#163. Millionaire Investment Plan

Buy And Hold Or Buy And Sell (Revisited)



I have written about Buying and Selling and Buying and Holding previously. Here's a relook in a different way.

Many unit trust agents will share the power of compounding with you. They will also show you a small chart that displays how many years it take to make a million with your investment at a certain X% return per annum.



One question. Can the agents promise that consistent X% return per annum every year till you make that million Ringgit/Dollars?



Nevertheless, it's good to have a plan.



Here's my plan.



If you have RM50,000 to invest. And if you make 10% profit with each buying and selling, and then reinvest that profit, how many times will it take to make you a million?



Using a spreadsheet on the computer, on the 32nd time, you will have RM1,055, 688.84. Now, if you make 10% profit per annum and compouding that earnings, you will need 32 years to reach the 1 million mark.



Now, what if we can speed this up? What if in a year, we have 5 times of these kind of opportunities to make 10% profit each time. 32 times will only take you about 6 years to be a millionaire.



I remember a friend once told me a long, long time ago: It's hard to get your RM50,000 but once you have it, making a million is easy.



Now I understand his meaning.



How can I reach that million mark? Buy and sell. Start with an investment sum of RM50,000. Make 10% profit on each trade. Do it 5 times a year. That will be 30 times in 6 years. That will make you compound close to a million in 6 years' time.

Buying and holding it for long term won't make you see 1 million. In 6 years time, your RM50,000 has to see a price jump of 2000% in whatever you invest in. In gold is now RM107, you need to see a price of RM2140 per gram 6 years later! Is that possible?

Back to the story of how do you eat an elephant (not that we really want to eat it)? You cut it up into small pieces and eat it one piece at a time. For investment, the same thing is true. If you want to make big profit, make small profits constantly rather than hoping for a big price jump!

CK posted in my comment section in post #160:

However from my perspective, I'll treat gold investment as a long term (a better alternative than FD) which could be a year or so, or even treat it as one of the retirement funds. I believe we will be surprised to see the amount at the time of withdrawal (10, 20 or even 30 years later). Of course it could be the lowest price at the time we sell them years later, then we could have blame ourselves why we didn't sell it when it is in the peak. If we are really that unlucky (like what happen in 1980s), then you may consider to pass it to your next generation because it is not the only retirement fund we have. (Can a bank do a name transfer for gold account then? Ha). But I still don't think gold will depreciate as demand will be higher after years.

Well, here's my response and I reproduce it here.


Thanks for your analysis. Your comments are valid. Sure, if I have hold on to my gold that I have bought at RM86.03 on 28 Oct 08, I will be grinning ear to ear now. A big profit.

However, we will never know what the price is going to be. I would like to take profit when I am at the top. And buy when the price is at a low.

Of course, unless you have the foresight knowing that the price will be at this level now, RM107.42, you would have kept it till now.

We never know what the price is going to be. The price may dip and go down for many months. And your money will be stuck.

I don't want my money to be stuck. That's why I rather buy and sell at a short period even if I get a lower profit.

Another thing, if you take 10,000 and multiply by 10% five times. 10,000 X 10% X 10% X 10% X 10% X 105 = you get 16,105.10.

If you hold it and make 50%, you will only get 15,000. Nevertheless, markets or gold price don't usually make a big jump of 50% in a year. However, it goes up and down and when you catch the waves at the right time, you will get that 10% five times within a year like I mentioned.

In 2008, gold price started on 2 Jan 08 at USD846.75 and ended on 30 Dec 08 at 869.75. That's a mere 2.7%. Buying and holding sure is not a good strategy here when you see the 2008 chart. You could have easily caught 5 to 6 times of 10% profit.

There is the power of compounding if you make constant small profits.

OK, let's look even longer term. Of course, provided if you hold your gold that long.

In 1979 (30 years ago), the average price was USD306.68. In 1989 (20 years), the average was USD381.44 and 1999 (10 years) was 278.98.

See? If you have bought in 1979 and hold it for 20 years till 1999, you are at a loss from USD306.68 down to USD278.98. And you have to hold it for another 10 years till 2009 to see good profit. But I doubt that you will hold another 10 years or have faith for another 10 years once you saw that your 20 years effort has gone down the drain.

And from the Elliot Waves, if you study it, you can see that once price has reached a top, it can come down to a very low. That can happen in a very long term period. That's why you see a drop in price from 1979 to 1999.

One more thing I would like to add. Gold investment does not reap any interest or dividend if you hold it long term. Your money simply doesn't compound while it sits in physical gold or PBB GIA. The only way your money can grow massively is through the power of compounding. Buying and selling. It is as simple as that. I have mentioned in a previous post. The simple true objective for any investment is to achieve a growth in wealth. The best way and fastest way is to compound your earnings. (http://www.unit-trust-investment.com/2008/12/145-philosophy-of-unit-trust-investment.html)

Again, we never know what is going to be in the future. Who knows? Perhaps one day we don't need any money any more. People will learn to live in peace and work together in a peaceful community and no money is required. What will happen to your gold then? It's going to be just a piece of metal. That's all. Read about the coming 2012 Earth change and stuff like that, Planet X, Nibiru, Pole Shift. If you believe in any of them. We'll never know.

Topping up? You mean Dollar Cost Averaging? It's a fallacy. This strategy is for those who clearly don't know about the market. It's a 'trick' in the Unit Trust industry to get people to invest constantly so that the unit trust companies have constant supply of income. Best to buy and sell. When you have more money to invest, wait till you have sold everything, and want to buy again. Then pool all your money together and buy.

If you are a businessman, would you hold your stock for long term and wait for 5, 10 years for the price to go up before selling it? Or would you sell your stock at a small profit, take the money to buy more stock and sell it and repeat the process? We have to run our personal finance the way a business runs it. That way we will see profit.

Property investors are the same. The smartest one I have seen are usually those that buy and sell. They don't hold it long term unless it generates good rental income. In gold investment, you don't get 'rental income'.

My mom-in-law bought a house to live in and still living in it after more than 30 years. So what if you tell me that the price of the property has appreciated so and so much. It's all only on paper, unrealized profit. The wiser thing to do is to sell it and invest in another better property at a better location. Price of property in Kota Damansara for instance and Bandar Utama too, appreciated a lot if you have sold your old property and bought these. The old property's price has just stop growing much after it reaches a certain age.

Your gold investment is also unrealized profit if you just keep it for long term. You don't see the money. Once in awhile, take some profit out and enjoy a holiday trip. That's what I will do.
There are many other things I can discuss with you on buy-and-sell strategy. Many more examples. I hope you understand my points. :-)