Investment vehicles that yields 15 % return – Part 2
In my last post entitled “Investment vehicles that yields 15 % return – Part 1” I revealed that there are only two vehicles of investments that I know so far that yield a 15 % or more return compounded per annum.
In that post I talked about the first investment vehicle, which is investing in real estate. I talked about why real estate investments yield more than 15 % per annum. I also discussed the disadvantages of investing in real estate.
Now let’s go to the second vehicle of investment that will give u a return of 15 % per annum compounded – BUSINESS.
2.) Investing in a business – Being in business is the most rewarding. In fact it is more rewarding than investing in real estate as the returns will always be greater. I heard from somebody that for the past 10 years nobody in the top ten billionaire’s list of the world got there by investing in real estate. All of them were engaged in business. Those who got rich by real estate appeared only until after the top 20. (Anyway it seems that way if you look at the list, but I need to check this out)
Anyway, there are several ways of doing business but I will only talk about three most common ways of business investing these are: active, semi-passive and passive business investing.
a.) Active business investing – This simply means you devote not only time, but also effort and money or try to secure money to finance the business. There are advantages and advantages of doing this. Some of the advantages are, since you are running the business, you will do your best to succeed since you have put it in your own time, effort and finances. With this advantage comes the disadvantage of you becoming busier and living a more stressful life as your business grows. Add to this fact as is any other kind of business investing, is the possibility that the business will fail.
b.) Semi-passive business investing – This means that you are just the “Capital investor.” You merely invest your finances. Of course you still have to devote a little bit of time since you will be attending board meetings or meetings of your partnership or your managers.
There are various ways to do this. If you are starting a business from scratch, you get an industrial partner; let him manage the business while you merely provide the capital. Then there’s the franchising possibility. You put in capital by getting a franchise like McDonalds, Kentucky etc. and hire professional managers to run it. Another way of doing this is buying an existing business and let professional managers run it. The advantage of this is of course is lesser headache and stress for you as you are not involved in the day to day operations of the company. However the disadvantage is that since you do not run the business yourself, there is this possibility that your managers or your industrial partners will mismanage it.
c.) Passive business investing – This is similar to semi-passive business investing wherein you are the one who provide the capital, the only difference is that you don’t get to directly choose the management, and you may or may not attend board meetings. There is only one way to do this and that is to buy a small part of a business wherein you are not a majority stock holder.
This type of business investing is where I formally introduce to you the main topic of this blog which is, stock market investing. I believe the only way to do passive business investing is to buy shares of stocks in the stock market.
Stocks are “small pieces” of a business. Remember this fundamental principle in stock market investing. Stocks are not merely blips in the screen or graphs in a chart. A stock is a piece of a business. WHEN YOU BUY A STOCK, YOU ARE BUYING A BUSINESS. This is the most serious error committed by 95 % of stock market investors that is, they buy a stock without considering that such shares of stock are part of a business. They only buy stocks for speculation hoping that the market will push the price up. They don’t care what the underlying business behind a certain stock is. All they care about is the stock price. No wonder a lot of people get burned in the stock market. I don’t blame people for thinking that way because this is what is being taught by the pundits. Anyway, we we’ll do some technical investing bashing later on. For now let’s focus on our topic.
Again there are advantages and disadvantages of investing in the stock market. An advantage is that this is what I personally call as stress free business investing because you invest only as you wish, you don’t have to directly choose management and you don’t even have to attend stock holders meeting if you don’t want to. You can freely choose which company to invest and which company not to invest in. You can even decide to refuse to invest for certain periods and just go fishing and come back when you think the prices are right. If you frequently did your homework and studied the company thoroughly, you can sit at home all day and watch your favorite movie or play with computer games while the company that you invest in grows money for you.
