Equity Investing as a full time career?


(django) #1

Dear Fellow Investors,

For many months, I have been thinking of quitting my job in the next 12 months and take up equity investing full time.

My reasons for the same are:

  1. I love investing and want to devout more time in researching and start visiting companies I like
  2. I believe there is money to be made in Indian equities and, if I put in the right effort, I can find good opportunities for the same

On the other hand, following things are holding me back from taking the plunge:

  1. Security of a monthly pay check
  2. Family responsibility (Wife, mother, grandparents, No kids yet - nor planned)
  3. Slight fear of losing my hard earned money

Here I need some advice from you guys:

  1. Is this doable?
  2. Have you/ anybody you know has done this before? What has been your/his/her experience?
  3. What are the steps to be followed to do this?
  4. What are the precautions one should take for this?
  5. Any other advice?

Few things about me (so that you can advice me better)

  1. Male, 28 yrs, from Pune, B.Tech, MBA (IIM Cal)
  2. Portfolio: 12 Lacs (5 lacs Equity, 6 lacs bonds, 1 lac cash) No real estate, No family inheritance.
  3. Savings apart from portfolio: ~8 lacs (FDs) vs monthly expenses of ~50,000 Rs.
  4. No loans to be repaid
  5. Relevant Books read so far: Intelligent Investor, Security Analysis (80%), Investing in India, Breakout Nations, Indianomix, Portfolio book of great Indian Businesses, Havells.

Would be very grateful if you can share some thoughts.
Humbly & Sincerely,
Django


Guru Mantra 16- Competitive Advantage: Racing for Uniqueness (The Second Part)
#2

Once you have a portfolio 20 times your annual expenses, feel free to quit your job.


(Rohit) #3

I am into same situation as yours. I am 28 , IT engineer , have interestes in stock markets and wants to quit my job and do full time investing like Buffet.

What I have decided for myself is that to have at least enough money so that it can cover up to 25 times of my annual expenses.i.e. if my annual expenses are let us say 4 lakhs , then I should at least have 1 crore to put aside to take care of my future expenses.(will be putting this money in Fixed income safe instruments , because equity markets are volatile and we may loose a big amount in case market starts downtrend.)

Second thing I wanted to suggest from my personal experience is that though I also loved to invest and research in Equities market but at the same time I was lacking the sufficient knowledge and experience. Earlier I used to dream like If I would have a big amount to invest , I would make large money. Instead I lost (by investing large amount in a wrong bet).

This was due to overconfidence. After that I started reading more and more. Learning more about Finance and Markets. Reading books , Pursuing CFA , It increased my confidence and still their is lot to learn.

So I would suggest to learn more and more , read more and measure how do you perform in the market (before making a decision to quit your present job) . If you feels you are doing better , slowly you can move towards your goal.

One disadvantage of quitting is that you wont be having the certain cash flows in the form of salary which you can invest.


(v4value) #4

Suvi has written amazing stuff on this. Pls search and see


(haque) #5

hi Django, i guess all of us have or dream of doing this. I went thru the same phase last year. But stuck my day job and found extra time to devote to our passion in equities (best of both worlds). Leaving all things aside i guess you need to spend atleast 10 years in the market before venturing. Second point of mine how many people do you know who are successful fulltime investors.
i would also suggest you read the following link
http://www.safalniveshak.com/how-i-quit-my-job/


(anand) #6

Think of it this way. How many investments do you plan to make in a year?
How many hours do you need to find those investments and keep up to date with latest information for those investments?

If you arrive at a number more than 2000 hours a year (250 days a year * 8 hours a day) , then you can start thinking about the expected returns comparing to the potential salary etc.

Honestly, I think one will have plenty of time in hand if they quit the job and pursue full time investing unless one plans to do day trading. So effectively you can pursue investing while keeping the job (unless you don’t like the job, which is a different story)
Just my 2 paisa!


(Nikhil Jain) #7

If your monthly / yearly cash flow is more than enough to cover your expenses, you can quit your job any time. This is the risk/stress free way.


(django) #8

Thanks anandr!

This way of thinking does give a great perspective!


(django) #9

Thanks so much Haque!

Went through SafalNiveshak link. It was very very helpful. Thanks again :slight_smile:


(django) #10

Thank you Rohit for sharing your thoughts!

Guess we are in the same boat! All the best :slight_smile:


(django) #11

Thanks Sushil for your kind advice!

I really appreciate it!!


#13

My 2 cent, riding a bull or bear requires that you wear a strong helmet. If head is safe, one can come back even if bruised. Why to take hardship of no job and getting smacked in the ring ( read market) too. At the end of the day life is about appropriate combination of happiness from different things. Passion, intelligence for markets are something very common these days so nothing unique to feel confident about. These emotions grow during the bull market. Just imagine if you can take the same decision at the market trough or bear market.

