Thanks. I withdrew the post since I felt it was off-topic.
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I saw his money life video. Vijay Kedia says, that one needs sources other than equities to fall on.
The equity market can fall anytime. He said its essential to have a house. So that gives one the confidence, that even if one dont have anything, one has the house. He says one should have alternative source of income like rental properties or may be FDs, to fall back on, if markets go down, so that we dont withdraw from equity.
He says he even reinvests dividends from shares.
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I have one question to all the experts out here. Lets assume one has an alternate source of income from say debt fund/fd etc. Even then, does equity investment make you feel confident/proud? ( Even after assuming you have had success with it) . Its easy to say owning share is like owing a piece of business etc. But being minority holders, we wont feel like owning it. If one has a portfolio of decent size, then the daily movement on either side can influence your mood to a great extent. ( On the other hand I see some of my relatives/friends owing real businesses with great cash flow. Some of them with very good moat and no threat of disruption (food)) . I somehow feel, these people are more confident than an equity investor who looks at the fluctuation of his networth every minute in portfolio tracker apps 
. Of course there is a lot of hard work in the real business)
Has this bothered any equity investor out here?
@gautham1 - Some businesses, even if you own a real one, can only grow linearly and even if there is great cash flow from a nice food business in a great location, there is a bit of saturation there, because out of the millions of successful food businesses, only a handful are scalable and become successful franchises like a A2B or Anand Sweets that can grow exponentially. These follow normal distribution., a bell curve when it comes to success.
Equity investing on the other hand could potentially be a non-linear, exponential story with a handful that have mastered the art of stock-picking, capital allocation, incredible patience and outstanding luck ending up with a lot more success and the entire work happens within.
The former has Mild or type-1 randomness as Taleb puts it in terms of distribution of success, with the most typical member being mediocre (still successful but not many times so compared to another similar business in another neighborhood) and the latter has Wild or type-2 randomness and the most typical member is either a giant or a dwarf.
Now assuming one is a successful as full-time equity investor, does one feel āproudā? Perhaps one can feel proud of the success but in terms of a real-contribution, perhaps there is nothing to be proud about.
If you see this chart that explains Ikigai, successful full-time equity investing I think falls in the āSatisfaction, but feeling of uselessnessā intersection as you get to do What you are good at, what you love and be paid for it. Maybe doing something outside of investing perhaps could fill that need (of doing what the world needs) as there should be a lot of time for an equity investor.
As for confidence, as long you are doing everything in your capacity to do what you think is right based on the inputs you have at that point, the outcome, good or bad shouldnāt affect you (a bit of stoicism helps). That I think is the first step to developing a confidence in an endeavour that is probabilistic in nature.
As for fluctuations and volatility and swinging of moods etc. One will get used to it. If not, then understanding why it happens is perhaps the right place to start.
As this chart by Kahneman shows (Its based on prospect theory), we feel more unhappy with losses than we feel happy with gains. See that the S-curve flattens out for gains quicker but for losses, not only does it pinch quicker, it also proceeds more and never flattens out as losses go higher. This is why if something is given to us and then taken away, net-net we feel unhappy. Understanding and mastering volatility and moods and behaviour should come sooner or later and once it does, it becomes second nature to tame it.
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Iāve been following this thread for some time now and it has been a great learning experience. Iād like to share my experience. Iāve been meaning to do so for a long time but hesitated.
About me:
Iām a student of science in my very early twenties.
I was first introduced to the world of investing in 2012. Iād see my extended family members glued to television screens, especially CNBC, watching shows hosted by the eloquent Mr. Udayan Mukherjee.
But, my immediate family members avoided markets like the plague. Because they had had a not so good experience. Losing money, like a lot of other people during the 1990s. It had been a bitter experience for them. But, it was very difficult for me to resist the marketās charm.
I too started watching CNBC, Zee Business and started following the recommendations of analysts. From 2012 to 2015 thatās what I did. There was nothing else Iād want to do.
Fortunately I did decently at academics. Hence, my parents didnāt complain.
But, as time passed it dawned on me that I had to work hard, read and study to grow as an investor.
I started reading, interacting with those who possessed relevant knowledge.
Finally, after extensive deliberation in May,2017 I decided to take a break and learn even more on investing.
Everyone advised me against doing so.
But, I was insistent.
I had 2 months of holidays and I applied for a 1 month break from academics.
So, I was at home for a total of 3 months to learn more on investing and satiate my desire to work at some firm involved in investing.
From May, 2017- August,2017:
In the beginning I was pleased.
I had on my mind that Iād read a lot on investments, travel, sometimes do nothing at all.
