If you could sit back and relax, you can generate an annual average of 10% return on X investment.
That's what you'd typically get on average if you invest in an index fund that tracks the S&P 500.
- You sit back and chill-ax.
- You drink your lemonade and turn on your inner Alicia Keys.
- You wait for your invested funds to grow to 10% at the end of the year.
Now, get this:
- What if you spend 365 days working your butt off for a 5% return?
That's what many crazy-hard-working companies are doing: They're working their butts off when they could just be chill-axing by a poolside turning on their inner Alica Keys, and getting their 10% returns at the end of the year.
- "We got a 3% return last year! High-five!"
- "Let's continue setting world-record rip-roaring returns and aiming for 3.3% this year!"
- "WOOT! WOOT!"
How do you distinguish good companies/industries from bad companies/industries?
Take a look at some financial reports on Yahoo Finance or Google Finance:
- If the company's ROE < 10%: not good.
- If the company's ROE > 10%: GOOD.
The point is this: If you can't consistenly achieve a higher return than the S&P's annual average, look for different opportunities that will enable you to obliterate the fasheeezy out of the S&P.
Quit opportunities that give you measly returns; if you get low returns, you're most likely thinking too small.
Example: You + Computer Shop
For instance, say you're running a computer service shop.
- You achieved 7% returns last year.
- You got your customers through advertising.
- Most customers were 1-and-done transactions.
Quit your current approach, and think bigger:
- "Let's not settle for 1-and-done transactions. Let's try to increase the average number of customer transactions to 2 or 3."
- For instance, put customers on an email list, and give them periodic tips and deals on your services.
- Soon, you start noticing an annual return of 12-20% simply because you increased the average number of customer transactions from 1 to 3.
Think larger and better, and you'll find greater returns.
Beat the market.
Posted on October 06
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