I often write on Quora.com, where I am the most viewed writer on financial matters, with over 333.8 million views in recent years.
In the answers below I focused on the following topics and issues:
- Why does Elon Musk always tweet controversial statements though it’s hitting his and Tesla’s credibility? Or is this the wrong way to look at it?
- Why should be factor in time when looking at return on investment (ROI)?
- What are some good, and bad, reasons to build your own home versus buying new?
- Why do some investors not want to invest into Chinese stocks? Is it about the political system, risk or another reason?
- What are some stocks I would never invest in, and why?
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Why does Elon Musk always tweet controversial statements though it’s hitting his and Tesla’s credibility?
He does make many controversial tweets, including the latest one involving Bernie Sanders:
If you ever ate fish and chips served in the traditional style in the UK, actually read the paper after you have finished next time.
The fact is that today’s scandal is tomorrow’s fish and chips paper:
There is no such thing as bad publicity. Some naive people think that isn’t true now due to social media, but that isn’t the case.
Trump, whatever you think about politics, partly won the 2016 election based on getting loads of free publicity.
I can’t speak for Musk’s intentions, but surely he knows that getting attention is profitable long-term.
Being famous, or even infamous will be better for him long-term, than getting zero attention.
The issue most businesses have is being completely unknown. Tesla and Musk certainly don’t have that issue.
In fact, the bigger issue they have is the personality cult around Musk might cause Tesla’s stock to continue to skyrocket and be disconnected from the fundamentals of the company.
Musk has many times the number of followers on social media than Tesla has. The stock price can rise, and fall, sometimes dramatically, on one of his tweets.
That could potentially cause one of the biggest bubbles of any stock in the history of stock markets.
Either way, that is a different problem to have than credibility. In fact, it is the opposite problem in some ways – having so many followers and “credibility”, despite “scandals”, that the price of your company share price can go up based on your words alone.
How do you compute for the Return of Investment? Is there a formula for this?
This answer will challenge the traditional way to look at ROI.
Below is the traditional way to look at ROI:
However, the above calculation doesn’t take account of one key component-time.
In this traditional way of looking at ROI, a passive investment that produces, on average, 9% per year, is not as good as an investment that is producing 9.1% with loads of time spent on it.
Let’s give some examples.
You invest $100,000 as a lump sum + $1,000 a month into the S&P500 for 35 years.
You make 8% per year, on average, and 5.5% after inflation. These numbers are very conservative considering the averages are 10% and 6.7% respectively.
Your final investment would be worth $3.7million, or about $1.92m adjusted for inflation.
Now let’s say you spend, on average, two hours a year on the investment, including any paperwork which is needed.
In this case, you have spent 70 hours in total on the investment over 35 years.
That means you have $27,142 an hour, on average, from making a simple decision that has compounded, over time. Or $52,857 if we don’t adjust for inflation.
You make the same investment – $100,0000 + $1,000 a month or the equivalent of regular injections as lump sums.
This time, you invest into a property, other people’s businesses as a venture capitalist or your own business.
You beat the first investor. Instead of making 5.5% after inflation, you make 7% after inflation.
You have $2,842,619.67. Almost $1million more than investor one, adjusted for inflation.
Most people would assume that investor two has done much better than the first person.
So, 1.5% after inflation, every single year for 35 years. However, you spend 10 hours a week on this – 520 hours a year.
So, 18,200 hours over the 35 years. Which is…..$156.18 an hour adjusted for inflation versus $27,142!
If investor two spends 40 hours a week on this, the ROI adjusted for time would be $39.04 an hour.
What does this example show?
- Everything compounds – investing does if you start young but so does time. Every hour you spend as a 25-year-old is worth more than as a 65-year-old.
- Sometimes paying for advice to save time is more than worth it – whether that it is in tax, investing, residency, or whatever. If you spend $1,000 for an hour with a tax consultant, that might beat 10 hours doing your own research, depending on how much your time is worth and what you do with the time.
- Yes, the above example does work best when we are comparing like for like. Comparing your primary residency to a passive investment isn’t an apples for apples comparison – a time-consuming rental property vs a passive investment is. Likewise, running your own business vs a passive investment isn’t a great comparison. Investing passively versus spending loads of hours researching private investments is a better comparison.
The point holds though. ROI, which doesn’t adjust for time, isn’t as good as factoring in that component.
Use your time wisely.
What are some good reasons to build your own house?
Many people assume a house is safe. The worst can’t happen. In fact, it is quite normal for there to be issues.
If you are the tenant, you don’t have to pay for big damages, unless you caused them.
If you own the place, you do need to pay directly, and indirectly – your time
These days, you have two issues:
- In some countries, cheaper and lower quality materials are being used, compared to previous generations, which increases the risks of big maintenance costs.