The disadvantage is of course you will have to make sure that you know exactly what you are doing and make sure that you choose wisely which company you are investing in. To do this you have to spend a lot of time reading financial reports and spend a lot of time analyzing if a company is a good investment. Since you don’t get to choose management directly, (Although technically you are entitled to cast your votes in stock holders meeting as to who get elected into the board) you will have to study carefully who good the management of a certain company is before you make your investment. This approach to investing is commonly called as “value investing.” No school of business (At least not in the Philippines) is offering this approach to investment or is at least emphasizing this approach. So initially you will have to do your homework by reading books and materials on value investing. Did I mentioned that you have it also helps to read this blog regularly to learn more about value investing ? hehehehe 
So now that I have formally introduced the topic on the next post, let’s me give you ten reasons on why I love stock market investing.
Hi ! my name is Zigfred Diaz, Thanks for visiting my blog where you can learn stock market investing the Warren Buffett way and using other value investing methods ! Never miss a post from this blog. Subscribe to my full feeds for free. Click here to subscribe to the Guerilla investor by Email
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hey, it’s me again =) you mentioned about “analyzing a company”, could you elaborate more on that? how do you really analyze a company? what do i need to look at? which portals do i need to check frequently? do i need to put some documentation of my own? etc. thanks again!
rhani: Analyzing a company means reading information about the company. This includes understanding how the company works, its products and getting to know the management. Of utmost importance is to study the company’s financial. To do this you need to read a lot about the company, observe the company’s product in action by observing how it is faring in the stores, or how it is providing service. (This is called “Scuttle Butt method” according to legendary investor, Philip Fisher I will talk more about this later) For example if you have stocks in GMA7 or ABS-CBN you might want to observe their programming, their ad loads, their ratings and the direction of the t.v industry etc. We are now in the internet age so this is not something that is very hard to do. A lot of information about company can be found by the click of the finger. Talking to people within the company might also help. With regards to the company’s financial, visit the company’s website to download the annual reports. The Philippine stock Exchange website also contains the latest on company disclosures. Doing all of this ensures that you understand the company that you are investing into. After all buying stocks is buying a business. If you invest in something, you need to know what you are getting into. This is what intelligent investing is all about. People who buy stocks just because the charts says so, or they got a wild tip from somebody or they are speculating that the stock will go up is just plain speculating and gambling that’s why a lot of people get burned in the stock market.
As time goes by I will later on introduce the “Intelligent Investor’s tools” in analyzing a company. This is a series of long post devoted to analyzing a company. Its not hard to do, and most of it is not even my ideas. Its been used by value investors throughout the years, I am just putting them together and making the more understandable to ordinary investors. Do drop by this blog from time to time to learn more. Thanks !
thank you so much for the clear explanation! so i really have to dig in to the background of the company/stock, not just on the rates i see on the ticker =) i’m currently reading your previous blogs and also the books you suggested like “learn to earn”, really great book.
i’ve already sent my application on citiseconline, hopefully i get approve =) i’ll try their EIP. could you give some inputs on that? is it worth it? i’m planning to keep on funding thru EIP first while still acquiring enough knowledge for me to trade on my own aside from the EIP. is that a good move? thanks.
rhani: Yep ! You should do your best to know more about the company that you are investing in. As Benjamin Graham puts it, “Investing is most intelligent when it is most business like”
Another Peter Lynch great is “One up on wall street.” Also try reading “Rule number one” by Phil Town and any warren Buffett books.
Citisec is a great online broker. Lots of information is offered to investors. They also do a lot of market education for free. (Free stock market investing seminars)
I have not tried EIP but based on the information I have read its about “cost averaging.” I am not really a fan of the cost averaging. If you must do “cost averaging” I believe it is best to do it through an “index fund.” As Warren Buffett says ““ . . . By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals. . .” Anyway, more on this in a future post
thank you, i’ll look up those books. so i guess in the world of investing, it’s the same in a sense that not everyone agrees on what other people/company says is a good investment =) because the way i’ve read the explanation for EIP, it’s like their saying it would really give you lots of benefits. i’ll check more on “cost averaging” and “index fund”. thanks!
rhani: Yep not everyone agrees on the “value” of the company. This partly explains the wild fluctuations of the stock market. The most important thing is that you make your own independent conclusion on arriving at the value of the company. Take to heart this wise Buffett saying “You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else”