A few short years ago, the “Occupy” movement helped put the spotlight on income inequality around the globe. While the protestors have long retreated from Wall Street and other power centers, the issue hasn’t exactly gone away.

Indeed, the gap between the haves and the have-nots has grown wider than ever. According to the Credit Suisse Global Wealth Report 2018, the top 1 percent of adults account for more than 47 percent of household wealth globally.

This raises an interesting question: Who exactly are the 1 percent worldwide? The surprising answer: You don’t have to even be close to being uber-rich to make the list.

Income

According to the Global Rich List, a website that brings awareness to worldwide income disparities, an income of $32,400 a year will allow you to make the cut. $32,400 amounts to roughly RM129,600 which translate to RM10,800 a month.

So just by earning ~RM11k a month puts you in the top 1% earners in the world. If you want to be the top 1% in Malaysia you need to earn slightly higher. According to Malaysia’s Department of Statistics, Malaysians who earn roughly RM25,000 a month are in the country’s top 1% earners.

Wealth

To reach the top 1 percent worldwide in terms of wealth – not just income but all you own – you’d have to possess $770,000 in net worth, which includes everything from the equity in your home to the value of your investments. That’s equal to roughly RM3,080,000.

Summary

The bar to enter the top 1 percent wouldn’t be this low were it not for the extreme poverty that so much of the globe endures.

The term “Top 1 percent” globally may sound like an exclusive club, but it’s one to which thousands of Malaysians belong. It’s a reminder of just how prosperous developed countries are compared to the vast majority of other people who share our planet.

Do you need be highly motivated and having a strong willpower to succeed?

Possibly. But getting motivated or having strong willpower every day can be very difficult.

Today, I may be able to motivate myself to achieve my goals—to exercise more and eat right, wake up early, study more, be more social, work and train harder and so on. Tomorrow, I could be the complete opposite—a lazy couch potato, with no motivation to do anything at all.

If you can relate to this struggle, then you’ve probably wondered if it’s even possible to motivate yourself to work harder and change your life. We often blame our lack of motivation and willpower for the lack of progress in our lives. But, consider this — could there be something missing from this discussion?

One of the most overlooked, yet crucial contributing factors that drive our habits and behavior is our physical environment. This includes but is not limited to the people, items, colors, sounds, buildings and so on, that surround us on a daily basis.

Your environment is one of the most powerful invisible forces that shape your life.

You are a product of your environment. So choose the environment that will best develop you towards your objective. Analyze your life in terms of its environment. Are the things around you helping you toward success? Or are they holding you back?

W. Clement Stone

Be careful the environment you choose for it will shape you; be careful the friends you choose for you will become like them.

W. Clement Stone

Motivation and willpower are highly overrated. The key to success is your environment.

While motivation and willpower plays a role in helping us achieve our goals, it’s our environment, that truly shape our behavior and life.

For example if you want to exercise more, choose a nearer gym. Pack your gym clothes the night before bed and leave them as an obstruction to your bedroom door. Invite friends to workout with you. Doing all these makes you more likely to really go and workout rather than depending on your current mood.

If you want to eat healthier, make your own meal. Do meal prep. Prep your meal few days in advanced. Bring your meal to work. Doing all these forces you to really eat healthier rather than depending on your willpower to resist your urge to gulf down a burger.

When you are surrounded by better choices, it is much easier to make better decisions that will eventually change your life for the better.

Ultimately, you don’t have control over how motivated or how strong your willpower will be tomorrow, but you do have control over your immediate environment.

Any business you invest in should meet specific criteria in terms of financial strength and predictability, forming a symbolic ‘moat’ that surrounds and protects it from competitors in the same space.

Definition of moat: A deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defense against attack.

If a business were a castle, it would need to be surrounded by a wide moat to prevent any attacks from competitors. The wider the moat, the more predictable the business’ future – you want to own a predictable business.

Brand – A product you’re willing to pay more for because you trust it. The company consistently churns out high quality goods/services

Switching – A business that is so much a part of your life that switching providers is not worth the trouble

Price – Companies with prices so low no one else can compete

Secret – A business that has a patent or trade secret that makes direct competition illegal or difficult (Commonly pharmaceutical and technology companies)

Toll bridge – A business with exclusive control of a market, giving it the ability to collect a ‘toll’ from customers needing that service or product

The Big 5 Numbers (The Rule #1 Investing)

Once you’ve assessed a company’s Moat, you’ll need to calculate The Big 5. Businesses without Moats do not have good Big 5 numbers. These numbers are essential in determine if the Moat is wide enough to establish it as a sustainable company worthy of your investment. A general rule of thumb is to have all 5 numbers to be equal or greater than 10% per year for the last 3, 5 and 10 years.

