INVESTING THOUGHTS
How many of you want to get rich quickly? Suppose I say, invest today in this stock an amount of 1 lakh and get a return of 5 lakh next year.
I can see many hands raised. Let me tell you a fact. It is not possible to do so, unless you win a lottery or you end up losing your money to a fraud scheme.
If investment was that easy, half the male population would be in the Bahamas or such other place with couple of trophy females on either side and a drink on the hand. I don't know about female liking so I did not mention it, as I do not want to be accused of gender bias.
Wealth creation is a long term process. Not an overnight one. Reaching from 1 lakh to 1 crore will take 10 -15 years or so, but will accelerate after that from 1 crore to 5 crores and so on, because of what is called as Compounding.
Another aspect of investing is Psychology. If X and Y feel the same about a company and the valuation, the share price will not rise as X feels that at 50 Rs it is rightly valued and Y also feels that at 50 Rs it is rightly valued. But we are all not wired that way. Each one feels different, One feels 50 Rs is a good buy, while another feels that 50 Rs is a good sell. This differential Psychology is what make the market.
Another aspect of investing Psychology is looking at others and making the investment. If X has made 50% return, let us follow him as he knows and holds the key to investment, not realizing that X may be fooling people, or X has invested at a time when others were sleeping, or X may be selling when you are buying. Thus to be a good investor one should follow one's own philosophy.
A good investor follow -RIL - no not Reliance Industries Limited, but Research, Invest and Luck. Yes, luck plays an important part in the investors success - Take Warren Buffet and his single largest investment in Coke. It was possible that Pepsi could have demolished Coke, but didn't. Take Rakesh Jhunjuwala and his investment in Titan. It was highly possible that Tanishq the brand jewellery on which Titan was riding high could have failed as a cheap jewellery compared to the real gold jewellery. Or take the case of Ms Mehra and HDFC and her recommendation as an investment. It could have failed like a Yes bank (was run by a top Stan chart guy -Rana who was supposed to know all about banking). But they were lucky as the consumers did not think so.
As a layman investor, with not much of research access or management concall access, we just look at public domain information, which we get after some of the big investors have had the information and taken the call on the share. Thus as a lay investors we are mere followers.
Given the above, how do we go about investing. First and foremost is we spread our investment. This is called diversification. But we should not over diversify. For eg investment in an X company of 100 Rs and it went up 50% to 150 Rs will fetch you a profit of 50 Rs. But if you had invested 50,000 Rs in it, you would have got 25, 000 Rs. Thus Diversification is key but Positioning (or how much you invest) is also key.
My thoughts on investment ( not a recommendation or advice) is you invest as a beginner in Stable companies (Growth last 5 years at15%, PE <15, ROCE at 15%, ROI at 15%-some parameters), Mature Companies (Companies making profits and giving dividends for the 10-15 years), Cyclical Companies like pharma, metals, Infra etc, and Risk Companies where you take a call for a reason and it may or may not work out. For eg currently, Yes bank, Vodafone etc.
The %age I believe you should be invested in above categories are 30%, 30%, 20% and 10%. ( You may or could have your own preference in other categories but generally the last one recommended -Risk Companies should not exceed 10%).
In each of the categories, pick up a max of 3 companies each (not more) to ensure you can take positioning advantage and at the same time risk mitigation through diversification.
Another question that arises is when should one start investing - Ideally as soon as possible (at the time of birth, if parents can invest). But on your own -when you start earning.
Another question that again arises is how much. At least 30% of your salary and 50% of your bonus. If not, because salary is low at least 10%. Most of the young people repeat this oft repeated answer- But Uncle, I can't save because my salary meets the minimum requirements and I am barely able to survive. To this my answer is simple. If you are earning 50,000 Rs /month, you know how to live. The same way if you are earning 30,000 Rs/ month, you will still continue to live. So, start with taking off 30% of your salary for saving and think that you are getting that much only. In extreme cases of low salary, you may go down to 20% or even 10% savings. But you must do that if you want to become reasonably rich 20-30 years from now. Spending, enjoying your current life is not going to keep you financially relaxed when you reach the end of your career. Don't regret in old age, what you can with a bit of sacrifice in your young age.
One of the common arguments that one hears these days is - "Kal kisko patah", lets enjoy life today. Let me tell you this. No one knows when your expiry date will come, but with medical and general lifestyle changes, people are averaging 80 years and some 90 years unlike in olden times 65- 70 was the norm for death with a few exceptions. Thus, at 60 plus you do not want to be fighting with your wife that we overspent and should have saved when we were young. Eating and going out less may help you save money as well as your health.
