Top 9 Businesses to Become a Millionaire

Thinking of starting your own business? If you think you could enter into any industry, sell any product or service and earn huge money, then you may be overconfident. Starting a new business is not easy. Choosing a right industry may increase your possibility of success. In today’s article, we will discuss nine industries that are most likely to make you a millionaire.

1. Financial Services

The financial services sector consists primarily of banks, insurance companies and brokerage firms. And now we have financial technology (FinTech). There’s a lot of potential in managing, handling and investing money.

2. Technology

Technology helps traditional business to create value. Every existing traditional business is a potential client for you to provide your service or solution. This is not necessarily as complex as robotics, AI, AR/VR, or automation though. A simple new software or automated systems will do.

3. Real Estate and Construction

The United Nations predicts that by 2025, the world’s population will increase to almost eight billion people, and by 2050, it would be almost 10 billion people. This means that the planet needs more houses and more buildings.

4. Health Care

People today are willing to spend more to live longer. They pay for senior homes, pharmaceutical, supplementary products that’ll help people to stay healthier.

5. Education

People want to learn more skillsets in order to survive in a rapidly-changing world. The continued rise of the internet and social media use change the way people do businesses. Today, there are people who become millionaires by offering online courses on different areas. Popular courses such as social media management, digital marketing, search engine optimization (SEO), and so on are the top picks for many people.

6. Entertainment and Recreation

People demand entertainment movies, animations, productions, special effects. There are so many companies going into that industry. Amazon Prime, Netflix, Hulu, Disney Plus, and so on. People could also become rich through certain entertainment platforms. For instance, Influencers, YouTubers, Instagrammers are now making money online.

7. Transportation

Travel is becoming a trend now. People want to go out and see new things. Transportation, especially aerospace has huge opportunities. Also, think about the rise of online shopping.

8. Energy

Especially renewable energy: solar, hydro, or wind. With more people living on the planet, we need more power.

9. Food and Agriculture

Again, more people means more food needs. The industry will never go out of style because food is a basic human need.

In short, these are the nine industries that are likely to make you a millionaire. Pick the right one that matches your knowledge and background and start to mint money!

Reference:

1. Solayman Rumon, 9 Industries Most Likely To Make You A Millionaire, https://medium.com/

2. Clive Masarakufa, 9 Industries Most Likely To Make You A Millionaire,

https://startupbiz.co.zw/

Cost of Living: Soaring?

The country may have seen a historical change in government in May 2018 and made some inroads on political and institutional reforms, but the high cost of living remains a legacy issue. Policymakers in neither the past nor the present government have been able to address it well.

Economists point to structural issues — income growth that is not keeping pace with rising prices, unaffordable property prices and, more importantly, a weak ringgit. Other contributors include an increase in food prices and changing lifestyles.

Weak Ringgit?

Sunway University Business School economics professor Dr Yeah Kim Leng told The Edge Malaysia in August 2019 that “the ringgit’s trade-weighted index is presently at around 12% to 13% below the 2010 level. This is reflective of the quantum of the erosion of purchasing power or the higher cost of imported goods.” Yeah estimates the share of imported commodities in private consumption at 14.1% in the 2015 input-output tables published by the Department of Statistics Malaysia, which is relatively unchanged from the 14.5% reading in 2010. “It therefore contributes a sizeable but not overly large share to the cost of living of the average household,” he adds.

Housing affordability?

The surge in property prices, especially in cities from 2011 to 2015, and the albeit slower, pace in the subsequent years. “The knock-on effects on rental rates also contributed to price levels remaining high relative to median income,” according to Prof. Yeah.

The median house price in Malaysia rose from RM158,000 in 2010 to RM280,000 in 2Q2019, an increase of 77% in nine years, according to the Malaysian House Price Index published by the National Property Information Centre.