As a true believer of getting rich through stock investment, I strives to constantly update myself on how to improve my stock investment skills. Recently I came across this guy called Phil Town and his investment strategy: The Rule #1 Investing.

Rule #1 is “Don’t lose money.”

Investing in certainty comes from buying a wonderful business at an attractive price. “Wonderful” indicates that any business you invest in meets the 4Ms criteria:

1)Meaning – You understand the business and would want to own the whole thing if you could. It reflects your value and you would be proud to own it.

2)Moat – The business has an intrinsic characteristic that protects it from competition that is called a moat.

3)Management – Make sure the business is lead by experienced individuals that you respect and believe in.

4)Margin of Safety – Buying the business when it is ‘on sales’, relative to its known value.

Rule #1 investing involves 4 straightforward steps:

1)Find a wonderful business

2)Calculate its value

3)Buy it at 50% off

4)Repeat until very rich

Seems simple enough, so why isn’t everyone doing it? One word: Patience.

There is such a strong misconception that only financial professionals know how to invest but you can do it and your financial professionals can’t because they can’t wait for months or years until a wonderful opportunity comes along, but you can and you must. It is the only way to get high returns with relatively low risk.

It is extraordinary to me that the idea of buying dollar bills for 40c takes immediately with people or it doesn’t take at all. It’s like an inoculation. If it doesn’t grab a person right away, I find you can talk to him for years, and show him records, and it just doesn’t make any difference. They just don’t seem able to grasp the concept, simple as it is…

Warren Buffett

In today’s world, there’s no denying that money is important.

From our basic needs like food and shelter to luxuries like collections and entertainment, almost everything requires money.

Money has been integrated so much with our lives that some even argues money can even buy happiness. Some even set earning as much money as possible to be their life’s goal.

Do money really buy happiness?

In my opinion, money doesn’t buy happiness. If you need money to be happy, you don’t really know how to live your live happily. Oftentimes, just by enjoying life’s simple pleasures like sipping an afternoon tea with loves one at a quiet place can makes us happy and content.

To me, money is a tool. A tool that suppose to do mainly 3 things, and 3 things only:

1)Money is suppose to give you comfort.

It helps you to acquire things that makes your life more easier. It helps you to live a comfortable house for you and your family. Allows you to eat nice, delicious food. Allows you to provide good education for your kids.

2)Money is suppose to help you solve problems.

Money won’t solve all your problem but it will definitely solves most of them. It allows you to don’t have to constantly worry about things that requires money. Having transportation problem? Buy a car. Fallen ill and need medical treatment? Done.

Granted, not all problems can be solved but money is a great tool to solve certain problems.

3)Money is suppose to be an amplifier

Sure you don’t need money to help others. You can volunteer, provide physical labor as such but there is only so much you can do on your own. To do things on a larger scale, you need money. You can donate more to charity to help more people. You can organize and hire more people to help people. Money amplifies your reach. If you’re a jerk, money will make you be a bigger jerk. If you’re a kind and caring person, money helps you to be more kind and caring.

So, money is a tool. It depends on you to make the most out of it.

But how much is enough? Everyone have different needs that requires different amount of money. A lot of people tend to give up life’s simple pleasure in pursuit of money. A great story demonstrates this:

One day a fisherman was lying on a beautiful beach, with his fishing pole propped up in the sand and his solitary line cast out into the sparkling blue surf. He was enjoying the warmth of the afternoon sun and the prospect of catching a fish.

About that time, a businessman came walking down the beach trying to relieve some of the stress of his workday. He noticed the fisherman sitting on the beach and decided to find out why this fisherman was fishing instead of working harder to make a living for himself and his family. “You aren’t going to catch many fish that way,” said the businessman. “You should be working rather than lying on the beach!”

The fisherman looked up at the businessman, smiled and replied, “And what will my reward be?”

“Well, you can get bigger nets and catch more fish!” was the businessman’s answer.

“And then what will my reward be?” asked the fisherman, still smiling.

The businessman replied, “You will make money and you’ll be able to buy a boat, which will then result in larger catches of fish!”

“And then what will my reward be?” asked the fisherman again.

