Why Invest In Stocks?

Investing is making your money work for you by getting your money to generate more money. Investing in stocks has consistently proven to be one of the most profitable forms of investment available.

Can Ordinary People Profit from the Stock Market?

Many people say things like “I’d love to get into the stock market” or “If I had more money, I’d invest in stocks”. Many people also believe that to make a profit from the stock market you either need to be rich already, be a full-time investment trader or be a financial whiz.

Not necessarily so.

Let’s take a look at three different scenarios of ordinary people in the stock market to see how they fared. This will let us view how the process works, the different approaches, and how returns are generated.

The benefits include:

Immediate Buy/Sell so you can sell part of your investment any time. Very low transaction cost.
The freedom to work at your own place, at your pace in your own time.
Easy monitoring – log in to the market from anywhere in the world.
Being able to maximise returns whilst spreading your risk.
A predictable form of investment if you know what you’re doing.
Putting you in control and freeing you of fund management fees.
Considerable tax advantages.

Things to watch out for:

The market can be a volatile place.
You must acquire knowledge of what you are doing.
You must monitor your investments.
You must learn the discipline to enter and exit the market on entry and exit signals.

Scenario 1

John works in a manufacturing plant earning RM33,000 a year. After rent, living and personal expenses, John has managed to save RM1,500 over the past 6 months that he wants to invest in the stock market. John buys 1,600 shares in ABC Mining at RM0.90 per share (RM1,440). He also pays RM32.95 brokerage fees for buying the shares. In total, John has invested RM1,472.95.

Six months later John decides to sell his shares. He has kept an eye on the performance of ABC Mining and they have risen to RM1.19 a share. John sells his shares for RM1,904. He also pays RM32.95 brokerage fees for selling his shares, leaving him with RM1,871.05. That is a profit of RM398.10.

RM398.10 may not sound a lot, but remember John only invested RM1,472.95 for 6 months, so he won’t make a huge return. Nevertheless, John made a 27% profit which is far better than he would have made by putting the money into his savings account.

Scenario 2

May and Chong both work full-time in professional jobs. Together, they earn RM120,000 per year. After mortgage repayments, living and personal expenses May and Chong have managed to put away RM5,000 that they want to now invest in the stock market. They buy 1,500 shares in AAA Steel at RM1.48 a share (RM2,220) and 1,500 shares in XY Manufacturing at RM1.33 a share (RM1,995). They also pay RM65.90 brokerage fees for the two transactions. Their total outlay is RM4,280.90.

Over the next 12 months AAA Steel shares have risen to RM2.60 a share and XY Manufacturing shares have moved to only RM1.38 a share. May and Chong sell their shares for a total of RM5970. They pay their broker RM65.90 and are left with RM5904.10. Their initial investment was RM4,280.90. So, they make a profit of RM1,623.20.

Scenario 3

Aminah is retired, owns her own home and earns a comfortable income from several long term investments. Aminah would like to invest RM15,000 that she has set aside for buying shares.

Aminah selects a portfolio of 5 companies and aims to invest around RM3,000 in each. Aminah buys 3,333 shares in ABC Mining at RM0.90 a share (an investment of RM2,999.70). She also buys 2,027 shares in AAA Steel at RM1.48 a share (RM2,999.96) and 2,255 shares in XY Manufacturing at RM1.33 a share (RM2,999.15). To complete her portfolio, Aminah buys a further 2,912 shares in MM Multimedia at RM1.03 a share (RM2,999.36) and 3,000 shares in BB Furniture at RM1.00 a share (RM3,000). Aminah also pays RM164.75 brokerage fees for buying the shares. In total, Aminah has invested RM1,5162.92.

12 months later Aminah sells her shares. Four of the shares have increased in value but BB Furniture has dropped to RM0.95 a share. ABC Mining rose to RM1.19 a share returning RM3,966.27. AAA Steel rose to RM2.60 a share returning RM5,270.20. XY Manufacturing rose to RM1.38 a share returning RM3,111.90. MM Multimedia rose to RM1.09 a share returning RM3,174.08. BB Furniture dropped to RM0.95 a share returning RM2,850. In total, Aminah’s shares returned RM18,372.45 less RM164.75 for brokerage. This gives a total of RM18207.70, earning a profit of RM3,044.78.