- In more developed countries, there have been enhanced regulations due to scandals and tragedies. An example is cladding in the UK. After this awful fire a few years ago, millions of homes can’t easily be sold due to not having the right cladding:
Building your own home might cost you time, but you can at least:
- Know what you are getting
- Potentially save money versus buying new
- Reduce your risks if you do it right
- Build to-spec.
There are negatives as well though. I would forget about doing this in the UK and many other highly regulated countries.
It might seem romantic to rebuild some old castle, or buy land, but it only works in some countries.
If you aren’t careful you will also spend too much time on the details, and have plenty of stress.
What is more, renting can sometimes make sense full stop, depending on your circumstances.
Building your own place can sometimes make sense though.
Why do some investors say that Chinese stocks are uninvestable?
I wouldn’t say most investors think that all Chinese stocks are uninvestable. Below is a relatively updated version of MSCI World:
China is a big part of MSCI Emerging Markets as per the graph below, so it has a whole to play in MSCI World:
MSCI World is one of the most popular ETFs in the world. It is bought by institutional and retail investors.
If people were uncomfortable about the China allocation, then there would be a big growth in indexes that tracked the world but exclude China.
What is absolutely correct, however, is that most investors don’t want a high allocation to China, and many don’t want to buy individual Chinese stocks, listed in Mainland China.
This makes sense for the following reasons
1. Stock picking is risky in any market. Most people struggle long-term even in the US. In China, the political risks are super risk, so it is even riskier.
Look at what has happened recently with firms just going out of business in the education space, and some others, after one or two changes to legislation. That does bring about opportunities and volatility but in return for huge risks.
2. Many of the biggest US and international firms already make a lot of revenue in China. What is more, plenty of very successful Chinese firms IPO in the US and abroad?
So, if you buy the S&P500, you indirectly have a reasonable amount of exposure to Chinese growth.
3. The whole point about the stock markets is that if you buy and hold for decades, you should be up. That was always the case in China as well, until 2006.
Now markets have been down for 15 years. This might come and go. The US stock market had 17 years of stagnation from the mid-60s until the early 80s.
The point is though, China has performed very badly for a long period of time, and unlike the US before, there is no indication that things will change.
They might change, but the political risks have probably contributed to the situation.
Against that, some investors see Chinese stocks as cheap now, which is true.
4. Growth and stock prices aren’t usually connected.
US, UK, and many other stock markets have sometimes performed poorly during periods of low growth or even recessions.
Likewise, emerging markets, whilst great in terms of GDP growth, haven’t always outperformed developed ones, and are riskier.
So, even if you are bullish about Chinese growth, which is questionable given the numerous challenges they have, that won’t automatically translate into better returns.
The bottom line for most sensible investors is the risk: reward ratio. China might outperform again, just as the Shanghai Composite did from 2000 until 2006, but the risks are also far higher, especially considering the indirect exposure you can get elsewhere.
What are some stocks you would never suggest anyone to invest in? Why?
People forget something about the tech bubble in the 1990s. A lot of people think it was a bubble because the price went up too quickly, and that is why some of these names went bust:
That wasn’t the main reason. The Nasdaq went up about over 40% last year, but we are using technology more than 40% more.
The bigger issue in the 1990s was that many of the firms were unprofitable.
People were buying these stocks based on the assumption that the future would belong to technology, and therefore valuations would eventually match what they were paying.
The issue is that the whole index, the Nasdaq, did eventually go from strength to strength.
However, many of the firms in the index went bust. Some of the best performing stocks, like half of the FAANG, didn’t go on the index until later on.
So, the only people who made money either picked the right tech stocks, like bought and held Microsoft, or they purchased the whole index through an Nasdaq ETF and index fund.
We see similar things these days with green technology, sustainable energy and similar areas.
Investors are speculating that this is the future. Technology will get bigger, and government policy will be more accommodative.
That might turn out to the case, but relying on governments is always high-risk at the best of times.
What I suspect might happen is similar to technology in the 1990s.
- There will be loads of volatility. Some people will get sacred, especially if the downturn is sharp and lasts years.
- Countless individual stocks will go out of business. Many of them aren’t even profitable now
- Only very patient investors who invest in the whole industry through certain ETFs will do well, unless they are lucky enough to pick the winners.
So, to answer your question, I would never invest in individual stocks which aren’t yet profitable.
Sure, that has downsides. Look at Nasdaq, or Amazon for years. And it is true that for technology stocks, revenue growth can be a better long-term indicator than price:earnings ratios.
The way I look at it though is that buying unprofitable individual stocks is a huge speculation.
Buying any individual stocks over an ETF is riskier, but at least if the stock is profitable, it might be based on more than mere speculation.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 694.5 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
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