5 reasons I prefer investing in US over MY
After 2 years of investing in the US market and a lifetime of investing in the Malaysian market, I am more and more inclined to move my investment capital to the US market. In this post, I’ll detail my 5 main reasons.
You may check out my portfolio updates of my US trading/investment portfolio here.
(1) Size matters
There are 2 things on this point that I would want to highlight: Number of stocks & trading volume.
Number of stocks
As of writing, there are over 2,300 stocks on the NYSE and 3,000 stocks on the NASDAQ. Both represent the largest stock exchanges. In contrast to our Bursa Malaysia, we have a total of 946 companies in 2021.
Why is this important? That’s because it is easier to find 10 stocks to invest in a basket of 6 thousand stocks, than in 900 stocks. More on this in point 2.
Trading volume
For those who have been investing in the US market, we would notice that the share prices move at such a rapid rate that if you blink you’ll miss it.
It’s really fascinating.
This also means that the liquidity (i.e. how fast trades happen in the market) is high and our trades could easily be filled at the share price in the market. Imagine shopping on your favourite e-commerce and your seller has 1,000 inventories vs only 1.
To put this in numbers, 8 billion trades per day in NYSE and 4 billion trades per day worth USD200 – 300 billion in NASDAQ.
In contrast, Bursa Malaysia does about RM4 billion daily trades in 2021 (with record 27 billion trades worth RM9 billion back in 2020).
(2) Familiarity
I have touched this before in my simple defensive investment principles that we must know the company and its business before investing. Else, it’s just gambling.
The illusion we have is that we would be more familiar on our home ground (Bursa Malaysia) compared to a foreign country. Is this true?
Think of these instances:
- Are you reading this on your iPhone / Android (AAPL, GOOG, GLW) or computer (INTC, AMD, NVDA, MSFT)?
- This coffee place could be your favourite chill out spot last time – Starbucks (SBUX)
- Your favourite fast food? Happy meals (MCD), fried chicken, pizza (YUM).
- Oh and don’t forget the sugary drinks that comes with all fast food – Coke (KO) or Pepsi (PEP)
- When we’re stuck at home most of us rely on Netflix (NFLX), Disney (DIS) or Spotify (SPOT) to keep us entertained
- What cereal brands do you know? Kellogg’s (K)? Cheerios, Trix or Chex (GIS)?
- E-commerce shopping – Lazada (BABA), Shopee (SE)
- Which covid vaccine you took? PFE? MRNA?
- Housing and personal matters – fix squeaking door hinges (WDFC), clean bathroom (CLX), tissue needs (KMB), brush your teeth (CL), store food (TUP), adhesive stuff (MMM)
Need I go on?
With the sheer amount of companies listed in the US, it’ll be a challenge to keep your watchlist short.
Can we say the same for Malaysian public listed companies? Hmm…
(3) Natural Multiplier
In Malaysia when we invest in a company and when we see our returns +RM1, we earn… well, RM1.
In the US, we invest in USD and when our returns +USD1, we earn RM4.2 (or whatever the exchange rate is at that time). We super-charge our returns instantly via the exchange rate.
On the flip side, we will also increase our losses if things go south. So, it’s a double-edged sword. In addition to that, our money shrinks 4.2x when we change it to USD to kick start the investment.
Did I mention, that we can buy 1 share in the US compared to Malaysia where we are still stuck with 1 lot (i.e. minimum 100 shares). Yes we can buy 1 Tesla share at the price of $700 (translates roughly to RM3,000), but we can’t buy 1 lot of Nestle share in Malaysia at the price of RM130 (1 lot = RM13,000) with the same money.
So there’s that.
(4) Dividend Investing is actually a thing
What is dividend? Check it out in my other post here.
Investing in dividend paying stocks are simple because they give us passive income. If we invest RM100k today, with a 5% dividend yield at current prices, we will expect to get RM5k per year if the companies don’t cut dividends in the foreseeable future. This is the kind of dividend investing that we know in Malaysia, right?
Then hopefully sometime down the road, the company decides to increase their dividend so that for the same invested capital, we get more than RM5k in passive income by just holding the stock. Better yet, the price goes up and we can cash out a good profit.
Let me introduce to you another concept of dividend investing here.
Same scenario. The only difference is that the company will (sort of) “guarantee” that they will increase the dividend quantum every year. This means you get RM5k this year, RM5.1k next year, RM5.2k the following year, etc. It’s like a guaranteed increment every year.
Don’t believe me? I refer you to this magnificent spreadsheet in dripinvesting.org, where you can see the dividend champions have increased dividends yearly without fail for at least 25 years up to even 65 years (100+ stocks). Or the contenders for 10 – 24 years (300+ stocks).
In websites such as SeekingAlpha, you actually see people discussing about % raised in dividends for the year. If dividends remained the same (i.e. did not increase for the year), investors will start selling off their shares.
That’s like saying, “if I don’t get that increment, I’m quitting.”
This is also what kickstarted my “buy & hold” portfolio this month.
I don’t know (m)any stocks in Malaysia that does that. I mean, is it even a thing here? That’s why usually people only talk about either dividend or growth investing.
In the US, we have dividend growth investing. Check out more details in my next post here.
(5) Derivatives (Options)
If you’ve been following, I’m mainly an options trader in the US market. There are a lot of merits, especially for smaller account holders. I’ve shared that in another post. Options are like buying/selling insurance for shares.
There is much to learn about options and how it is so dynamically used in the equities market. It is also one of the active trading strategies in the US market. However, this is for advanced investors and this can be risky.
Or it can pretty safe… if you follow the Wheel Options Strategy as shared in my previous post. This helps us to generate income whilst you wait for your idle buy / sell price.
In Malaysia we have *speculative* warrants, but that’s not the same thing.
What’s there to not love?
Actually, there is.
We’ve already touched on the natural multiplier in Point 3. This means that if we do make any losses, it is amplified.
Another major pain point for Malaysians investing in US is that our dividends get taxed 30%. It will be automatically deducted on your brokerage platforms and the net of tax dividend will be credited into your account.
But if I get increment every year…
Closing Thoughts & BONUS point
There you have it. Moving forward I would definitely be putting more weight in the US portfolio. If you are new to the US market, do look into it as I think it presents a very attractive prospect. Feel free to reach out to me and I’m happy to discuss with you further as well.
If you’re ready to dive into trading, then the 2 brokerages I use are TD Ameritrade and Tastyworks. Both have been covered under this other post.
What about my Malaysian portfolio?
Another reason I am not putting more capital into my Malaysian portfolio at this point is because of the political & country risk. I don’t think I need to elaborate here. It’s practically a joke and businesses can’t run properly anymore. Things have changed.
