Leaving the math aside for the moment, your broader point is correct. Over a long period of time there is more to beating the market than what meets the eye. As WEB says succintly, investing is simple but not easy.
Your current saving doesn’t give you a moat to get full time in to investing. Suggest , work for many more years, save maximum, build a good corpus before you quit your job and get full time in to investing. bottomline is you should have enough saving to keep your kitchen fire on + basic household running expenses. Even if your investment goes to ZERO, you still should be able to survive with the savings/monthly interest/dividends.
I worked till I reached 51, then took early retirement and now I invest as a hobby.
If someone wants to be a full time investor, does it work better to go solo or come together in a small group so as to combine research data, brainstorm ideas, challenge each other.
Finding like minded investor group is not easy imho. If we could find them, it would be wonderful opportunity.
Also remember that full time investor has not retired. That is a wrong notion. Many in this group feel investment is equivalent to retirement or being lazy. It is actually the opposite. Gaining knowledge is paramount for a successful investor.
In my opinion group of Like Minded People is must as an Echo Board. Many of those people may or may not be great investors. But their thinking process and diversity of it matters.
Generally such group members may hv very small overlapping portfolios. But they may hv valuable view/opinion to offer. Especially, making us realise our the blind spots. Pre-condition for such group is open mindedness and hunger for contrarian views.
Though at times some members offer great endorsement which helps in sizing the position.
There are also lots of Learning by analysing right or wrong choices of members and supportive hypothesis under which they did so.
Little twisting what Charlie said about reading books…
We can ride on the shoulders of many such group members and develop our clear diverse long distant vision. This will be little more effective than even reading great books, if practiced in true spirit.
Such a group is invaluable in the way that it puts to use a less desirable quality of a person, i.e. to find faults in another person conclusions. That I think is absolutely invaluable.
I think a person is much better of investing in collusion with other investors, instead of acting in complete privacy. In fact, that is the only way to go.
All, here is the piece I distributed internally few weeks back. Hope you enjoy and pertinent to the subject here.
Month 18 UPDATE: Lookback- Short changing the CHANGE?
‘All truths are not easy to understand once they are discovered, the point is to discover them.’ Galileo
July 31 marked the end of 18 months from active employment. My mentor said you must construct a big picture now. Yeah, heard it million times my life; what the heck is big picture? You think like CFO and retired as manager? Or think like data scientist and end up as coding for some financial services company? Of course, some stories do turn up inspiring but point, thinking a big dream is hallucination or more? He asked me to use fractal data here as well, and end results looks like this:
Lesson 1: Non-linear
‘Too many people give up too easily. You have to keep the desire to forge ahead and you have to take bruise of unsuccess. Success is just one long street fight.’ Charles Faulkner
‘He who lives by the crystal ball will eat shattered glass’. Ray Dalio
It is not strongest of the species that survive, nor the most intelligent, but the ones most responsive to change. Charles Darwin
I knew income stream is not going to be linear but what I really pondering what could have been mental state when you see a graph like this.
Let’s look at both pictures above, Picture 1 is income generated during 2016-2017 full year (1 Apr to 31 Mar) where as Picture 2 is one of salary earned for a year while I was working. Look at the massive roller coaster in first picture, interestingly this is a story of majority full time investors. Now imagine if this hell rider movement is not managed properly it can take you to the brink. Now you must be wondering what would be my emotional state in these 12 months? For example, Month 9 to 12 when it plunged to almost zero and even negative one month. By the way bump up in salary graph is due to bonus. Anything hidden here, lots… coming soon.
Important note- the base is equalised but picture 1 does not include long term capital gain and dividends.
Summary of lessons:
- The picture can be worse than real life, though it looks like my BP should have gone sky roof during drawdowns. In reality, I was not even aware the valleys are so huge.
- If you are venturing out on your own embrace volatility. Do not run away.
Lesson 2: Work might be god, but all work does not deliver results
‘The people who excel in any field are people who realise that moment is there to be seized- that there are opportunities at every turn. They are more alive to the moment.’ Charles Faulkner
‘Life is a school of probability’. Walter Baeghot
‘I believe babies are born as innovative personalities but our social processes work to stamp out exploration and questioning.’ Jay Forrester
Ask anyone who works in month end activity, does your work deliver results? He will fight with tooth and nail to show you all the activities with completion and review date. For me it was not the story.
Now look at these two pictures:
The picture 1 is capital allocation and picture 2 is hours worked. Capital allocation is how much capital allocated every month, hours worked is self-explanatory.