However, not all assets have seen an increase in prices in the past 10 years or so. For instance, a Perodua Myvi 1.3 premium cost RM49,700 in 2008 but in 2019, a Perodua Myvi 1.3 Premium X was priced at RM46,590 — a decline of 6.3%. As for the Honda City, another middle-class family favourite, the price of the 1.5S model dropped to RM73,496 from RM84,980 in 2009 — down 14%. The lower car prices have been attributed to the liberalisation of the automotive sector under the New Automotive Policy 2014.

Income dilemma?

Academy of Sciences Malaysia Fellow Dr Madeline Berma says the slow growth in income and low wages have resulted in the inability of workers to cope with the rising cost of living. The minimum wage in Malaysia is set at RM1,100 nationwide while the urban median monthly salary stood at RM2,415 in 2018. Institute for Democracy and Economic Affairs director Laurence Todd says wages have been growing much faster at the top tier than at the bottom tier.

The power that income and currency strength has in influencing purchasing decisions can be illustrated by comparing the prices paid for a grande or medium-sized latte at Starbucks.

For example, the beverage costs RM13.80 in Malaysia or about 0.6% of the average monthly urban income of RM2,260, while across the Causeway, the same beverage is just S$6.60, a mere 0.15% of the average monthly salary of S$4,437 in Singapore. However, it would be more costly for someone in India or Vietnam to enjoy a Starbucks latte, which costs 1.5% of the average monthly income in Vietnam of VND6.6 million and 2.18% of the average monthly income in India of INR13,562.

Increasing food prices?

Food costs constitute 29.5% of the Consumer Price Index weightage, says Professor Datuk Dr M Nasir Shamsudin, an academician at Universiti Putra Malaysia’s Faculty of Agriculture.

“Thus, food prices tend to make the largest contribution to the overall increase in inflation and, therefore, the cost of living. This is a common phenomenon in developing economies where the proportion of income spent on food is high.” The food import bill surged from RM4.6 billion in 1990 to RM50 billion in 2018.

Disconnect with CPI basket?

The inflation rate in Malaysia, measured by the CPI, was 1% last year. Socio-Economic Research Centre executive director Lee Heng Guie says there is a disconnect between what is reflected by the CPI and the reality of the situation faced by consumers. “There is a substitution bias as consumers adjust their spending behaviour according to price fluctuations. They shift their consumption to alleviate the impact of any price increase but the CPI does not capture this as it is based on a fixed basket of goods and is only updated every five years,” he says, adding that the CPI also does not reflect quality improvement.

“The housing element is also undermined in the CPI as it only captures the rental rates but not the cost of owning a house, including the cost of servicing a home mortgage,” he points out.

Line between needs and wants blurs?

The lifestyle that Malaysians choose to lead also impacts cost-of-living issues. Those who choose to live beyond their means to keep up with the Joneses and maintain a high standard of living find themselves trapped in debt.

“The cost of living is also related to lifestyle. The quality of life has increased for Malaysians, resulting in a change in their lifestyle. Unlike the cost of living, the cost of lifestyle is the expense of keeping up a certain way of life, for example, purchasing items such as the latest mobile phone model, entertainment and holidays,” says Berma.

Many who wish to own luxury items but cannot afford to pay the full amount resort to installment schemes. And become indebted to their credit card providers. That is fine provided they can service their debt on time but there are serious implications if they are unable to do so. This happens more often with millennials. Thus, it is not surprising that more than 50% of the clients of Agensi Kaunseling dan Pengurusan Kredit (AKPK) debt management programme (DMP) are below 40 years of age. The DMP is a rehabilitative plan to assist consumers regain financial control. As at Dec 31 last year, 246,041 Malaysians had enrolled in the DMP, of which 44,925 registered just last year. Statistics from the Malaysian Department of Insolvency show that 64,632 Malaysians, ranging from 18 to 44 in age, have been declared bankrupt over the last five years.

How could we resolve?

Handouts, handouts, handouts are not a permanent solution. This is a temporary fix like in a flood or disaster.

