Starting from scratch

I've been getting alot of comments from my friends about how they don't understand what I am writing about in my blog. Although, it is hard for me to backtrack myself to the point where I have to start from the very beginning, I accept their contructive comments and appreciate that. It is really hard for me to have the perspective of a person who's just very new to the sharemarket, and have that new, burning enthusiasm for the market as a new interest. Nevertheless, I shall try to renew that spirit and start off with the main reason why I like to invest, and why in general people do invest at all.

Since young, I've always been driven by my dad to study economics when I grow up. But being in my school, which is science-oriented, I took that path and had never knew anything at all about economics, even in college. It was after college that I took the path switch from science to the more quasi-science art stream of commerce. Although commerce is what I'm studying right now, it is not my main interest.

Investing can mainly be traced to a branch of commerce, called Finance. Under Finance, investment theory and related studies lie the foundations of investing. Peculiarly though, investing revolves itself alot around Accounting, another branch of commerce. So to put it simple, you can say that Investing is both Accounting and Finance. Unlike the sciences, where decisions are claimed to be made solely on reasoning, investing takes on an arts approach and view as well. Just like in science, when we make a hypothesis we first need some creativity to come up with a hypothesis that is imaginative but could make sense. In the same way, investing adopts this approach, but in a somewhat different manner. If I believe a company will do well, but have no means of proving it, and if my judgement ultimately proves correct, then I made the right judgement in the first place. What can prove my judgement to be right in the first place? It is the skill and years of experience which one gathers from investing that gives him that belief or judgement.

Investment is putting money in a valuable item and hoping it will increase in value over time. That is why people invest at all. It might not have occurred to you, but have you ever wondered what are you going to do with money that you have made? Ask alot of people and most of them will tell you to just leave it in the bank. Of course, that's a very safe method(mind you, not the safest) but it will only generate you an interest of 6.25% a year. Investments, on the other hand, can generate returns in excess of that or less than that. It depends on risk. A high risk would usually mean a higher income and vice versa. So, really investing is for people that can have a higher tolerance for risk compared to people who are willing to just deposit their money in the bank.

Over the years, however, returns have showed that investing is by far the superior method. If you had put your money in the bank and received 6% interest a year on average for over a 40 year time span, your original $1000 would have become $10285.72. However, by investing in the sharemarket over time has proven to provide consistent returns of 10-12% a year on average. Taking it as 10% on average, over the same 40 year time span, your original $1000 would have become $45259.26. So my believe is that investing will ultimately achieve the highest gains superior to any other method.

However, a person who would want to invest will have to have a general positive expectation of the future. A person would not be suitable for investing if one does not have hope for a better future. One cannot fear that a meteor might soon hit earth one day, Armageddon is nearing us, or that some epidemic disease will strike the earth in the near future.

If Australia is efficient at making cars and and car parts for export, and making alot of money out of it, whilst Japanese are mostly threading cotton wools into shirts for decent export, but suddenly one day, Australia comes into a recession and can only start threading cotton wools into shirts because no one will buy their cars anymore whilst the Japanese economy is booming and they start making Nissan, Honda and Toyota, the investor would say "I'm sure somewhere in the cotton threading mills in Australia is a fast grower and I'm going to search it out".