Sunday, March 27, 2011

Buy a business with reasonable price

As long as there's profit, you will not go bankrupt. This is the only way to survive in any business, similar for business buyer. The business you buy or planing to buy must be able to generate better return than cash, if not, why bother about invest in the business, isn't it more safer to put money in bank to earn interest? Hence, the reasonable return of any investment should be able to generate at least 3 times Fix Deposit can provide.

Buying a business, we may want to ask how much the return can we obtain per year after deducted the expenses. Use the profit figure divided by the principal, we will get to know how much of return in percentage per year. Today, if we are not buying the whole business, instead buying a few shares of the company, it work the same way.

I came to know a company, Mithril, listed 7 years ago, never seem to make any positive income, every year incurred losses. The boss should close down the business, better put money in bank, where can earn some 3% of interest every year. Wonder why still a lot of people willing to buy this stock everyday, the price is 6 cent now. If anyone still want to buy Mithril, I think it's better to buy it's loan stock, Mithril-LA, it will mature next year, having 1.5 times securities value, hence no need to worry if the company can not repay full value of RM0.78 plus 3% for 2 years.

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