Oct 16, 2010

Capital appreciation or income distribution ?

I read somewhere someone commented it is better to focus on capital appreciation than income distribution, if one has not achieved a certain level of wealth. There is some truth to this, however, from my personal experience, this is not an easy task to do.

From hindsight, we could have bought some stocks that would see a sharp recovery from the trough in March 2009 and obtained quite a fortune through capital appreciation. But there exists a single problem - who would have known it at that point of time ?

In reality, I have had been trying to do exactly that - identifying potential stocks that might appreciate very fast in price so that I could earn the most in the shortest span of time. I spent much of my time reading up Technical Analysis and its related topics, indulged a lot of personal hours into scanning charts. The result ? I was able to find some good ones and earned some coffee money. Yes, after spending so much time and effort, I managed to only earn a little money enough to buy some nice cups of coffee. This is because I always had sold much too early when they ascended or breakout from their base. Aside from that, I had my fair share of picking the bad eggs too, and I had to cut losses fast in order to protect my capital. My deep involvement in the market had also affected my performance of my day job too. All in all, when I now look back at the past few years, I realise I am about break-even, not much gains or losses. Now, this is something serious that requires me to re-consider and re-evaluate the way I should go about in the stock market.

During the bear market of 2007/2008, most stocks would simply just sink, day in and day out. The stock market was basically DEAD. I could not even earn coffee money back then, but luckily, I still have a job to cling on. What about shorting, you may ask. No, shorting just isn't my cup of tea as I view it as a lot of risk involved. Hence, since I had got nothing much to do, I returned to reading some investing books.

I chanced upon some investing books that cited examples on how, if one had invested a dollar in the US stock market back in the beginning of last century until now, this person would now have amassed quite a substantial fortune, just by re-investing his dividends. This amazed me. I went on to read more on this and found out that there were actually studies made and confirmed this. The most successful example, needless to say, is Mr Warren Buffett. From then on, I decided to change my investment plan.

Coming back to the topic - Capital appreciation or income distribution ? I will definitely go for and have since decided on income distribution. I understand that I am a very small player in this market, but I have a strong belief now that with determination and self-control, I will be able to snowball my little investment and grows it to become bigger and bigger in the future. Hence, I am now working towards my goal as stated in the first post of my blog.

Wishing myself good luck [grin].

3 comments:

  1. this is a nice blog here. i would be following your posts via RSS

    Drizzt
    Investment Moats.com

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  2. Hi Drizzt, a great welcome to my little blog here. If you have any thought or opinion for my blog, please feel free to pen it down. :)

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