Talk about investing in US stock market and you’ll see your friends taken aback by this idea. The first thing that comes to their mind is “so expensive, I not enough capital”. I have to admit that I was one of them too. The investment courses that I joined last time were all encouraging me to invest overseas. But I was reluctant due to my “kecik meow” capital.
Then again, I would have made a lot more profit had I invested in US back in 2014 where I first started. Instead, I stay invested in the Malaysia stock market. I only have 2 major wins; Padini and Perak Transit. This is because I couldn’t find any undervalued companies in Malaysia.
Until beginning of year 2020, I venture into US stock market. I invested in stocks like Adobe, Google, Facebook, Illumina, Mastercard, etc. during the market crash. Today these stocks have been going up consistently and has bring 134% ROI in total. This is just 1 year and a half.
So, what change my mind? Here are 4 reasons why I invest in US market:
#1: EASE OF COMPOUNDING WEALTH
This is perhaps one of the main decision factor that got me venturing into US stock market. If you look at both S&P 500 Index and KLSE Index, you will notice a trend. One is going up and another is sideways for past 5 years.
An Index is a collective stock price performance of listed companies in various industries within a country. If the index is up consistently, it tells us that these listed companies’ performance is flourishing. In other words, there are more profitable companies in that country. So, if you look at both S&P500 and KLSE Index, compounding your wealth is much easier in US than in Malaysia.
This is like when you’re driving to a destination. If the road you take is bumpy, your car may breakdown halfway and you may not reach on time. But if the road is smooth, you can reach your destination on time even if you drove an old Kelisa.
#2: HOME OF GREAT BUSINESSES
I have heard many Malaysian gurus encourage people to “invest in great businesses”. All of them focus on Malaysia stock market. However, I always wonder am I really investing in great businesses if my focus is on Malaysia market?
Just look at the daily product or services you use. I bet you can find at least 7 out of 10 is listed in US stock market. For example, Google.com is probably the first website you go to when you’re doing research. When you want some entertainment, you probably watch YouTube, Netflix, or Disney+. I am writing this article now using Microsoft Word. All these companies are listed in US. How many of them are listed in Malaysia?
These companies are great because their products or services are used globally. Back in Malaysia, how many have such huge addressable market? If you research long enough in Malaysia, you’ll notice that 90% of the listed companies are cyclical in nature. That means their earnings fluctuates according to certain commodities or economic condition. In addition, they have little to none pricing power.
So, back to my question. Are we really investing in great businesses?
#3: ACCESS TO OPTIONS
Another game changer is the ability to use options in US market. This is a powerful tool that can boost your ROI. It’s just like “warrant” here in Malaysia stock market. The difference is that you have 2 types of options – CALL and PUT. For each type, you can either buy or sell the contract. I have written a great length about how option works. You can read it here.
But basically, option allows me to generate income consistently. With this income, I’ll be able to purchase more shares and compound my wealth faster. Below is a snapshot of the income I generated from June to October 2020 using vertical spreads.
I then invested in SPLK and DIS using the income generated above. In a way, you are buying shares for free. At the time of writing, my US portfolio is up 134% since inception in year 2020.
#4: FOREX GAIN
Over the past 10 years, MYR has been weak against USD. Not to mention, it is also weak against SGD. With current political uncertainties & covid-19 situations in Malaysia, I don’t foresee MYR can strengthen anytime soon against the greenback.
If this is true, then your income earned is actually depreciating in value. But when I invest in the US stock market, I’m actually holding USD. This act as a hedging towards the depreciating MYR. My investment return is not just capital growth from stock price but also from forex. That’s twin growth engine for me. This comes back to my first point, compounding my wealth with ease.
These are my 4 main reasons why I started to invest in US stock market. However, I’m not saying that Malaysia stock market is no good. In my opinion, it’s still good for income investors. But if you’re looking for growth, you might as well just go for US or China stock market. After all, they are the two biggest economy in the world.
I still invest in Malaysia but only for dividends. Majority of my funds are in US stock market now.
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