The businessman was beginning to get a little irritated with the fisherman’s questions. “You can buy a bigger boat, and hire some people to work for you!” he said.

“And then what will my reward be?” repeated the fisherman.

The businessman was getting angry. “Don’t you understand? You can build up a fleet of fishing boats, sail all over the world, and let all your employees catch fish for you!”

Once again the fisherman asked, “And then what will my reward be?”

The businessman was red with rage and shouted at the fisherman, “Don’t you understand that you can become so rich that you will never have to work for your living again! You can spend all the rest of your days sitting on this beach, looking at the sunset. You won’t have a care in the world!”

The fisherman, still smiling, looked up and said, “And what do you think I’m doing right now?”

When we pursuit money, we need to set our priorities and goals straight. Most people can live comfortably without much money. Think: “Am I earning this much to be happy? Or am I doing for other purposes?”

To me, the purpose of me wanting to be financially successful and have abundance wealth not because it will make me happy, but because it helps me do what I truly want: To help others to stop worrying financially and start living happily. In order to do this, I have to be in a position to help. Safety protocol 101: ‘Save yourself before helping others’. Money helps amplify my reach to help more people.

As such, I will continue to pursuit money without sacrificing happiness as happiness comes from everywhere. You just have to recognize the decision to experience happiness has been right in front of us all along.

Most people think money changes people. They think it’s evil. They think it corrupts you. The more money you have, the more evil you are.

Yes, that’s true.

But only if you’re corrupted to begin with.

You see, money doesn’t actually change people. It only amplifies who you already are. If someone is greedy, money will amplify their greed. If someone is generous, money will amplify their generosity.

That’s why if you look at the richest people in the world, you’ll see that money didn’t change them. It only amplified who they were. It gave them the tools to do what they wanted to do.

Elon Musk didn’t escape to an island to retire after he got rich. He kept inventing. Steve Jobs didn’t stop doing his work. He kept innovating. Warren Buffett didn’t stop reading annual reports. He kept investing.

And if you get rich, you won’t change either. You won’t become greedy, you won’t become corrupt, you won’t become evil.

You will only become a greater version of who you already are.

So don’t be afraid of money – it can’t change you. Instead, think about how you can use money to make your deepest dreams come true. Do you want to pay off your debt? Buy a great home for your mom and dad? Take your love ones on a dream vacation?

Whatever it is, you can make it happen. But it won’t happen if you believe money is evil.

Money is an amplifier. It only as evil as you are.

How do you change the world?

Be rich. Change your life first. Do what YOU need to do to succeed.

That may sound rude, but let me explain it like this. Imagine you are a candle. You have no flame and you try to light up all the other candles around you. It won’t work. But if you do have a flame, a strong flame that last, then you can ignite as many other candles as you want!

Money is that flame. Money moves the world.

I truly believe the art of making money is noble. Simply because once you are rich, you have the ability to help others on a large scale.

You can build hospitals and save lives, build schools to help educate children, fund cancer research to save millions, invest in the technology of the future and be the catalyst of change…

Not only that, you can also support your loved ones. Give them the health, financial support, comfort and security they deserve.

Imagine giving your parents on a cruise or buying them their dream house or car. Imagine being able to fully support your children’s dreams and take them to Disney Land without worrying or thinking about the price. Imagine giving your love ones an amazing life without worrying about money or the cost of things ever again.

That’s the power of getting rich so you can help others.

Investors use return on equity (ROE) to measure the earnings a company generates from its assets. With it, you can determine whether a firm is a profit-creator or a profit-burner and management’s profit-generating efficiency.

ROE = Net income / Shareholders’ equity

However, relying on just this simple formula to derive ROE tells an incomplete story about a company. For example, a company can boost its ROE by taking on additional debt. If its debt load becomes excessive, it may force the company into bankruptcy. As a result, it is a good idea to examine the drivers of ROE. This is where DuPont Analysis comes into play.

DuPont Analysis decompose the different drivers of ROE into 3 major financial metrics: Net profit margin, Asset turnover and Equity multiplier (Financial leverage).

ROE = Net profit margin X Asset turnover X Equity multiplier

Where:

Net profit margin = Net income / Revenue
Asset turnover = Sales / Average total assets
Financial leverage = Average total assets / Average shareholders’ equity

Example of How to Use DuPont Analysis
An investor has been watching two similar companies, SuperCo and Gear Inc., that have recently been improving their return on equity compared to the rest of their peer group. This could be a good thing if the two companies are making better use of assets or improving profit margins.

