Tuesday, May 28, 2013

The 10% Target

Many people started investing with an ambitious mind. They wanted to make 5% to 10% within the week. Many of these people ended up disappointed. I realised that among the many whom have started investing about during the same period as I did, around 1992, quite a few of them have left the scene.

No, they have not made enough, but many of these people have suffered enough. How? It is the different objectives that caused these people to have suffered. When the objective continues to change, the picking of stocks have also changed. As I said before, there are probably less than 1,000 listed companies in Malaysia, and out of that probably 10% of them are investible. And for me out of that 10%, probably I can understand about half of them. Oil and gas, some manufacturing and few more are probably out of my league.

For one to be able to know all, it is probably impossible. But stocks investment is not about knowing all. It is about knowing and be comfortable with what we know. Overtime, as we get invested, we will know more. But still we will not be able to know all. If we have a moderate target, we can probably think clearer. We have a different objective when we have a clear mind especially when comes to investment. We are not afraid of having sleepless nights when market drops.

I would say, over the long run, it is advisable for one to have just a 10% target. How is that 10% target going to be achievable and be significant. I just wrote something about power of compounding. It is significant, considering the interest rate condition and what we can get from elsewhere. While 10% is a very achievable target, one should know that it is extremely hard for one to achieve that in the long run. Today, or rather over the last few months, market have been very friendly to many investors. You and I can make more than 20% to 30% say over 6 months. But that is not going to last over a long time or consistently, that can't be achieved. Almost impossible!

So what is the 10% target. The 10% target is to achieve what we try to achieve on average in the long run. The 10% target is also, trying to understand 10% of the stocks that are in the market. While the more we know the better we become, sometimes it can become overwhelming.

The 10% target is also sticking to one's plan. And more often than not that plan is about value investing. Nothing else, as continuously chasing all kinds of stocks is going to make one getting stressed and lose focus.

3 comments:

fakecakes said...

Yes, what you said is absolutely right. I believe in the 10% target.

Steve

DayTrader said...

Maximizing returns is all about knowledge, dedication, study and sometimes a bit of luck. Mostly it's down to hardwork going through financial reports, analysts reports, industry reports, technical charts etc. Its constantly learning new things and digesting information. That's why most successful traders only stick to selected industries or stocks familiar to themselves.

I believe that the dedicated ones are always the ones who can constantly get decent returns. People who get burned are those who rely solely on luck and rumours in their trade. Doesn't matter if the target is 10% or 50% as in long run those who don't do their homework usually fails. Better to leave their money with fund managers than to treat the KLCI like a casino in such cases.

felicity said...

well supported statement