Talking of health, one of the important investment is taking care of your health. Live frugally or king size, but ensure that your exercise (even weights is recommended) is one of your prime habit. As they correctly say, if Money is lost nothing is lost, but if health is lost everything is lost. No one can predict what will happen with health, & investment, but if you invest in your financial health and body health, your chances of a comfortable retired life is more of a probability. Think about it NOW and not LATER.
Coming back to investment, investment in stocks depend on What price you buy at and what quantity you buy at. These determine the extent of profit you make. Higher purchase price may give you lower profit/share, Lower quantity may give you lower overall profit. There is no magic formula to determine these two, but these two have some fundamental requirements - On the Stock price - what is the reasonable PE, Past Growth, Potential future etc. On the Quantity, it is your self belief or conviction that this Company will grow based on the data set you have collected.
Today life is fast paced and with WFH, WA, Emails, employees are on the job 24 hours and don't have time for reading, research, watching some good investors speak etc. This is where Mutual Funds come in or if you want a more boutique investment style, a SEBI registered Fee only advisors are there to design it for you.
Mutual fund is a good place to start for beginners in investing. The advantage is somebody is doing your job of research and picking reasonably good stocks with risk factor as per the category. When I say risk category, what I mean is, Mutual Funds have a range of categories - Large, Mid, Small, Flexi, cyclical, thematic etc. So where you invest, a certain element of risk is there and that depends on you where you want to invest. Say, Small cap has one of the highest risk factors and also has one of the highly rewarding returns if it clicks. Like stocks, with categories of stable, mature, cyclical, risky, MFs also works in that same category. But the advantage of MF is that you do not choose a specific stock or stocks, but the MFs with their huge analysts choose the stocks and they choose a basket to ensure the returns are reasonable for them to get more funds into their schemes. This is called AUM or Asset Under Management.
Some people ask what is PMS. It is not what Women go through, but in investment jargon it means Portfolio Management Scheme. Currently, the minimum that is required for joining the PMS is 50 lakhs- a few years back it was 25 lakhs. You primarily give your money to these schemes run by supposedly experts who invest in different companies and also take risks by investing in Pre IPO schemes, start up companies etc. which a normal investor cannot because of the funds and access to such instrument. You can have even 200% return on it or it can collapse too. But these are for people who have financially secured themselves and can take the risk of losing 50 lakhs and not feel the pain. Given a choice, I would not recommend young investors to go for it.
One more investment philosophy I believe in is Investment should be done in a relaxing mood and not taken up with a lot on stress on returns and few downsides, some stocks/MFs not doing well. If overall your asset is increasing it is fine. Over a period of time, the law of averages will give you a good return if you consistently invest- be it upside time or downside time. Keep your investment private and do not discuss, else you will be stressed if you see someone having a better return than you and that will cause you, under stress, to irrationally invest to try to beat the other persons return. Get ideas and do your own research on basic fundamentals and leave everything to luck too. Hopefully, of the 10 business you invest, 2 or 3 may fail, but if economy grows then your other 7 or 8 business should have done well.
If end of this lecture, you come to me and say, Should I invest in this stock or MF or will this give a better return, then I think I have wasted my time. The purpose of this lecture is not to focus on specific stocks or MF, but to give a broad investment philosophy to follow. I may not be an expert on stocks/MF to ask such a question. As someone said, when some one asks to buy or sell he first asks how much money do you want to invest. If a guy says, 1 lakh, he advises, 50% you buy and 50% you hold in cash or the other way around in case of sell - 50% you sell and 50% you hold. If market moves on the right side, you can always say - I told you so. If market moves on the wrong side, you can always say - See, I saved 50% of your investment.
Please note do not give me an eg of Warren Buffet, Peter Lynch, Rakesh Jhunjhunwala, or a Vijay kedia. How many of the success stories are there in the billions of investor community. They may be less than .1% and most of it by luck - a Titan or a coke or Amex etc. They have invested heavily and also lost heavily which an ordinary investor can't afford to. Earlier data availability of companies used to be rare, but today an Equitymaster, Moneycontrol, Screener, Trading view etc have made data availability and analysis easier. Now we have even AI to do the heavy lifting. Thus all investors have same data. End of the day nobody and I mean no body in the world can predict the future and that is why no one give a GUARANTEED RETURN.