In order to decide which company is a better opportunity, the investor decides to use DuPont analysis to determine what each company is doing to improve its ROE and whether that improvement is sustainable.

As you can see in the table, SuperCo improved its profit margins by increasing net income and reducing its total assets. SuperCo’s changes improved its profit margin and asset turnover. The investor can deduce from the information that SuperCo also reduced some of its debt since average equity remained the same.

Looking closely at Gear Inc., the investor can see that the entire change in ROE was due to an increase in financial leverage. This means Gear Inc. borrowed more money, which reduced average equity. The investor is concerned because the additional borrowings didn’t change the company’s net income, revenue or profit margin, which means the leverage may not be adding any real value to the firm.

Limitations of Using DuPont Analysis
The biggest drawback of the DuPont analysis is that, while expansive, it still relies on accounting equations and data that can be manipulated.

DuPont Analysis of ROE is just a way to determine which company in the same industry has a better management efficiency, and hence a better company. Always bear in mind that a better company is not necessary a better investment. We will have to look at its market valuation too to decide whether it’s a good investment or not.

Return on equity (ROE) is the amount of profit that is generated with the money that has been invested with a company by the shareholders. It is calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt, ROE could be thought of as the return on net assets.

ROE is considered a measure of how effectively management is using a company’s assets to create profits. ROE is expressed as a percentage and can be calculated for any company if net income and equity are both positive numbers. Net income is calculated before dividends paid to common shareholders and after dividends to preferred shareholders and interest to lenders.

A good or bad ROE will depend on what’s normal for the industry or company peers. As a shortcut, investors can consider a return on equity near the long-term average of the S&P 500 (15%) as an acceptable ratio and anything less than 10% as poor.

While this metric can be useful in certain cases, it definitely has a few drawbacks to be aware of as well. Here are a few things to consider about the limitations of return on equity.

Write-Downs

A write-down is a technique that many companies use to reduce the value of its assets that it is currently over value according to market prices. When a new management comes into a poorly performing company, they prefer to write down assets so as not to let them adversely affecting their future performance. When they do this, it is going to reduce the shareholder’s equity without changing the net income. Therefore, they are going to get a large jump in the return on equity even though nothing actually changed.

Buybacks

Stock buybacks can also have a drastic effect on ROE. Share buyback, when done when the share price is grossly undervalued is good for the company by decreasing its share capital, and increasing its earnings per share with a reduced number of shares in the market. However, management will actually buy stock back from the market just so that they can improve the financial ratios such as return on equity. Nothing fundamental change with the way that the company was doing business, but the return on equity jumped significantly. Sometimes management even buy back shares even when they are overvalued, with borrowed money. This is a major reason that financial ratios like return on equity have to be taken with a grain of salt when valuing a company.

Debt

Another big problem with return on equity is that it does not take into consideration the amount of debt of a company. It only takes into consideration the net income and the shareholders equity. Therefore, a company could have massive amounts of excessive debt and still look like it is handling things well according to the return on equity calculation. Even though it might show a good ratio, it could be close to crumbling because it has more debt than it can handle and make the company more risky in times of economic downturn or financial crisis.

Intangible assets

Another pitfall of ROE concerns the way in which intangible assets are excluded from shareholder’s equity. Generally conservative, the accounting profession normally omits a company’s possession of things like trademarks, brand names, and patents from asset and equity-based calculations. As a result, shareholder equity often gets understated in relation to its value, and, in turn, ROE calculations can be misleading.

For example, Google possesses a trademark in its brand and this “growth asset” is not included in its physical asset but could be even much more valuable than the physical assets it owns.

Google may very well capitalizes it expense in advertising, and hence lower the operating cost, and as a result, increases its net profit or return, and hence overstating its ROE.

Conclusion

ROE can obscure a lot of potential problems. If investors are not careful, it can divert attention from business fundamentals and lead to nasty surprises. Companies can resort to financial strategies to artificially maintain a healthy ROE, even though operational profitability is eroding, just to keep investors happy.

But let’s face it, no single metric can provide a perfect tool for examining fundamentals. But contrasting the average ROEs within a specific industrial sector for a few years does highlight companies with competitive advantage and with a knack for delivering shareholder value.

Think of ROE as a handy tool for identifying industry leaders. A high ROE can signal unrecognized value potential, so long as you know where the numbers are coming from.