Price control and selected places for distribution of essential items are not new. The Government has i-KEEP stores nationwide for 197 consumer items. Price discounts usually range between 2 – 20% of market price.

The key elements of costs are food, transportation and shelter. Imported food raises costs. Food imports totalled RM50 billion in 2018 compared to RM4.6 billion in 1990. Supply-side must be re-calibrated for this to work.

Transportation cost could be subsidised significantly if congestion tax or the like are introduced. More free buses on the roads and connected to rail network will help.

Rental of homes at affordable levels will ensure the B40 have a roof over their heads. More affordable homes built with tax incentives for developers will help. Land availability at reasonable prices can reduce overall costs.

A low wage economy is not helpful for a nation heading for a developed state. The minimum wage has to be RM1,500 per month. Productivity, efficiency will justify the new minimum wage. Employers have to be incentivised to commit to higher wages. Also, unleash the potential of undocumented foreign workers by registering them.

But how do we pay for this? Selective increases in taxes for the rich (above RM2.0 million incomes per annum) and corporates with “super profits” is a possiible answer. What’s the point of TNB reporting PBT of RM5.0 billion (2018) or the major banks having profits over RM4.0 billion per year? The burden has to be shared. “Trickle down” economics does not work. Government has a responsibility to wield the big stick if we are to reduce inequalities.

Reference:

1. Cost of living conundrum, 15 Aug 2019, The Edge Malaysia

2. Why cost of living remains high, 3 Aug 2019, The Edge Malaysia

3. ‘High cost of living due to weak ringgit’, 1 Dec 2019, The Star

Retail Apocalypse?

The term “retail apocalypse” gained currency in 2017 with multiple closures in the U.S. of major retailers. Since 2010, various economic factors have impacted U.S. stores.

Sears Holdings with more than 3,500 stores in 2006, down-sized to 1,430 stores in 2016 and filed for bankruptcy in October 2018. Sears had 68,000 employees. The impact is not only on employees but suppliers and others as well. Over 12,000 physical stores have closed since 2018.

Factors for closure include over-expansion of malls, rising rents, bankruptcies of leveraged buyouts, low quarterly profits, changing habits and online shopping. Millennials generally resort to online purchases.

The most productive retailers in the U.S. are the discount superstores Walmart and Target, the low-cost “fast-fashion” brands (e.g. Zara, Uniqlo), off-price department stores and dollar stores.

In Malaysia, hypermarkets are facing a bleak future. Many are pulling their shutters or revisiting their business model. Operational costs, waning customers’ appetite and tough fight with smaller outfits make their case untenable. Internet shopping has hit mega retailers, as consumers opt for cheaper options.

GCH Retail (M) Sdn Bhd, operator of Giant Hypermarket has closed seven of its hypermarkets since 2017. In addition, nine supermarkets, low premium supermarkets under the Cold Storage brand are targetted for closure. GCH has been suffering four consecutive years of net losses (since 2014). GCH Retail posted a net loss of RM235.11 million on revenue of RM4.6 billion in 2017. Accumulated losses amounted to RM243.5 million. GCH Retail is owned by DFI Mauritius Limited (70%) and Syarikat Pesaka Antah Sdn Bhd (30%).

In December 2018, it was reported Tesco was contemplating to exit its businesses in Thailand and Malaysia. Tesco left Japan, the U.S. and Turkey in recent years. This is amid stiff competition.

AEON Co (M) Bhd, the operator of the Japanese-owned hypermarket chain, downsized its departmental store areas in several locations and refurbished stores to focus on food items.

Besides online buying, smaller chain retailers like 99 Speedmart and Mr DIY have also contributed to the slow exit of hypermarket. According to Retail Group Malaysia (RGM), the hypermarket segment has been slumping since 2017. RGM MD, Mr Tan Hai Hsin, has forecast that supermarkets and hypermarkets will remain in the red with negative growth for 2019.

