Investing- WHY-WHEN-WHERE-HOW

INVESTING- WHY- WHEN-WHERE-HOW

Why Should You Consider Investing?

In a nutshell, it’s all about survival. Many of my friends, flourishing in their professional and financial lives, often question the necessity of investing.

Income streams are anything but static; life doesn’t endlessly offer the same opportunities it does now. Take, for instance, a friend of mine who’s an IT engineer. His salary was impressive, but he mostly indulged in lavish hotels, EMIs, credit card splurges, extravagant shopping sprees, and flashy cars. When circumstances shifted, and his company had to bid him farewell, within a mere three months, he found himself unable to cover the mortgage on his home.

This is the harsh reality of today’s world—people’s lifestyles have rendered them financially fragile.

And this is precisely why investing is crucial, even imperative. It’s no longer a luxury; it’s a necessity.

How Should One Begin Investing Based on Their Goals and Time Horizon?

The first and foremost step is to begin investing—before delving into setting specific goals and rewards. Too often, people yearn to see the fruits before even planting the seed. Over-planning seldom serves anyone well. So, start saving and investing first.

Secondly, the idea of goal-based investing can sometimes be perplexing. The future is anything but clear-cut; it’s dynamic, not static. It’s not a straightforward trajectory. Hence, if we predominantly invest our funds with a long-term view, our goals tend to align automatically.

That being said, if your goals are short-term—say, within six months to a year—it’s prudent to stick with fixed returns such as Fixed Deposits and Bonds. Conversely, for long-term goals, delving into equities is advisable. Short-term market volatility could work against you, but over the long haul, volatility tends to work in your favor. That’s why the market proves to be a reliable ally in the long run.

What Investment Options Are Available in India?

India offers a plethora of investment options. From fixed-interest investments like Fixed Deposits, Bonds, National Pension Scheme (NPS), and Employee Provident Fund (EPF) to volatile assets like stocks, real estate, and gold, the choices are abundant. However, my focus primarily lies in the equity markets.

As a registered Equity Research Analyst, I’ve personally abstained from investing in gold, real estate, mutual funds (MFs), EPF, NPS, and bonds. Apart from my primary residence, 100% of my net worth is vested in the stock market.

I diversify my portfolio within the stock market itself. For instance, if I anticipate a boom in real estate, I invest in stocks of real estate companies rather than in real estate directly. This strategy enables me to reap dual benefits—both from the sector’s performance and from earnings and valuation rerating.

Thoughts on Cryptocurrency

I recall the surge in interest in cryptocurrency back in 2020. Many acquaintances sought my opinion on it. Initially skeptical, I observed as some of them flaunted their short-term profits. However, when the tide turned, not only did certain cryptocurrencies plummet, but entire exchanges found themselves wiped out.

From day one, cryptocurrencies lacked tangible value. Moreover, their low governance and fragile infrastructure pose significant risks to investors. Without proper depositories, investors’ assets are left at the mercy of their brokers, a precarious situation indeed.

The modus operandi of pump-and-dump and pyramid schemes remains consistent over centuries. They tout fancy jargon, dub themselves as tech-friendly visionaries, and anyone questioning their concept is labeled as anti-tech or lacking vision. Their tactics capitalize on FOMO (Fear Of Missing Out). We’ve witnessed this cycle repeat itself in 2000, 2008, and more recently in 2021 with cryptocurrencies. And inevitably, it all ends the same way.

Understanding and Mitigating Risks in the Stock Market

An investor should adopt a long-term perspective and refrain from engaging in Futures & Options (F&O), intraday trading, or short-term speculation—surefire routes to financial ruin.

In my view, there are only three risks worth considering in the market, and fortunately, mitigation lies within our control:

  1. Overvaluation: When a company’s market value far exceeds its intrinsic worth.
  2. Concentration: Over-reliance on a handful of holdings in a portfolio to maximize returns.
  3. Leverage: Borrowing funds to invest in pursuit of higher returns than the interest rate.

By exercising restraint against investing in overvalued companies, maintaining a diversified portfolio with more than 20 holdings, and avoiding debt, an investor can not only outperform the index but also surpass most of their peers.

How to Build a Portfolio and Generate Long-Term Returns

At our advisory firm, investors can entrust us to help build their portfolios. We adhere to a diversified value investing approach, seeking businesses trading at significant discounts to their intrinsic value. Our aim is to patiently wait for the market to recognize the true worth of these businesses, often resulting in substantial gains—sometimes three to tenfold returns—over a holding period of two to five years.

Check out our Previous Stock baskets

Mutual Funds vs. Direct Equity: A Beginner’s Dilemma

For those solely focused on tax savings, mutual funds might suffice. However, it’s essential to understand the dynamics.

Mutual funds often act as low-volatility, low-return assets akin to Fixed Deposits and Bonds. They possess the volatility of equity markets but tend to yield returns slightly higher than bonds. Unfortunately, many mutual funds are shackled by institutional constraints on their investment choices, limiting their efficacy.

On the flip side, direct equity investments offer a chance to dive into the market directly. With patience and diligence, one can excel.

Furthermore, direct investments empower individuals to grasp market intricacies and eventually manage their portfolios independently.

The Best Investment Made So Far

While I’ve enjoyed significant gains in the market—multiplying investments by 16 to 68 times—the most rewarding investment I’ve made is in education and self-improvement. Learning about investing, upskilling myself, embracing mistakes as learning opportunities—these investments in personal growth are truly invaluable. Everything else that follows is merely a byproduct of this foundational investment.

I have talked about how to find Potential 10X opportunities in stock market

where i have talked about more than 4-5 multibaggers that i made and what are the constituents we saw in those companies when we bought. It can work as a great learning session for you in case you are interested in making multibaggers in the market.

#investing #Investingforbeginners #Valueinvesting #Longterminvesting #Mutualfunds #smallcase #personalfinance

About Author-
Nikhil Gangil is a SEBI registered Research analyst, founder of Intrinsic Value Equity Advisors, IIT Madras alumnus and a value investor. He comes with 11+ years of experience in the market and has worked with many reputed Oil and gas EPC companies like L&T and Worley and thus has industry experience in Construction, Infra, Steel, Oil and marine related businesses. His strength is to find well-growing companies at wonderful valuations.
Follow him on Twitter, Join his value investing community


3 Comments

  • Ravi daswani

    Very nice.

  • Manoj Kumar Laudia

    i Like your investment strategy & i want to Learn from you. Sir do you give/ conduct webinar or offline classes regarding value investing? if yes then I Will ready to purchase paid course from people like you.Thank you 🙏🙏🙏

  • Milind Agrawal

    Please let me know more about your advisory services.
    Would appreciate details like minimum investment time, horizon, advisory charges.
    Your past performance snapshot. Any other relevant details.

    Regards

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