One is you can very little co-relation between capital allocation to wealth creation as far as timing is concerned. So, the dictum put more money get more is not true. Take example of April 16 where my capital allocation was at base the wealth creation was highest in year. Similarly, Month 6 i.e. Sep 16 income bumped up where as I was negative on capital allocation meaning withdrawn.
Regarding efforts or hours worked as I marched towards end of year appears like I have exhausted. May be 2 reasons behind 1. I reached my mile stone by end of Sep 16. 2. Fatigue may be! But key point is at some point else, after Apr 16 I realised work hours have little impact on timing on wealth creation. It has to be ongoing process not like you work weekend and I will pay you incentives.
Summary of Lessons:
Timing of efforts and skills are not correlated 1:1 for rewards. When one works hard one is building competency and capabilities. Reward comes later or even before. Do not get complacent or frustrated by comparing. Skills and capabilities are ongoing work, those who said absolutely correct.
You can reach your milestone before or after. Do not put a target date like what we have been told. That pulls back your effort and enthusiasm, for example if you achieve something early you are likely to dose off till next project.
Lesson 3: End result is big picture
‘Be less curious about people and more curious about ideas’. Marie Curie
_‘The difference between a successful person and others is not a lack of strength, not a lack of _
knowledge but rather lack of will.’ Vince Lombardi
‘Losing an illusion makes you wiser than finding a truth.’ Ludwig Borne
Now look at these final two graphs
First picture depicts holidays/travels I was engaged and second is the cash holding across years. Second half of the year I was almost out half of time with little access to markets. Income skewed definitely but not exactly in same fashion. And this was only possible with a big percentage of cash holdings i.e. deploy what is required. Not necessary to play big always to survive.
Summary of Lessons:
Newton’s law is right, if you have to get happiness you need to put ‘some effort’ motion. Had I not increased cash position my holidays would not have gone up? Though I would like to study this further, my mentor says you can still dose off with 100% exposure and negative risk.
By giving your heart and soul without a plan does not work. The problem is who says they are committed most of them does not have a plan I guess or else they won’t say we are always busy! When you create an objective, and plan you would realise to save heart and soul is important and also holidays!
More I will come back post or middle of October. Fractal data looks exciting, how to enjoy volatility more. Of course, holidays will continue, after all money is unit of account.
Life is a journey, you choose the destination. Courage & determination determine results. Happy Sailing.
@Yogesh_s I need to thank you for your honest feedback. You had raised a valid question last year on work life balance (although you withdrew post then); I was actually struggling with hours co-ordination, external confirmation was really helpful then. A number of changes attempted since . I hope you will be happy to see the increase in number of holidays in second half of year. I posted a graph even.
Please continue to post your feedback (without withdrawing post , it’s meaningful to me. Very few feel upright to express personal views and I guess you are one of them.
Thanks again and best wishes
Can you share on how do you balance between job and markets. How do you track all these Ipo’s. Kindly share your experience.
I would like ideas on generating monthly income while investing for long term.
Some investors believe in Futures and Options to generate Monthly Income, but I am not good in both these.
Some of my friends do short term trading to generate some additional monthly income, in addition to their full-time job or part-time job. This is good but it results into substantial amount of STCG and Tax.
I can only think of the following ideas:
Dividend payout from your stocks. You can either re-invest it or use it as additional income. Though this is not monthly income but one can accumulate it in Saving Account or Liquid Fund and use it on Monthly basis for expenses.
Whenever one books profit from his/her Long term investment (stocks), then use about 2%-3% of the profit for monthly expenses and use the remaining 97%-98% for re-investing and growing the portfolio.
I am thinking on these lines as there are situations where people may not have job due to uncertain job scenario, and then having some Monthly Income becomes necessary till you find the next job.
Any ideas are welcome.
I have been holding few stocks which gives dividend regularly .But the dividend you get can’t be considered monthly income because dividends is not assured and you will not get it when you need the most
To be honest the dividend that retail investors get doesn’t add any value
And 2-3 % of profit is also not a sizeable amount to be considered as an income
While the markets offer you lot of opportunities to create wealth I doubt whether it will offer regular income to small investors like me
Monthly cash outflow is certain so you have to match it with certain or risk free cash inflows. Some people I know manage it through mutual funds. You could take a look at arbitrage funds which generate decent risk free 7-10% return and do not invite taxes after one year. Basically, you have to remain free from any worries regarding daily expenses to enable you to focus on investing/trading. Better to have dedicated fund for managing daily expenses.
This would be a mistake.
To remain invested in good companies is a bigger challenge than what most perceive. The challenge should not be further increased by imposing requirements like Monthly Income.