What lessons can we learn? There is no such thing as “too big to fail”; adaptability is another; technology makes the difference and being agile in a tough market is key to survival.

References:

1. Hypermarkets face a bleak future on waning appetite, The Malaysian Reserve, July 15, 2019

2. 20 more Giant and Cold Storage stores to close? Vasantha Ganesan, August 20, 2019, www.theedgemarkets.com

3. Tesco Plc likely to exit Asia business, focus on home country, EU, Ayisy Yusuf, December 10, 2019, New Straits Times

When will we see a Black Swan?

A “black swan” is a term coined by Nassim Nicholas Taleb and it has three (or perhaps four) characteristics:

1. unpredictable;

2. massive impact;

3. everyone comes with an explanation (like using Nostradamus after the event); and

4. no “expert” actually saw it coming

Black swan events can be positive or negative. The genesis of the term (black swan) is the western belief that all swans are white. In 1697, a Dutch explorer made it to Australia and discovered black swans.

World War I was when an Archduke was shot. That cost was 40 million dead (civilians and military). Was it worth it? No! Anyone saw it coming? None!

Today there is a similar pile of dry tinder waiting for spark. Too much debt, worsening geo-politics, fake news, climate change and trade wars (and maybe many others!). The world is waiting for a black swan with a lit coal in its beak.

Can we connect some dots? Massive pile of debts (USD250 trillion) makes you vulnerable to shocks. This is the financial tinder. Few expert economists are worried. Why? It is business as usual. We need massive QEs or liquidity will dry up.

  

Then there is oil. Energy resources allow economic growth. If the Straits of Hormuz is shut for a month because of war, then price (of oil) will spike and we end up in negative growth territory. Many will lose their business, jobs and savings.

With Trump in office, no one knows what could be the black swan! It could be an economic tsunami or a terrorist initiated action that culminates in a “war to end all wars”.

Reference:

Waiting for the Black Swan, Chris Martenson, June 14, 2019 (www.peakprosperity.com)

CFA Institute Investment Foundations Program: Chapter 17 – Investment Management (Part IV)

In a previous article, we introduced the CFA Institute Investment Foundation Program (Read more here).  It is a free program designed for anyone who wants to enter or advance within the investment management industry, including IT, operations, accounting, administration, and marketing.  Candidates who successfully pass the online exam earn the CFA Institute Investment Foundations Certificate.

There are total of 20 Chapters in 7 modules, covering all the essential topics in finance, economics, ethics and regulations.  This series of articles will highlight the core knowledge of each chapter.

Chapter 17 provides an overview of the investment management. The learning outcome of chapter 17 is as follows:

·       Describe systematic risk and specific risk;

·       Describe how diversification affects the risk of a portfolio;

·       Describe how portfolios are constructed to address client investment objectives and constraints;

·       Describe strategic and tactical asset allocation;

·       Compare passive and active investment management;

·       Explain factors necessary for successful active management;

·       Describe how active managers attempt to identify and capture market inefficiencies.

In a previous article, passive and active management were discussed.  Active investment managers use various methods to try to identify future performance. Managers using fundamental analysis focus on macroeconomic, industry-specific, and company-specific factors that make securities and assets valuable. Other managers use technical and behavioural models to identify trends and momentum in the market and to predict how trading by other market participants may change future market prices. Some active managers build statistical or quantitative models to try to identify shares that are likely to outperform or underperform. In practice, many managers use a blend of the techniques discussed in the following sections. Based on their analysis, active managers purchase assets that are expected to have superior returns and sell assets that are expected to underperform.

Fundamental Analysis

Active managers often try to identify and capture market inefficiencies through fundamental analysis. For equity investors, this process means conducting a thorough analysis of a company’s business model, its prospects, and its financial situation. This analysis may involve meeting company management and interviewing them about their strategy and the prospects of the company.