I started reading on fundamental investing.
Read multiple books by multiple investors.
However, as time passed i started getting weary of it. Then, I migrated to reading philosophy and psychology. Concurrent with reading I started investing a small amount I had saved over the past few years.
And, I performed well. I was on top of the world. I thought that I was the chosen one.
But, since I had nothing else to do my portfolio churning was very high. I sold some excellent stocks just because I had earned 5% gains. I ended up kicking myself later.
I had done well but that was because of dollops of luck. I was ignoring the contribution of luck to my success. It was a big mistake. I was a victim of the illusion of skill. I started meeting other investors. It helped me totally shed my arrogance. It made me realise that knowledge makes a person humble. It was a lesson for life. After 1.5 months of staying at home and dedicating myself to investing I was naive enough to apply for jobs at asset management companies. I was dedicated to investing and started sending employment requests to mutual funds, portfolio management services, etc.
Thanks to my naivety I was expecting a quick appointment letter. To my displeasure and per my parentsā predictions I received a total of ZERO responses. Not even for an internship. To say I was shocked would be an understatement. That was a gut wrenching moment for me. Within a week I was feeling better. But then, I reduced my frequency of reading investment, security analysis books. And, started focusing on philosophy and psychology. And, to my utter surprise I was enjoying reading it. My addiction to tracking stock prices every 4-5 minutes waned. I had developed an interest to learn more about the wisdom of people from thousands of years ago.
Itās pertinent to note that I had never been a reader until this period of 3 months. I realised that I had an interest in studying investing and being an investor. But, I had overestimated my ability to make a living out of it. I realised that I was a victim of affective forecasting. And, it mellowed me and made me humble.
Learnings:
The 3 months last year were in a lot of ways enlightening.
- Developed a liking for reading.
- Realised that itās important to continue to learn. Always.
- Understood that there are investors a lot, lot better than me.
- Tempered my tendency to be overly optimistic.
- Started making realistic goals.
- Understood that my ideas, understanding can be totally wrong and should always be willing to understand anotherās perspective.
- Learned that even the smallest things can give happiness.
- By investing full time I was doing my portfolio more harm than good. I was making my broker richer by transacting excessively.
- Became more patient.
- Accelerated my efforts to learn to do what I enjoy doing.
- Everything is transient
What I like today may not necessarily be my liking just a year later. - Developed an interest in spirituality.
- Finally, I learned that in the larger scheme of things Iām a nobody. Behaviorally advanced beings have existed for thousands of years. Theyāve lived and died. Even the greatest will be forgotten.
- Started writing to improve my communication skills.
- Understood the transient nature of most things in life.
- Realised that paying too much atttention to what others think is detrimental to my interest.
When I finally resumed my routine life I realised that I actually enjoyed this 3 month duration. I missed it. But, thatās life. Change is the only constant.
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Good. What are you doing now? Job in which sector?
@Yatharth Sir,
I resumed my academics post the 3 month break. Even after my hiatus I tried multiple times to get an internship at firms involved in investing and allied activities. But, I failed again to secure an internship.
Probably they recruit from name brand institutes while my resume is absolutely ordinary- Iām just guessing. But Iāll keep trying and learning.
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Keep learning like thisā¦they will form a Queue to select youā¦Trust meā¦that day is not so farā¦as long as learning EPS is good going UP ( Value investing) and growth in learning in yor learningā¦( Growth investing)
Remember they will form a Queue to pick you upā¦
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Great. There is not much opportunity to learn at beginning positions in many finance / PE / MF AMC companies.
i plan to undertake the courses offered by IMS proschool - Financial modelling course.
Could anyone advise if the course is worth it ?
I am from a non-financial background and my current investment thesis revolves around looking at basic ratios, reading Annual reports (not in detail but more of a cursosry look) and having a fair idea about the industry / sector concerned.
I am unable to decipher a lot of financial jargons that i come across. i am also unable to make those complex calculations that estimate future growth or earning potentials.
I am a businessman and investor. Went debt free in 2003, started debt investing in 2008 and stepped up equity investing since 2013. My interest and dividend income now exceeds my business income. So it depends whether your business has hit that inflection point. Like most stocks have a flat run for a decade or so, then something in the industry changes and the share price takes off, it could be the same with your business. You have to stay the course in both streams, but stocks do help to diversify the risks.