The concept of Long term investment, in its essence, is the opposite of periodic returns and assurance that “I am right”. It is the opposite of security that one gets from Fixed Deposits.
One must come to terms with that.
The daily needs are just as important, but if you impose this need upon your long term investment you will only be taking steps backwards.
One could say that:
Two birds in the bush are better than one in hand.
If you are in the market full time, then a) either you are already rich enough to not bother at all of your monthly expenses or b) you are doing a business of money management where you are earning money from managing other people’s money.apart from creating returns from your money. Warren Buffett would fall in the later category (as he did in his initial years) and most other full time investors I know fall in the former category.
In my opinion if you dont belong to either of these two categories then you are making a mistake to try to be a full time investor in the first place. Even if you think you are a great investor and hence it makes sense for you to be full time, you would have already shown traits of being a good investor, wherein you already have a sizable portfolio and you dont have to bother much about income generation.
Market is not an ATM where you can come anytime and withdraw money for meeting your expenses at your convenience - its an highly opportunistic game where only the fittest and the best make bucket loads of money while most others struggle to even come close to general market returns. In fact most full time investors tend to trade a lot and generate far worse returns than they would have, had they been doing something else. Cause if you are a full time investor sitting a home and desparate for an income, you would do nothing but buy and sell excessively and over time hurt your prospects of even getting a decent return. And if you are not comfortably rich while running full time, you will panic and sell in down markets while also not having any additional money to take advantage of lows.
The problem is the present bull market run has made a lot of people suddenly realize that they are heroes. As Buffett says it is only when the tide will go away will we come to know who was swimming naked. I bet even an uninformed Chimpanzee putting money in mid and small cap Indian stocks would have made 30%+ returns in the past 3-4 years. So I think one needs to take a step back and think of the situation holistically.
Last week before the end of year is always a bit lighter but what really surprised me this time 5 different (non value-pickr forum members) guys who want to take the plunge full time into public equities spoke/met me in just one week alone. Some are working in startups, others have been doing part time passive investing with a job, some have been investment bankers. All without exception told me that their reason to want to take plunge was their love for equities. But I think this is very importantly due to the fact that small & mid-cap stocks - the kind most of the retail and small guys seem to always bet heavily on - have been on a tear since 2013. If you have not noticed BSE Small cap Index have moved up by almost 6.33x since its lows of 2013 (I think from 3000 levels to current 19000 levels). So while NIFTY and other metrics may look like they have not even doubled - the place most of valuepickr members, budding investors, first time investors and many others have played has itself given a stellar set of numbers. And I am still not aware of many guys who have multiplied their wealth by 6.33x in the same time.
Owing to my experience in the buy side, I can very well assure you that stock picking (basically analysis to come to a conclusion if a particular stock is good first time buy) is just one part of creation of long term wealth success in investing. One often overlooked part is luck. If we draw a contiuum from end to end - with luck being on one side and skill being on the other side - investing will probably fall in the middle or 50th percentile while something like piano playing will be on 100th percentile towards skill and a game of rolling dice on the 0th percentile towards luck - this is important to understand - you can achieve good returns in investing even if you are not good in investing - if helped by dollops of luck. And with BSE Small cap Index movement by 6.33x up - what can be a bigger lucky moment. The problem is that bull market returns make us believe that we are more skilled than we are actually. Infact numerous psychology experiments have proved that in most experiments, as high as 80% think that they are special and are above average. So people who are planning to start afresh should do a double careful evaluation of their skills vs luck contribution especially as indexes like BSE500 breach 35 times P/E - a level previously unheard of.
Coming back to the point being stock picking is just one part of creation of wealth. Once we keep out the luck’s contribution, sustainable long term return creation depends heavily on position sizing, timing, size of entry and exits, subsequent buys and sells, reactions when things go right and most importantly reactions when things go wrong. And post that comes the art of retaining wealth once one is wealthy enough - and believe me that’s hard enough - having seen it first hand in many wealthy families.I see many of the new ones trying to be a full time investor relying on just their stock picking skills. I feel that going to be full time in investing game with just stock picking skills is like going to a ass kicking competition with just one leg. So one more point of caution is that one has to be very sure of one’s risk management, portfolio management and psychology as well as investing rules before you take the plunge. After all when one takes a plunge - you are taking a huge bet on not just yourself but also on your family’s future and well-being - the element of timing as well as sustainability has to be that of a high degree.
