How to Make a Million Slowly

Most millionaires happen to be business owners.

John begins his career as an employee who also runs a small side business as a hobby. Over a period of less than two decades (16 years), his hobby side business is worth more than one million GBP.

It turns out that the business that John is running has higher success rate than any other businesses. In fact, people rarely lose money in it over the long term, typically 5 to 10 years and beyond.

It does not consume too much of John’s time and energy. It is almost a pleasure to run it. It does not even require large start-up capital: only GBP 7000 maximum per year. This means that the business that John runs is highly accessible and affordable to anyone of us.

That profitable business is called stock investment.

$600 per Month over 16 Years Can Turn into Miracle

What John had achieved is incredible. Investing $7000 per year is equivalent to around $600 per month.

Investing $600 per month consistently over 16 years to generate a net worth of more than one million. That is slightly more than 20 % return per annum. To keep thing in perspective, the total out-of-pocket capital amounts to a total of $115200.

If you start investing at 30 and achieve the same result as John investing $600 per month, you could be a millionaire by 46. If you repeat this process for another 16 years, you could be a multi-millionaire.

How to Make a Million Slowly

John follows certain criteria before making any investments.

  • Low PE, High Yield: He prefers single digit PE companies that pay generous dividends
  • Undiscovered, Unloved, Undervalued: These are the magical words that describe the type of companies that attract John’s attention
  • The Beauty of Small: John invests in small companies which have higher growth potential than larger more established companies
  • Reinvestment of dividends: He leverages on the compounding machine that does all the hard work for him
  • Friendly and frugal management: He likes to attend AGM to get the feel of CEOs whether they are honest and reliable with significant stakes in the companies

There is nothing extraordinary in the criteria list. That is exactly what make it so extraordinary. It means that you don’t need to be able to understand quantum physics in order to make a million.

John is a typical value investor who beliefs that value will prevail eventually.

You can read more about John’s investment principles from his book How to Make a Million – Slowly: My Guiding Principles from a Lifetime of Successful Investing (Financial Times) where he details all the investments he made including the many successes and especially the failures that he encountered during the process. He will show you how to make a million slowly.

Note: The book does not seem to be popular among the readers. This could mean good news and opportunities for those who actually read it.

Final Thought

If you dream of becoming a millionaire by starting a profitable business, stock investment is probably one of the safest and best options. You could run a one-man investment firm where you are the fund manager allocating your own money (no borrowing is necessary) to where it is the most productive to maximising its returns. $600 per month is a good starting point.

In a way, it is an advantage to not have a large capital to start because you could go places where most big investors can’t. That means more opportunities. The cost of failure is also lower.

However, it takes time to see results. But who will complain being a millionaire running a small part-time side business that cost so little?

Most millionaires are business owners. Do you want to own one too?

The Survival of The Luckiest

Today is your lucky day.

Luck fascinates me. It is always an interesting topic for me. Anything that is related to chance, randomness, or luck intrigues me. This leads me to the following observations.

In today’s world, it is no longer the survival of the fittest, or the strongest or the most adaptable. It is the survival of the luckiest.

There is No Reason for Our Existence on Earth

Only those who are lucky can survive. And those who are extremely lucky, thrive. It goes naturally that those who are unlucky get eliminated. We are the lucky ones. Some species of animals are extinct. They are the unlucky ones.

Environment plays a big role in explaining luck. External factors, that are random and unpredictable, are influencing everyone’s life. Different environment promotes different culture, different atmosphere and different style of living, therefore creating different outcome for different people.

The “weak” (e.g. patients who are very sick) survive thanks to easy access to the latest technology (e.g. medicine). They can then thrive. It is the environment that is the most adaptable that leads to the survival of the luckiest (or the weakest). For people that don’t have access to this modern environment, they die.

Those who have easy access to resources will have higher chance of surviving. Those who do not, disappear.

The riches or those who have the resources can shape their environment. Therefore, change their destiny.

How to Be Successful?

Those who climb to the top are lucky, given the large pool of skilled and talented people that we have. Most people are intelligent and hard working. But only a few are at the top.

What explain their success? What explain the shape of the distribution curve, especially the farthest right corner? Luck. The luckiest are at the farthest right corner of the curve. They have the right opportunities, the right environment, the right background, the right connections, the right timing, etc.

