Investment Practice: Optimizing Life Returns

Investment Practice:
Optimizing Life Returns
By Orestis Hadjipanayis
What Defines an Investment?
Giving up an asset today for one of greater
value in the future.
Human beings carry an individual collection of
Evolution dictates an ever positive return of these
Level of personal development depends on the
compound rate of return on our assets.
What Defines an Asset?
Any recourse owned by an entity from which
future benefits can be extracted.
Personal Assets:
 Time
 Intelligence (Inc. Talents & Skill)
 Education
 Wealth
Genetic bias inherent in all assets except time.
Only our actions regulate the rate of return on our
Personal development is a relative game.
Optimum Strategy:
Identify our best assets.
Investment in those assets yields best returns.
Managing our Education assets on a return basis
Returns on primary & high school education are colossal!
Development from uneducated to educated.
Only time is invested. Its free moneywise.
Ever increasing sums of money required for academic
Calls for greater scrutiny.
Wealth: Utilizing our financial assets most efficiently
After education investment is completed, excess
wealth must be allocated most efficiently.
Most household wealth concentrated on real estate.
Evaluating the home purchase decision
Buy or Rent ?
2 Bedroom flat in Nicosia costs approx. 180,000 EUR
How can we deploy 180,000 EUR of our wealth most
Monthly rent is 680 EUR
Annual Cost is 680 X 12 = 8,160 EUR
Rental Yield is Annual Rent / Purchase Price
Rental Yield is 4.5 %
Our 180,000 EUR are kept in the bank earning a
deposit rate of 4,5% per annum.
Assuming a flat macro economic scenario, purchasing
a home does not increase our wealth.
Qualitative aspects render Renting as a net +
Buy only when Rental yields > Return on money (e.g.
deposit rate)
Remember! Investment in our best asset yields the most
Example of a personal asset
Possess the right skill set so as to set up one of
the best Kebab shops in town.
Conservatively assume to sell 80 pitas / day
Sell 80 X 30 = 2500 pitas / month
Hypothetical income statement (EUR)
Total monthly sales
2500 X 6 + 1000 (supplements) = 15000
Gross Profit (60%)
Staff (2+)
Other (Advert, Insurance, etc.)
Net Profit Before Tax
Net Profit after Tax
Wealth created over a 10 year period
Annual earnings = 4,200 X 12 = 50,400 EUR
50,400 x 10 = 504,000 EUR
Of course money earned every year will be deposited
earning 4,5%.
Hence real Wealth created is close to 700,000 EUR
Investment required to set up the kebab assumed to
80,000 EUR.
Investment in our best asset turned 80,000 to
700,000 EUR.
Annual Compounded Return of 25% per annum
Dilemma facing our skilled Kebab man in year 1 :
Use 80,000 as down payment to buy a flat to forgo
the 4,5% cost otherwise incurred if he rented.
… or rent the flat and invest the 80,000 EUR
in himself, earning 25% per year !
Bearing in mind that people’s dreams extend to
earning north of 4,5% ,
Home buying should be treated with a grain of salt!
Financial Investing: Screen opportunities against each other
Investment Options
Interest-bearing Investments: Stocks or Bonds
Non-Interest bearing Investments (Commodities):
Real Estate, Crude Oil, Nat. Gas, Industrious Metals
(Copper, Plat etc.), Precious Metals (Gold, Silver) and
Agriculture (Wheat, Soy etc.)
Investing in commodities is betting on macroeconomics.
Not an Investment !
Bonds: Debt Instruments. Investing in bonds is
purchasing the debt of an entity.
No. of Birds in the Bush
Fixed maturity date
Fixed interest payment
Fixed price
Stocks: Piece of ownership in a business
No. of Birds in the Bush
Investing in a stock requires understanding of the
nature and competitive advantages of the business.
Bonds & Stocks trade in the stock market.
Prices fluctuate depending on optimism or pessimism
of market participants.
Market should serve you not guide you.
Apply same criteria to full ownership of a business.
Buying 0,01% a business requires the same knowledge
as buying 100% of a business.
Stockholder is a business owner.
The change in the Value of a stock in the stock market
does not change the value of the business.