Sunday, September 05, 2010

What is Your Investment Return?

You may face similar conversation below during your daily activities but not to the second stage of the conversation because we always measure the investment return based on the "Amount"
rather than the "Percentage" .

So, who do you think is the smarter investor? Scooby Doo or Son Goku (Dragon Ball)?


Investment return should always be expressed in "percentage" rather than in "amount" for comparison. In this example, Scobby's investment return is $1K/$5K X 100% = 20% wherelse Goku's investment return is $10K/$200K X100% = 5%. It is clearly Scooby has the higher investment return although the amount is way less than Goku.

Not only just the "Percentage", the investment return should be expressed in the "Annual Basis" too which is kind of a standard way of measuring investment return in the financial world. If you don't want to use "Annual Basis" as a base, it is okay too as long as the comparison has the same common ground (e.g. using 6 months to compare).

P/S: Anyone think that Goku is the smarter investor here? Yes, he could be - using money to generate even more money with low risk investment return? What is your opinion?

9 Comments:

Kris said...

Yeah..percentage would be a the correct measurement on ROI. But as we are humans, we tend to like to see big numbers instead :P

Alvin said...

the way i kira very easy lo. amount X i start in january 2010 (of jan of each year), then the current amount Y. (y-x)/x. that's it. :D

so far....only 2.3% =_= quite pathetic.

but tats excluding FD n unit trust la.

kampunginvestor said...

If people can think about their ROI (Return of Investment) in percentage, then less people will loose money in the share market. Not only share market but any investment is also the same.

Always use % on your ROI and you will never go wrong.

Just take FD as a yardstick. If banks gives you 3% a year and you can make RM 3 from a RM 10 product which is 30%, you are 10 times ahead of FD already. ^^ Simple..!

ChampDog said...

@Kris
I think people won't care also if the % is big but the amount is too small. It is very common when we talk we seldom express in the % form.

@Alvin
Yes, you should be getting way more than 2.3% in the next Jan. :) Wish you luck!

@Kampunginvestor
I agree with you. People often forget about the %. Funny thing is is we usually say how much we earn (in term of the value) for normal chit-chatting.

Chong Kong Hui said...

1) ROI shall be the common measurement; Your example is good to illustrate this.

2) For higher amount of fund, it is challenging to maintain the same ROI when it is small. EPF is good example.

3) For risky investment, ROI must be > 3X the FD rate, else why bother to take risk. For very good and stable company, may be 2X will be good enough.

ChampDog said...

Using FD as benchmark of measurement is an good idea. Thanks for your comment. I just sold my stock recently and earning of 86%. But that is for few years of return. :)

kampunginvestor said...

@Champdog : A few years of return is much better compared to FD in like 20 years? ^^

Kudos in your handsome ROI. Which stock did you sold that made you so much $$?

Chong Kong Hui said...

ROI should include dividend and capital changes i.e. bonus share/share split/right issue.

EUPE - now around RM0.52 have NTA at least >RM2.0 (real value, not book value).

Therefore EUPE share price may move to RM1.10 easily. If within 10 years it move to RM1.10, the return still 2x better than FD, right? (even no dividend)

There are many good counters give more than 50% return over last 12 months or 24 months. Just look for good company...

ChampDog said...

@Kampunginvestor
Yes, it is still better than FD. It is my company stock based in US actually. I rarely invest in Malaysia stock. :D

I'm glad the stock that I bought has been performing very good recently. The only bad thing is the USD dropped quite badly recently. Well, that is the risk when we invest in oversea.

@ChongKongHui
For stock, I usually just look at the capital gain for ROI and not really looking at the dividend as it is too small to be accounted for. This is still good as long as I don't over estimate my ROI.

I also included all the transaction fees. One thing that I didn't do is the "currency conversion" and that should be counted for better accuracy. I usually don't track that. :)


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