17 December 2021

Limited Resources are Worthy for Investment and have Good Return?

Q: Limited Resources are Worthy for Investment and have Good Return? 
A: Of course, NO. 

1. Supply and Demand
This is about the relationship of Supply and Demand.  This is because people are only willing to "pay money" or "exchange values" for something that they need (i.e. essential goods and services) or want (i.e. unessential goods and services e.g. luxury brand, unproductive items.)

Thus, one way to increase the price of an item (goods or services) is make it appears to have high demand, but low supply. I use "appear" to show the trick that is commonly used in the present market. You shall easily figure few examples around you.

2. Intrinsic value and value investment
In stock market investment, the share (in percentage) is a limited resource. This is because the maximum amount of the shares of a business is 100%. This is impossible to make it more or less - even the number of shares is increased or reduced using various financial tools e.g. share buyback and bonus issue. If you hold 10% of the business, by participating all kinds of financial activities e.g. right issues, bonus issues, you will still hold 10% of the business. 

Once you understand that the supply of the shares of a business is limited, then you will understand why the major shareholders of a good business are unlikely to exchange their shares for money. This is because the shares are limited while money is unlimited. This is the main reason why our money are relatively less valuable compared to the shares of a good business. For a bad business, the story will be opposite - of course.

3. Trick is here - the values of all assets are dynamic - including business.
If you now suddenly have a strong determination to ALL-IN your money to a certain asset, then most likely you are gambling!!. Everything is dynamic (keep changing), especially in business. If you are lucky to buy a business in low price, then the probability for you to earn money is high as the market price is lower than its intrinsic values. This is the idea of value investment. We aim to increase the probability instead of to get a chance that has 100% profit. The latter must be a SCAM if someone is trying to share an "opportunity" that will guarantee an attractive profit. Come on - if got such "opportunity", where are those bankers, private investors, hedge fund managers, etc. The 100% is about their commission or service fee by introducing this "opportunity" to you!!. Be aware!!!.

That's all for today. More fascinating articles and sharing will be updated weekly in Xaivier Blog. So, you are welcome to subscribe our feed to receive our updates

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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