PostHeaderIcon Buying Stocks or Buying Land?

Our second week class for CSS (Certified Securities Specialist) has just ended earlier. For me, it provided a lot of learning and refreshes my mind about financial statistics and math investment. I was a little excited in attending yesterday (Friday) for the start of our second week. I ask myself, why I felt such an excitement. My mind just shut out, then I tried to rationalize, probably it is because it is my desire to learn more about the field I am interested in (Financial Planning). After the class earlier, I found the real answer; the topic was an amazing one. Expecting the best to happen really provides such excitement.

Let me give thanks to our lecturer, Dr. Raymund Abara for the wonderful inputs. Now, let me share with you what I have learned. First is about the Island of Manhattan in New York. We were asked what place is considered today as one of the most expensive place in Earth. My good friend, Atty. Zigfred Diaz whispered, “Manhattan”. I thought it was in some place in Middle East. Then Manhattan it is, he was correct. By history, for those who did not know, the Island of Manhattan was acquired by a Dutch Colonist, Peter Minuit from an American Indian worth $24 on May 24, 1626. Can you believe that? Mostly of the class were shocked! Yes it is true. According to Peter Wolf (Land in America, 1981), the total value of all land in the U.S. in 1975 was $1.3 trillion. Assuming an average annual appreciation of 5 percent per year, the land was worth $2.7 trillion as of 1991 (from straightdope.com). The first impression was, it was really a good buy! But let us pause for a while, a question was raised by our lecturer, “who did the better decision?” the question was based on financial perspective. Can you guess who? The Dutch Colonist or the American Indian?

Now, let us do the math by using the Time Value of Money (TVM). Given are: let us convert the present value first from straightdope.com of Manhattan. From $2.7trillion in 1991 with 5% increase, now it should be $8.7 trillion; interest 8% if invested in securities, time is 389, and PV is $24. The Future Value would be $241 trillion. Now, who is the richer the American Indians who can have $241 trillion or the Dutch Colonist who can have $8.7 trillion? I guess we were all wrong. The American Indian got the best out of the deal; Minuit may have paid too much.

A good learning for us! Also, if we tried to reflect from the story, which is a better investment buying a land or buying a stock? I guess buying a stock is better in long term perspective. Second, it taught us to have a good decision making in buying a stock with the right value at the right price or should I say a discounted or undervalued price.

Also, a good strategy in choosing a good stock was given to us in a way in computing the cash flow of the company and not the Net Income. Some other ways in determining the return on investment, net present value, payback period, and internal rate of return are the needed necessary tools in stock valuation. However, in the learning I got, investing should still be synchronized with the inner value of the individuals. We should know first our deeper values in using and dealing with our finances. Let us say for example, is good education for your children is valuable to you? Is providing a comfortable retirement is valuable to you? Having a nice vacation or travel gives you the right satisfaction? Helping other homeless people is important to you? Again, before you invest, know first what you value the most then plan what should be done next.

My deeper motive in taking up this course is for me to give more valuable advice to people who are not aware in accumulating, managing, and distributing their finances. No matter how much you earn, managing your finances is still the critical and better part in becoming financially peace. And there is no short cut in achieving financial peace; it takes enough desire and discipline to achieve it. People who search for short cuts got the worst out of their financial life. There is a saying I have heard, “the road is better than the end”. Therefore, enjoy your journey in having financial peace.

Serge Barcenas Bargayo is registered financial planner of RFP Philippines, a professional group of financial planners in the country. He specializes in Personal Financial Planning who help individuals (especially breadwinners) mapping customized solutions for their financial puzzles and achieve financial peace. He can be your Professional Partner for life in doing step by step financial planning.

Contact serge through: Cell no: 0917-859-9386/0999-327-3086; email add: sergebargayo@gmail.com

FB: facebook.com/sergebbargayo; twitter: @sergebbargayo; LinkedIn: linkedin.com/in/cebufinancecoach

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D’ Intelligent investor is one of the first few updated value investing blogs in Asia and probably the only updated value investing blog in the Philippines where you can learn stock market investing through intelligent investing that makes business sense. The stock market investing strategies are very different from what most stock market players advocate. The strategies featured here are mainly value investing principles more specifically inclined with what are perceived to be Warren Buffett’s style of investing. Other value investing strategies by great value investors such as Benjamin Graham, Peter Lynch, John Boggle among others are also featured.