FYI, I was at similar juncture and then I put this question off by 5 yrs at least :slight_smile: I kept getting a better job though.


(Nikhil Rodrigues) #14

@django

This topic is close to everyone’s heart at VP. I am in similar situation as yours with same aspiration. From what I have read so far, I have concluded few things.

When you consider leaving your regular job you should have following.

  1. A fully paid own house. No home loan.
  2. Minor or zero debts.
  3. At least 10-12 years of experience in equity investing. Should have gone through a complete bear-bull cycle. Only experience can give you enough confidence.
  4. Good track record and CAGR in your investing journey so far. It will be pointless if you did not manage to beat index/MF’s and still want to pursue investing full time.
  5. Corpus of 20-30X minimum, depending on your comfort level.
  6. If possible, another stream of income like rents. Nobody loves to sell stocks in bear market for household expenses.

For myself, I do not consider portfolio value as correct measure. In bull market, we can get excess confidence by doing that. Instead, I try to calculate fair value of my portfolio (approximates). Once we reach 30 X expenses with sufficient track record, experience and passion, we can use bucket strategy to avoid huge portfolio numbers like 50X and 100X.

For example, keeping 2-4X annual expenses in debt for medical emergencies. 3-4X in debt for day to day expenses. This can be supplemented by stock dividends. Having 25X expenses in equity after these safeguards is good enough in my opinion. Debt portion + dividends can cover expenses for 4-5 years. Which will give portfolio time to grow or recover from bear market.

I have been following this path for last 6 years with current portfolio of 15X expenses. Hoping to reach the goal in next 10-12 years.


(PKumar) #15

One very relevant and interesting book - about 12 private investors who left daily jobs and focussed exclusively on equity investments - ‘Free Capital’ by Guy Thomas.
Its available in Amazon - https://www.amazon.co.uk/Free-Capital-private-investors-millions/dp/1906659745

Its about UK investors but the lessons are transferrable. Based on their story, most of them left jobs only in late 30s or 40s after accumulating at least a decade of experience in investment and more importantly getting decent portfolio size to play with.
Its important to face at least 1-2 bear cycles as that gives practical experience in how will one react if the net portfolio is down by say 50-60% and the immediate future looks very bleak. This is a very subjective questions and depends a lot on the mental makeup of a person as well.
So I would suggest to think on these lines and prepare for 3-5 years before making the plunge full time.
All the best !


(Tarun) #16

Dear @django,

I rather would not had opened my mount on this –for the very reason that I was not able to answer this for myself in a very decisive manner at one juncture of life (not long ago actually) while going through a similar mental dilemma. chiming-in for the simple reason:

So here is my take:·

  • I respect others view point on this but to me, unfortunately the thought process like corpus of 20x or 15x of current earning may not help in taking a step forward. This kind of logical thinking will lead to next set of logical/comfort seeking answers like factoring in inflation into 20x projection and then even factoring-in for newer set of responsibilities
    etc. (parenting, own aging, family responsibility) etc. etc. etc. and etc.

  • Fine that I suggest above not to think too logical, but in the practical word that we are into, things will not move an inch just by being very passionate about something. Household has to keep going, family to be taken care of etc. etc.

  • Very contra dictory above two statements, so what’s the conclusion? Well, this will sound very cosmetic or philosophical, but to me, only person who can answer this correctly for you is ‘YOU’. If you feel that its getting to the stage of an itching, keeps you restless, occupies your mind space more than anything else around and last but not the least, if you can put everything on stake and be equally resolute even in the storm, than possibly this is THE THING you should pursue. If some creeping thoughts, few ifs and buts keep on occurring in-between, than possibly you can give yourself some more time to see how the idea gets compounded/subdued.

Once again, those are very much my personal opinion. Unfortunately don’t have any direct answer and in some part it may sound as a borrowed philosophical gyan. Hope you take it in right spirit.

Wishing you all the best for whatever you want to achieve in life!!


(Raj) #17

@django I have taken that step a year back and am happy with my decision.

I would request you to consider the following points before you take a leap.

  1. It’s a very lonely job as no office, no bosses and no colleagues around. Just imagine if yourself sitting in a room and enjoy your whole day without much interaction, reading reports, books etc. In my view one need to be a little private person to adjust to it.

  2. You are not bothered by daily/weekly/monthly movement in your stock portfolio. Long term view is only which matters to you.

  3. You can handle the social pressure of friends/relatives continuously asking you the same question again and again “What do you do for living?

  4. You have built a decent network of friends/colleagues with whom you can discuss ideas and take it forward.

  5. At the moment your portfolio is small. Even if it compounds at 50% it can only take care of your expenses? How are you planning to add capital to grow?

I will be happy to discuss more in case you need.

Regards,
Raj


(NNaik) #18

Why don’t you wait for a year or so and see how you are doing with your portfolio investments and see if you are able to consistently outperform the markets.