You don’t have to be the best. You just have to be lucky.

Embrace Luck in Your Life

The force of luck is powerful even though you have little control of it. It can push you to the stratosphere or kill you.

Luck favours the prepared mind. You don’t know when luck will hit you because it is random and elusive and hard to “reproduce”.

Don’t be fooled by randomness. Someone living better than you are not necessarily smarter (or dumber) than you. Randomness alone can creates a variety of experiences in this world. Having an open mind could let you see this world more objectively.

Anything could happen in this world. You can be extremely lucky one day if you (are lucky enough to) live long enough to see it.

Get Lucky by Taking Calculated Risk

999 out of 1000 entrepreneurs fail. Those who succeed are lucky. Those who are extremely successful are extremely lucky. Entrepreneurship is never easy.

Most businesses fail. Given this fact, those businesses that thrive and are extremely profitable and seem like making everything right have stroke the life jackpot. They can milk their fortune for several generations or destroy them at their will.

It is not necessarily the best businesses that survive but the luckiest.

You can tap into their “luck” by buying those “lucky” businesses via the stock markets and prosper with them. This is a win-win situation. These businesses get lucky so that you don’t need to be lucky to get lucky.

You need to expose yourself to luck. Luck sometimes can be (mis-)classified as risk.

You increase your chance of success by buying the proven-to-be-lucky companies that have large earnings. This is the calculated risk.

Stock is The World Greatest Asset Class

In such a world that favours the luckiest, there happens to be one single thing that could bring luck to everyone. It is the stock.

Stock represents a business.

Business pays taxes which are used to develop the country and to pay government bond interest.

Business also pays corporate bond interest.

Business pays rent for properties and other real estate.

Business buys commodities (metal, materials, etc).

Business pays salaries.

Business innovates so that we can live a better life.

Business supports all finances in the world. Therefore, it must have the highest returns of all asset classes.

It is lucky for us to have invented the stock market. Within it, everyone prospers. We are lucky because our economic system, which is supported by a variety of businesses, works extremely well.

Most people are working very hard everyday in the system and some get extremely lucky to be rich and therefore can afford to live a different life.

Final Thought

Finally, luck is not that out of reach after all. We are already living in such a lucky environment.

A simple thought that any time and any where in the world, there are some companies that are getting lucky can make me happy because that brings opportunities for all of us.

You can change your life by moving towards where the resources are. One imperceptible small step at a time. By doing so consistently, you increase your chance to success. Over time, you maximise your lucky factor and you could be the luckiest person on earth.

Double Your Money Within Five Years Through ETFs

Exchange-Traded-Fund (ETF) is a game changer in the investment world. It creates a movement in the right direction where everyone can invest passively in index funds or any market sectors around the world in a very low-cost manner.

Without ETF, people who would like to invest in equities to participate in the economic growth would either invest directly in individual stocks or through mutual-funds.

Individual stock picking is not a trivial skill that anyone could learn easily. It requires tremendous time and effort. It is not everyone’s game. For average Joe, buying mutual funds is the only way to participate in the stock market.

Although mutual funds save people time in managing the portfolio, they charge as high as 5% commission per transaction. That is a big drag to the performance of any mutual funds. Let say a fund returns 10%, the investor only gets 5% after commission. Worse, most mutual funds don’t beat the performance of the passive index funds where the ETFs are tracking.

With ETF, people can keep almost all of the market returns since its expense ratio is usually below 1%. Let say an exchange-traded-fund returns 10%, the investor keeps 9% after expense. That is a huge advantage compare to buying mutual fund.

ETF is diversified in a way that it usually holds a bucket of companies at a time. This reduces the non-systemic risk of buying individual stocks.

ETF provides investors access to any asset classes that are categorised by value, growth, commodity, bond, geography (by country), sector, etc around the world. People can, thus, focus on allocating assets and buying the world market through ETFs.

According to research, 90% of the investment returns are coming from asset allocations instead of market timing.

Most of the ETFs are weighted according to market cap. This means that companies with the highest valuation get the biggest shares in the portfolio. There is also fundamentally weighted ETFs that meet the need of value investors where the most undervalued companies constitute the largest components of the index.