Typically, an analyst or investment manager performs some form of fundamental analysis to arrive at an estimated value for a company’s shares. If the share price is significantly below the estimated value, the manager will increase the weighting of the shares in the portfolio or add the shares to the portfolio.

The value of a security can be viewed as the present value of all the cash flows the security will generate in the future.  Investors can estimate the value of a stock by discounting all the dividends they expect to receive while they hold the stock and adding the proceeds from selling the stock. Value that is estimated this way is called the stock’s fundamental value or intrinsic value.

When analysing equities, they pay close attention to an issuer’s future prospects for earning money and producing valuable assets. Among many other issues, they consider the following:

·       Demand for the company’s products

·       Cost of producing those products

·       Profit margins of the company and whether the margins are sustainable

·       Competitiveness of the company and whether it can remain competitive

·       Quality, stability, and security of the company’s management, workforce, and physical and intellectual assets

·       Productivity of its research and development efforts

·       Amount of debt the company uses to fund its operations and investments

·       Value of options to suspend or expand operations or to engage in new initiatives

·       Prospects for disruptive technological innovations, the imposition or removal of significant regulatory constraints, and legal or extra-legal expropriations that may affect the company’s viability

·       Macroeconomic issues, such as prospects for inflation, national economic growth, and unemployment

·       Legal and regulatory environment the company operates within and whether any major changes are planned

·       Corporate governance problems that may allow corporate managers to waste or misuse corporate earnings that otherwise could be distributed to shareholders or be retained to pay off debt holders

Technical and Behavioural Analysis

Managers using technical analysis study market information, including price patterns and trading volumes, whereas managers using behavioural analysis focus on indicators of market sentiment, such as manufacturers’ new orders or indices of consumer expectations.

Some investment managers use a technical approach, seeking to assess price and trading volume trends in the stock market to identify shares that may outperform or underperform. For example, an active manager who believes in momentum will try to invest in shares that have recently been rising in the market, which is based on the notion that a rising share will continue to rise. Other managers might look for signs of imbalance between the potential buyers and sellers of a share to try to predict which direction the share is likely to move.

Quantitative Analysis

Some managers build statistical models to try to identify shares that are likely to outperform. By analysing data, they identify characteristics that have typically been associated with share price outperformance. For example, the analysis might suggest that companies with below-market average valuation levels (for example, the ratio of the share price to earnings per share, known as P/E) and above-average expected earnings growth tend to outperform. This insight can then be used to search for shares that show those characteristics. Managers using this approach are often called “quants”, because of the quantitative models they use.

As noted earlier, managers may use a combination of the types of analysis. Also, depending on the asset, asset class, or market being analysed, the approach(es) used and the precise variables of interest will differ.

Source: https://www.cfainstitute.org/en/programs/investment-foundations

                                  

Analysts who review share price and trading volume trends in an effort to identify shares that might outperform are most likely:

A technical analysts.

B fundamental analysts.

C quantitative analysts.

 

pollcode.com free polls

Fund Price Wars: A Dollar Auction Game

Asset managers are always competing for assets of individuals, institutions, and retirement accounts. In 2018 alone, asset managers gave up more than $3.5 billion in fees by reducing the expense ratios they charge for their products (Warren Miller, 2019).

In Miller’s publication “The Game Theory of Fund Price Wars”, he explains the cost-cutting situation with the Dollar Auction, a game that illustrates a paradox of rational choice theory.

How a Dollar Auction works?

Two players are given opportunities to repeatedly bid in an auction for a dollar bill. The player with the highest bid wins the dollar bill. The catch is that the second highest bidder must pay his or her highest bid as well. When player A bids 1 cent, he will take into account if player B bids 2 cent, then he will lose 1 cent for nothing. In other words, whenever one player offers a higher bid, the other loses.

When the bid is up to 1 dollar, the bidder will have neither profit nor loss. But, if another player offers $1.01 bid and wins the dollar bill, he will only lose 1 cent instead.

