Return On Investment Guidelines By William Cate July 2004 [http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]Investment reward should be a function of speculation risk. The investor's goal should be to have a reward that is a multiple of his risk.
Breakeven ROI For Startup Companies
If an angel investor is considering financing a local startup company, he needs a sevenfold Return on Investment (ROI) to breakeven. The simple reason is
U.S. Small Business Administration will tell anyone that only 15% of startup local companies succeed.
Thus, 7 X 15 = 105%, just over breakeven point for his original investment. In my way of looking at investment, those are dreadful odds.
If a venture capitalist is considering financing a high tech startup company, he needs one hundredfold Return on Investment to breakeven. Only one High Tech startup company in one hundred makes money. Those odds are far worse.
Yet in past five years, hundreds of billions of investment dollars have been washed away investing in such companies. And it's not only been funds of Venture Capitalists, but additional billions of small capital investors who then bought into media and stock hype of these useless, non-productive companies when they went public.
Breakeven ROI for Investors Playing OTCBB Market
Over 98% of OTCBB companies fail within five years. If you are a small capital investor and invest in one of these public companies, you need to eventually sell your shares for forty nine times what you paid for them to breakeven.
If you are a conservative investor and realize that inflation must eventually destroy U.S. Dollar and thus you invest in Junior Resource Companies (mining, natural gas, minerals) trading in US or Canada, you need to eventually sell your shares for two thousand times what you paid for them to breakeven. Here's why.
A Winning/Losing Investment
The success rate of mining exploration companies is about one in every two thousand. Among best performing mining exploration stocks of 1990s was Bre-X. Adjusted for splits, it climbed to US$240/share. Had you paid less than ten cents a share for this stock, it would have been a breakeven or potentially profitable investment.
However, no matter what you paid, an investment in Bre-X proved to be a losing investment, because company was a clever stock swindle. The conclusion is that anyone who invested in Bre-X shares for more than ten cents was making a losing bet.
Do As They Do
As a wise old British Investment Advisor, Harry Hone, observed to me in 1980: If US Dollar and British Pound are about to become worthless, why are all hard currency gurus so anxious to take paper currency for their invaluable gold? His point was simple. Do what people do, not what they say. And, I've learned over years that fads and promotions are never good investments. They can be good speculations IF you enjoy speculating and can afford losses. There will be many of them.
Inflation and Taxes Are Factors
Annual inflation reduces your buying power. In recent years, U.S. Government reports a 3% annual inflation rate. The business community doubles it, so that it better reflects actual rise in living costs. Many investments are taxed, so you must adjust inflation rate by tax rate to find breakeven point of any investment.
