Probably the number one question you get asked as a financial advisor is, “What do you recommend investing in right now?”. But the right investment varies from person to person and, in any case, the recommendation could be outdated by tomorrow morning. So the more interesting and useful question is “How do I invest well?”
Let’s have a look at both sides of this – first let’s look at a couple of Hong Kong billionaires and see what they do right, then let’s see what others do wrong.
Li Ka-shing: Keep It Simple!
Li Ka-shing is the richest person in Hong Kong, with a net worth of around $35 billion. Starting from a plastic flower factory, he now owns controlling stakes in over a dozen listed companies around the world in sectors including telecoms, real estate, energy and technology.
Li is most famous for advising young professionals not to worry about being hard-up, but rather plan their finances and be frugal, by splitting their funds into five pots – one for living expenses (as low as possible), and the other four for saving, networking, education and overseas travel (to gain new experiences and to recharge from the hard work and frugality of most of the year).
But what about investing?
Well, like many other billionaires, Li recommends keeping it simple – starting off with common-sense investments in order to gain experience with moderate risk, and then taking things from there. He advises aspiring entrepreneurs, for example, to start out by going to wholesalers and finding products that they can sell at a mark-up – nothing more sophisticated than that.
That advice comes from experience – plastic flowers are hardly a ‘sexy’ investment, but evidently they were a good business. When he had a factory that faced lease complications, he then made a first move into real estate. From there, taking it one step at a time for decade after decade meant that, by 2008, he had developed the savvy to identify an attractive opportunity in a company called Facebook, very far from his initial core business.
Wong Man Li: Go Global and Compound
At 51, Wong Man Li is Hong Kong’s youngest self-made billionaire. What got him there? Casinos? Real estate? No. His company, Man Wah Holdings, sells recliner sofas and mattresses. Again, not terribly ‘sexy’. But according to Wong, his quarter-century-old venture has grown year-on-year every single year since it was founded. That’s a perfect illustration of the power of compound returns. And while he is passionate about his country (‘Everything I have, I owe to Hong Kong’), such expansion is only possible from looking overseas – more than half of his company’s revenues come from the USA. Likewise, it is not because you live in Hong Kong that you should confine your investments, in real estate for instance, to it.
So, in terms of investments, what do retail investors do wrong?
1. Dabbling. Both billionaires above made their money from focusing on their industries. They weren’t dealing in flowers and couches in the evening for fun and bragging rights. That was their core business day after day, year after year, decade after decade. So if you are a stock-trader by profession, good for you. But if not – if you are a lawyer, auditor, executive, and so on – does it really make sense to muck about day-trading shares? Or should you be developing your own career and leaving the stocks to a professional?
2. Investing for style rather than profit. Plastic flowers and recliners. Picture them together. Hardly exciting, are they? Real-estate deals and brilliant stock trades are much more exciting to talk about over cocktails. And while very few people admit it, people invest for style all the time. Which of the following pieces of property would you rather invest in: an apartment in Hong Kong, a holiday home on a beautiful beach in the Mediterranean, or a non-descript 2-bedroom flat in Southend on Sea, a commuter town 45 minutes by train from London, best known for its Pier? The answer should be – whichever is likely to give you the best return!
3. Following the crowd. Retail investors often are most interested in making riskier investments when markets are at all-time highs. You hear about your colleagues making money and even the taxi driver and hair-dresser are discussing investments with you. And that gets you thinking that you are missing out. That, of course, is a recipe for disaster. On the other hand, ‘Buy low, sell high’ is more easily said than done. Either way, short term market swings are largely unpredictable – you might recall the turmoil in the Chinese market in the second half of 2015. Rather than try to game the market, just keep going. Save and invest a portion of your income every month. The two billionaires above just kept going, through bubbles, recessions and even wars, for decades.
In summary, for success in investments, follow the strategy of Hong Kong billionaires. Use your common sense. If you are going to choose your investments yourself, invest in what you can understand. But focus on your main career, whatever that is – don’t dabble. Look globally for the best investments purely from a profit standpoint – forget convention or what your colleagues say. And then leverage the power of compound returns to let your investments multiply for decades – billionaires aren’t made overnight!