@gautham1: My 2 cents here- You must look at starting your own business if possible, in whichever domain you are good at. 2 Reasons - 1) It makes you a better investor as it improves your perspective. Being a business owner, your ability to evaluate businesses and specially management teams improve. As you know in micro cap and small cap investing, the bet is essentially on the Jockey. 2) In todayās macro scenario, there is plethora of financial assets which is chasing limited entrepreneurs. The number of people who want to start a factory/ start a business is substantially less than people who are willing to put money in financial assets chasing higher yields. That is the reason why decent businesses are getting elevated valuation (besides multiple other reasons).
Since this is a thread of pursuing investing as full time career, I would say running your businesses does not allow you the luxury to invest the time required to pursue investing as a full time activity. Running a successful, scalable and profitable business sucks in a lot of your energy, specially if you are a first generation entrepreneur and you may not have the time to evaluate businesses for investment. This has been my personal experience and different folks may have different views here. End of day, its all about what you would like to do with your life and how you would like to create value. If you can manage your business and become a successful investor along the way, then I would say that is the best way to create value in todayās ecosystem. Hope it helps.
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Dear @gautham1,
Iād like to make it clear that I donāt own any enterprise/ business. Some of the information, thoughts Iāll be sharing are of my relatives who own businesses.
Since, I have little experience in managing a business I interacted with one of my uncles( my paternal auntās husband) who owns and manages a business in West India. His family has been involved in the retailing business for almost 8 decades now. The business is managed alongside his brothers.
Also, he has been actively investing in stocks for the past 25 years.
When I presented this question to him he shared with me, in no uncertain terms, that his enterprise was satisfying and gave meaning to his life. He got involved in the business when he was 20. Today he is 54 years of age. He has had a long illustrious career as a businessman.
But, his biggest grouse was his inability to grow the business as much as heād like.
From the 1920s when the business was established to the 1990s the business grew rapidly. The retailing was doing well and they diversified into food and other businesses.
But, in the past 10-15 years their business suffered immensely because of the emergence of retail giants. Most old time customers continue to deal with him but acquisition of new clients has become very difficult. As a result of this they had to slow down and close their food division.
The various businesses struggled and generated losses wiping away profits from the retail division. With time, their business came full circle- They were left with the retail business.
What he was implying is that starting new businesses is incredibly difficult with a poor chance of success. Diversifying and growing the business proved to be tougher than imagined. Most initiatives by them failed.
He and his family have been doing reasonably well but itās a far cry from what it was like a couple decades ago. He is an incredibly smart person but unfortunately, his small business failed to become bigger and crushed the aspirations of many people associated. Few businesses can actually become bigger. Itās this growth ceiling that worries him.
Now, coming to his equity investments:
In the above piece I shared his thoughts that few businesses can actually break the ceiling and grow.
Once that ceiling is broken sky is the limit.
Quite a few stocks listed on the exchange have broken the ceiling.
By investing he gets the opportunity to participate in a story that has the ability to grow.
Most growth stories will fail. But, thereās a decent chance that at least one business will make it big. And, that could be life changing for an investor.
So, basically he summarised it like this:
Business started> Most businesses will fail> Some will survive> Thereāll be brutal competition among survivors> Growth will stagnate for most survivors> Some will defeat growth stagnation and grow> Again some companies will fail at this stage> Those that survive get listed on the exchange to raise money> Again, thereās the high chance of reaching the ceiling> Few companies will break the ceiling> Some of the companies that broke the ceiling will fail at this level> Those companies that survive this brutal battle will end up generating tremendous wealth for investors.
Now, this isnāt a very accurate description for company survival.
But, itās a fairly accurate assumption that hardly any company will grow very big.
Also, every business requires tremendous luck to defeat the odds and grow. Hardwork and determination are not the only determinants of success( His words).
So, to summarise-
Most small businesses reach a ceiling.
Quite a few companies that get listed on the exchange have defeated the odds to survive.
Hardly any company, even in the listed segment will grow.
My uncle tried his best to grow his family businesses. But, things didnāt work in his favour.
Hence, he invests in listed businesses, hoping that some of them will break the ceiling and generate wealth for his family and many others.
Also, every business, big or small, plays an incredibly important role in every economy. Their contribution is immense and must be appreciated.
Iāve tried my best and shared my thoughts and the information I collected. Hope it helps.
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On this wonderful forum there are investors who have achieved incredible success in investing. Theirās is a truly inspirational story.
During times of uncertainty and indecision itās the support of fellow investors that strengthens faith in equities. But, there are some stories that are nothing short of horrifying. The suffering, pain involved is hard to describe.
The anecdote Iām sharing sends a chill down my spine. But, before I do so Iād like to explain that my intention here isnāt to inundate this thread with my content. Iām a fairly recent participant on the forum. My entire life Iāve never had the opportunity to share these incidents which may help us become better investors. If it helps even 1 reader to sit back and think Iād be delighted. The purpose of this post is to evoke thoughts. Because when we sit back and think, often, we attain clarity.
