

With the return rate of 10%, it will take 7 years to achieve 100% capital appreciation. Then, in order to achieve RM one million from RM10,000, it will take 49 years! It appears that 49 years is a quite long period of time. Well, there are two ways to address this concern:

1. To increase the initial capital to RM100,000.

Then it only takes 24.5 years (7 multiply by ~3.5 years) to achieve RM1,000,000.


2. To start as earlier as possible

If we started with an initial capital of RM10,000 for investment from your 10 years old, then we would have RM one million when we were 59 years old.

3. To improve the capability of investment

If we improved our capability of investment to the average of 15%, then we would speed-up our return to achieve the target within 35 years.

To Control What is Controllable

However, only the amount of capital and the capability of investment are what we can control.

To increase the amount of capital

We need to have a strong Will-power (for more information, please find Green Lantern) plus discipline to save our initial capital.

To increase the ability of investment

We need to constantly and never ending learn and practise investment from time to time.
That's all for today. I hope this sharing inspires you to getting started to learn to be smart consumers (to avoid unnecessary spending) and intelligent investors, and eventually, achieve financial freedom. More fascinating articles and sharing will be updated weekly in Xaivier Blog. So, you are welcome to subscribe our feed to receive our latest sharing.

Written by: Xaivier Chia

P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.


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