In a way, the fundamentally weighted ETFs have strategy automation built-in where the valuation is inversely proportional to allocation: the most undervalued companies are allocated the most funds. The automated rebalancing actually reduces risk and increases return.

With all the good things, ETFs also come with traps: leveraged ETFs and inverse ETFs. If you don’t understand how they work, stay away from them.

ETFs that could double your money in 5 years

CodeNameCAGR (5 Years)AUMNo. of HoldingsExpense RatioPEPTBVDistribution YieldIndex Weighting MethodologyInception DateBrand
RHSGuggenheim S&P 500 Equal Weight Consumer Staples ETF17.39%$757.02 M340.40%27.135.451.60%Equal11/01/06Guggenheim
PSCCPowerShares S&P SmallCap Consumer Staples Portfolio18.01%$124.15 M140.29%21.832.131.25%Market Cap04/07/10PowerShares
IYCiShares U.S. Consumer Services ETF17.93%$885.26 M1730.45% Cap06/12/00iShares
FXGFirst Trust Consumer Staples AlphaDEX Fund16.23%$2.47 B380.62%25.883.761.61%Tiered05/08/07First Trust
VCRVanguard Consumer Discretionary Index Fund17.63%$1.93 B3730.10%23.814.721.96%Market Cap01/26/04Vanguard
PSLPowerShares DWA Consumer Staples Momentum Portfolio14.70%$269.79 M300.60%27.235.410.91%Momentum10/12/06PowerShares
VDCVanguard Consumer Staples Index Fund15.10%$3.51 B990.10%25.725.073.35%Market Cap01/26/04Vanguard
SPLVPowershares S&P 500 Low Volatility Portfolio14.54%$7.64 B990.25%23.983.402.01%Volatility05/05/11PowerShares
DVYiShares Select Dividend ETF14.92%$16.27 B940.39%28.062.453.08%Dividend11/03/03iShares
KBWPPowerShares KBW Property & Casualty Insurance Portfolio20.92%$68.91 M230.35%14.631.311.61%Tiered12/02/10PowerShares
ITAiShares U.S. Aerospace & Defense ETF19.16%$879.2 M360.44%33.703.780.85%Market Cap05/01/06iShares
IHIiShares U.S. Medical Devices ETF19.34%$1.43 B470.44%36.873.891.04%Market Cap05/01/06iShares
SPHDPowerShares S&P 500 High Dividend Low Volatility Portfolio--$2.68 B500.30%20.052.453.33%Dividend10/18/12PowerShares
DONWisdomTree MidCap Dividend Fund15.80%$2.04 B9690.38%41.072.642.47%Dividend06/16/06WisdomTree
DHSWisdomTree High Dividend Fund14.64%$1.31 B9620.38%29.632.673.19%Dividend06/16/06WisdomTree
JKDiShares Morningstar Large-Cap ETF15.83%$643.76 M760.20%20.583.332.27%Market Cap06/28/04iShares
PEYPowerShares High Yield Equity Dividend Achievers Portfolio17.60%$1.02 B500.54%43.632.313.19%Dividend12/09/04PowerShares
SDYSPDR S&P Dividend ETF15.41%$14.79 B1070.35%26.413.015.40%Dividend11/08/05SPDR
VIGVanguard Dividend Appreciation Index Fund12.70%$22.56 B1840.09%24.334.242.08%Market Cap04/21/06Vanguard
NOBLProShares S&P 500 Dividend Aristocrats ETF--$2.45 B500.35%24.563.871.79%Equal10/09/13ProShares
WDIVSPDR S&P Global Dividend ETF--$82.31 M990.40%19.751.854.73%Dividend05/29/13SPDR
ETFs that could double your money in 5 years (data collected as of September 2016)

The above are some of the ETFs that have returned around and above 15% compound rate over a 5-year period. That translates to doubling your money over 5 years.

If you had $1 million at the beginning to invest in those ETFs, after 5 years, you would have $2 millions. $1 million richer.

Performance of RHS

Performance of RHS

The image above shows the performance of one of the ETFs.

Final thought

If you had been investing in stocks for more than 5 years but still were unable to double your money, you could consider to switch to buying ETFs instead. ETFs simplify things. My $0.02.