Everyone loves to see their portfolio go up by a healthy number every day but believe me seeing your portfolio go down days after day in a bear market is probably one of the most gut-wrenching experience. Only if such a situation stays intact your love for equity investing - then only think about full-time equity investing. However most people like or dislike something based on the success they get on the chosen field - so know if your love will stay intact when the period of loss comes in. Overall tread very cautiously (especially because valuations are at 2017 levels and not 2013 levels) - as Buffett says too many people gamble with what they have and what they need in trying to get things which they actually dont need or really want so much (just as we succumb to greediness when we should be fearful). And that is just anti-rational.
Brilliant piece of writing, diary of a man trying to find a method for madness.
No matter how much time anyone emphasize the key to success is not stock picking but portfolio management overall I.e. money and risk management, at times of hyper optimism these will sound spoiler, obstacle to stardom and you will land up being branded as some one who is either a pessimist in life or someone who missed the bus and now howling in frustration. This reminds me of 2007 beginning when an astute investor told me, ‘focus on money management, bring capital allocation to your own performance, have a plan to meet disasters etc’; I reacted in same fashion as expected. I didn’t say anything to him, but thought ahoy, look who is talking. These guys made money, when its our time suddenly preaching starts.
The number of people who follow risk management and money management is abysmal in India (at least retail fraternity). I found very disappointing may of them do not even heard of, a lot of them have been in market for some time with success even. Another bunch thinks this is part of trading not investing. You are far away from truth. Money management deals with situation to efficiently allocate capital where there is uncertainty in outcome. Similarly risk management manage the risks with an uncertain outcome. It has nothing to do trading or investing.
No one should blindly follow anyone, point taken. But please note below:
- Fear is million times powerful than greed. A gap down opening of 32% in your stock will wipe you out permanently. Talk to people who has seen bear market not who are born in this bull market (there is nothing wrong with them). Market opens 1700 points down, recover 900 points and again plunges 1100 points. This is not fantasy, a live example (repeated for months) with Sensex at 14000. Imagine 10% swing in 20 minutes, in today’s context Midcap plunge by 2000 points in 10 minutes.
- Favourite stocks, leaders fail 90% from top. People without a risk management in place completely got froze. In simple words I know of people who has invested heavily in stocks like Unitech, HDIL etc during 2004/2005 wasted family and personal wealth only to never come back.
- No valuation, no analysis will protect you unless you have tight risk management in place. Price moves with expectation and discounting not fundamentals alone. Crowd behaviour is extremely difficult to understand for people like us. A simple note, I have been emphasizing for some time. I am sure there are guys who has worked for financial institutions here. Ask them, none of them follow most of discussions available on public space. There may be few similarities, imagine when powerful buyers with liquidity tend to disagree with you; the best way to survive is temper down ego.
- No matter discussion, television, paper cutting will ever tell real story. Have you seen the weakness in capital goods performance, or even housing finance few months back. Picture tells a lot of story before they unfolded. Pre-2007 television was most popular media for stock market (now you add rampant social networking), everyday multibagger was sold like vegetables. I wonder where are those fortune tellers now?
Having confidence and beliefs should be principle of life but without deliberate practice to a focused area is too dicey terrain.
Stay safe guys.
[quote=“8sarveshg, post:266, topic:5963”]
Everyone loves to see their portfolio go up by a healthy number every day but believe me seeing your portfolio go down days after day in a bear market is probably one of the most gut-wrenching experience. Only if such a situation stays intact your love for equity investing - then only think about full-time equity investing.
Superb Eye opening Facts narrated here. I believe acid test is in above para before one takes final plunge. One has to wait and pass through such period, which will come some time if not sooner, if he can keep his cool and love he is ready for Diksha (initiation).
This is my personal belief that a bear market is a better time to take such calls as it gives you reality check, true worth of so called net worth ands let’s you know if equity is your first love, no love or eternal love . Bull market is the worst time to take such decisions as mind is driven by multiple biases
Certain things I find alarming -
Most above average investors I know have been able to compound at 35%+ over the past 4-5 years. Most of them have been the early birds in small cap stories
Most of them have a strike rate in excess of 80% which is insanely high
Most of them have beaten top fund managers most of the time
Through CY2017, most investors have hardly seen a down month in their portfolio
Almost all of them swear by a concentrated portfolio approach probably because that is what has worked over the recent past
Making wealth cannot be so easy over a long period of time. Something somewhere has to give at some point of time, I am starting to get very very uncomfortable with the state of affairs
Not the best time to be making a decision to become a full time investor for sure, though numbers and sentiment say otherwise
Note to self - Must keep fine tuning my F&O approach to hedging, that in combination with disciplined allocation is what could save me me from taking serious damage. When the going get tough I anyway won’t be able to escape the carnage fully