Saturday, October 07, 2006

Does this article makes sense?

There was an article in the investment pages featuring a guy trading commodities in the papers on last weekend. This guy quit his full time trading job which pays a 5-figure sum to be a full time commodity investor. Usually, when a person give up something to do some other thing, the some other thing will usually be a job that pays an equally good amount of pay. Assuming this 5-figure sum to be the least of all 5-figure sum - SGD10,000. Then this guy stated: "I am confident of 6 to 8 percent gains a month. And that's a conservative figure."
Now we shall do some basic math which will eventually guides those reading the article to conclude if what is stated makes sense.
To match his previous pay of the least assumption of SGD10,000 per month, he will need a capital of of SGD125,000 or SGD166,667 to achieve a monthly 8% or 6% gain respectively. By stating that it is a conservative figure, it would apparently means it is a very logical and attainable target. If it is really so, in a year time by compounding this gain, his capital of SGD125K will be worth SGD291K in a year, $1.85 million in 3 years time, $11.8M in 6 years time and in ten years, he'll be worth a cool $1.186 BILLION. In 15 years time from now, he'll be worth SGD95 BILLION or USD60B. He is 43 years old today, in 15 years, he is 58. To compare with the current best investors, Mr Buffett, he is worth USD48B today at age 76. His alter-ego and business partner is worth USD1.8B at age 84.
Wow, what an achievement if what is stated makes sense and if simple math with variables given are so easy to achieve. I'll have to find myself a new idol to learn more on. Mr Buffett annual compounded return is about 22% since he started Berkshire Hathaway.
I hope when people read such articles, they should also think about the numbers and logic behind the numbers. Buffett once mentioned: "Things are never what it appears to be, skim milk masquerades as cream."

2 comments:

renxin said...

Touche.

8percentpa said...

Wow. Make sure he doesnt see this. Hehe. Actually I visited his blog and asked him what was his long term track record.

He mentioned that 6-8% per mth is only for the current environment. He did not reveal his long term record.

Anyways, my thinking is as follows. Which is very personal opinion, and hopes he doesnt see this as well. Hehe.

This guy probably knows what he is doing. He quit his job probably he didnt like it.

He has other sources of income besides his trading. Probably property rental, options courses etc. His intro features another guy and he keeps talking about attending such courses. So perhaps he gets something out of it.

He probably enjoys trading, and has probably traded enough to be quite good. But to maintain 8% per mth for 10yrs - probably impossible.

So the bottomline is he quits a boring job, gets to do something he likes, probably won't earn as much as his salaried job but gets to enjoy free time with family.

ST protrays the successful trader part. But for him, probably there is a lot more intangible benefits.

BTW, all this is from me, may not be the real story.