I will not make your decisions for you but would point out that if you go in full time and put in all your efforts then it means you are essentially depending on your market returns to fund your life (or atleast part of it if you do have a backup like your wife’s salary). This will result in unrealistic expectation on returns and timing of returns from Equity. Equity will give 13-15% over long term. of course great investors like Buffet were able to generate 20%+ over long periods of time and I suppose many good indian investors would also be doing that. But over short to medium term equity may also give negative or low returns. I think you like myself are still a learning investor and would take lot more books and ARs to be read and companies analysed in detail before we can be confident of generating those kind of high return.

One word of caution I give myself is to give credit to your luck in investing journey. A lot of retail investors like us have made good returns in last 3-4 years. Last 10 years have been particularly good for Indian equities with good mutual funds itself giving 17-18% returns. Many investors would have made lot more. But going forward expecting those kind of returns may be little optimistic especially if we are still learning.

So you can become a full time investor if you are not going to depend on your equity portfolio for income in the next 5-6 years atleast and have a good backup plan to meet your expenses.

One good thing about investing is that you can still do it with your job. Most people on this board are probably doing it like that. some really good investors like Rohit Chauhan have been doing it for years (you should definitely read his blog).

so becoming a part time investor is definitely possible.


(BreakingBad01) #19

I think your current employment would likely provide you enough time to pursue your interest in investing. In addition, it will provide you “free cash flow” to invest in the markets, while taking care of expenses. If you go on your own, you will be paying for your expenses from either your assets or dividends/interest income. At this stage in your learning curve, it appears you should be able to manage it well enough while also working. Lacking that cash from your job, it may force you into suboptimal decisions in case portfolio doesn’t do well enough to cover your expenses or if you require money for emergencies (e.g. selling too soon, or excess churn etc).

One way to assess if you are ready is if a 1-2% dividend yield on your portfolio can cover your annual living expenses. If not, it is too early.


(Ramesh) #20

Sometimes you dont need to make the choice, destiny makes it for you - this is what happened to me.

After a 14 year corporate career, I found myself out of a job late last year. I have been investing in stocks since past 5-6 years, but became particularly interested in value investing during past 2-3 years, and was in a similar dilemma as you for some time before losing my job. I really liked investing, my portfolio was doing decently well, and the more I read about it the more I wanted to do it full time, but the fear/doubts never went away - but here was my chance. I had a corpus of 4X annual expenses at that time. Well, after doing it for some time, here are some learnings:

  • You need strong discipline to make it work. When you do investing full time, you have LOTS of time on your hands, which coupled with lack of discipline results in fooling around too much. Result - I got into day trading, and lost a bunch of money. Even if you dont start trading, your buy/sell activity levels in your portfolio go up, because you end up thinking too much or acting too fast, and neither is good for investing.

  • The lack of a steady income is deadly, not just mentally, but for your investment process because it freezes your investible capital. I thought I had decent stock picking ability based on my past performance. Most of my investments were in blue chip stocks, and I had pocketed decent returns on many of them. But what actually was happening was this - if a stock fell from my purchase price, I just bought more and averaged it (with the confidence a blue chip gives), waited patiently for it to go up and pocketed returns when it eventually went up. Example was BHEL, which I first bought at 230 levels, it went all the way down to 100, and I kept averaging, after that it started going up and I eventually sold at around 250 levels (~50% return over 2.5 yrs). However, once my salary vanished, if one of my stocks dropped, I could not average any more (unless I sold some other stock which I didnt want to do to avoid concentration) and I was just left watching. So now many of my stocks went below purchase price and I could do nothing, however strong my conviction was.

  • The other issue is that without separate income, your waiting period shrinks fast. You cannot wait long for the stock to rise however strong your conviction is, because you need money for expenses. It killed me to be selling some stocks when the markets crashed this Feb, but had to swallow the loss and do it. Many of those stocks are up now. (I know this can be avoided by better portfolio management, keeping some cash aside etc., but look at it this way - the less you invest the greater return you need to make the same amount of money, so the more risk you have to take).

All these have been valuable lessons for me, and I think (or hope) they make me a better investor. I have certainly realised I am a better investor with time on my side, which a steady income gives. If I was in your place, I would stick to the job for a few more years atleast. Try to take out more time from your schedule (if you dont have kids you can certainly make time :slight_smile: e.g. stop watching TV) and start believing you are a ‘full time investor’ and behaving like one. Discipline is key.


(vaibhav) #21

I just like going to office for meeting people, free & always available tea, snacks etc. , good ambiance, AC , change from home etc… I hate office work and deadlines so much that I am willing to quit all the perks for not having to do the office work.

If my savings are 10x the expenses, and I hope to make it 20x in a few years by value investing, should I quit the job now itself?