People typically start this game by calling out a small amount of money because they figure they have little to lose. They think to themselves, "If I can win a buck for 10 or 15 cents, I'm pretty smart." The problem is that everyone else in the game has the same logic. When the bids approach 1 dollar, the motivation of the bidders change: from a desire to maximize returns to minimizing losses. Thus, the question transforms from "How much can I win?" to "How do I keep from losing?" At this point, the auction often goes above $1.

Funding price wars are much like the dollar auction. The players (asset management companies) are bidding (by making fee cuts to their funds) for dollars (asset flows) repeatedly. And of course, nearly all asset flows go to the cheapest funds within any given category.

Figure 1: Total net flows by net expense ratio percentile within category

over the last 5 years for passive funds

Investment fees have dropped so low but is this the end? No, if the dollar auction model holds true. Fund companies may soon be paying investors to invest with them.

Who wins the price wars?

In the dollar auction, the auctioneer wins – receiving more money than auctioning the dollar bill. Likewise, the end investor is the winner of the fund price wars.

Although no asset manager wins a price war, some may lose less. Firms that create differentiated products are equivalent to potential bidders in the dollar auction who refuse to make an initial bid. They don’t allow themselves to be sucked into the game. Instead, these fund managers maintain their pricing power by offering hard-to-replicate investment.

Reference:

1. Warren Miller (2019), The Game Theory of Fund Price Wars www.flowspring.com

2. Douglas Noll (2000), The Dollar Auction Game: A Lesson in Conflict Escalation www.mediate.com/

Is Our Defence in Shambles?

Malaysia’ defense 2019 budget was the lowest after 2017, with an allocation of only US$3.87 billion, a reduction of 40 percent from its allocated budget in 2018.  Of this allocation, US$3 billion will be for Operating Expenditure while the rest will be for Development Expenditure. The budget represents a series of military and other “non-essential” spending cuts in the country.

Source: Malaysian Annual Budget Plan

Then there are the scandals of corruption or incompetence or both. For example, there was the RM300 million deal to acquire lightweight combat helicopters from McDonnell Douglas. Two were delivered in July 2017 and the remaining four was supposed to be delivered in 2018. To-date RM112.65 million has been paid. No signs of remaining helicopters. In the meantime, the Nuri fleet of helicopters has been grounded with a Nuri crash in August 2019. Maybe we could lease some to replace those grounded? Then we have 28 Russian fighter jets but only 4 can fly. So budget cuts, no spares, no fly!

The Navy is no better. Only 2 offshore petrol vessels (OPVs) were supplied from a contract of 6 at a cost of RM4.9 billion. The Ministry of Defence (MOD) paid RM4.26 billion in advance buy only two were delivered. In October 2013, the Government signed an agreement with another local shipyard for 6 littoral combat ships (LCS). About RM6 billion has been paid but no sign of the ships. Delivery is now in 2023 and may incur an additional RM1.4 billion.

The Army is the least impacted by non-delivery of assets. Hopefully, its procurement of Deftech vehicles and howitzers will be done by 2020.

We are left with aircrafts that cannot fly, submarines that may not dive, and ships that are on paper. The real problem is corruption, malfeasance and incompetence. But no one is charged or taken to task!

We are very compassionate people. We remind ourselves that this should not happen again. But it happens! We hope that the Ministry of Finance will try to prevent history from repeating itself. The MOD needs to target not 1% of GDP for defence but about 2% of GDP by 2025. And take steps to rectify internal weaknesses on procedures. Then and only then we may have a credible defence force in the region.

Reference:

1. Malaysia-Defense, 23/8/2019 www.export.gov 

2. Malaysia’s defence doldrums, Dzirhan Mahadzir, April 5, 2019

 https://asianmilitaryreview.com

3. Billions lost in defence procurement scandals, Dennis Ignatius, December 9, 2019 

https://www.freemalaysiatoday.com