Anecdote 1:
The person involved in this anecdote is a distant relative of mine. But, Iāve interacted with him multiple times. He used to work at a mid level position in a small enterprise.
The job wasnāt highly remunerative but it allowed him to live a decent life. He had dropped out of the education system after the 12th grade. Through hard work, grit he rose the ranks. Since his youth he had a knack for investing. But, the unstable financial condition of his family prevented his from pursuing a career in finance. He took a job at the small enterprise I mentioned above. As time passed and salary grew he started venturing in investments in 2004. And, voila, within a couple of years he earned healthy returns. It reinforced his belief of being a fine investor. What he did next marked the beginning of his downfall.
He borrowed money from friends and family to increase his corpus. Left his job and worked full time on investing. He had borrowed twice the amount he had invested from relatives. And, relatives obliged expecting quick returns. The party lasted for some time. His portfolio had grown much, much bigger than his invested amount. But, prpfits werent booked. He had fully invested his leveraged portfolio. His investments were in some decent companies and some strictly ordinary ones. And, then 2008 struck.
In a few months profits were wiped out. Considering it a good opportunity to average he borrowed even more from relatives.
But, the downfall didnāt stop. And, then the results were catastrophic. He sold at a loss of 50%- 55%. Had it been his own money he would have somehow passed the difficult phase. But, he had to return money to his lenders. Leverage killed him, not literally.
All savings lost. He hasnāt invested again in the past 10 years. How can one expect him to forget the past and trust equities again?
Was it luck? I donāt know.
Anecdote 2:
The person involved in this anecdote is also an acquaintance of mine. He is in his 50s.
He worked diligently his entire life at a medium sized company.
Tremendous dedication to work and saved regularly. Hardly spent any money to save for a better future. But, in the 1980s and 1990s the wave of equities encouraged him to invest.
But, being risk averse, he adopted the " safe" long term holding investment strategy.
He invested in some companies that had decent reputation in his days of investing.
And, he forgot about it.
Today, those stocks are not worth the paper the share certificate is printed on.
The person did everything right- Worked hard, saved money, invested for the long term. Yet, the invested amount evaporated.
Fortunately, it was a small part that was invested in stocks thanks to his risk avoidance. He invested majorly in fixed deposits.
At the other spectrum is another acquaintance who adopted the same strategy of long term investing. It worked wonders for him. Those scrips allowed him to acquire new homes and improve his standard of living. It changed his life, for the better.
Now, is this luck?
Yet again, I donāt know.
Do think about it.
Because of the painful stories of massive losses in their circle of relatives my parents invested in schemes like KVP, Fixed Deposit, etc. They were often defeated by inflation.
But, the belief that their principal amount was safe gave them peace.
Were they right to do so?
Iām not aware.
Finally,thanks to all the members for being patient and kind with me.
Itās the encouragement provided on the forum that helps us become better.
Many thanks.
Best wishes.
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Hi Shreys
Equity investment is not cup of tea for all, itās very complex art to understand busniess, cycles, economic moat companies offered, valuations, changing market Dynamics & identifing triggers embedded in your stock, taking selling decision & holding based on results.
I will never agree that you make money in stock market by luck. If you are new to stock market & bought an excellent padigreee stock based on some recommendations, itās difficult to hold in longer if you donāt know about industry, moat of company & itās growth in future.
Yes, this is possible for some cases where people forgot their investment & come to know at a later date to find out how big it has become.
Their is difference in āinvesting in business & investing is stock marketā.
Dear @Cshar,
I politely disagree. Ignoring the role of luck in investing is imprudent. Skill plays an important role but so does luck. Even in the growth of companies luck plays an instrumental role. So many companies started well but hardly any company reaches the apex. There are circumstances that are totally beyond our control. Rather, most factors ate beyond our control.
In my humble opinion, we should guard against confusing luck for skill.
Both, luck and skill, contribute equally to victory.
Hi Shreys
I had started value investing in 2013, churned my holdings across infra, pharma, chemicals, FMCG sectors. invested X capital, added 3 X capital in 2014 to 2016, portfolio in December 2017 rose to 20 X.
Let me know if this is luck.
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Also holding MRF, Shree cement, eicher for last 5-6 years, holding Infosys till 2012, holding sun pharma till 2012 is luck? No even a person who was holding sun pharma by chance till 2012 from last 10 year & continued to hold sun pharma till now could have eroded his wealth by 60% as sun pharma declined from 1200 to 500.
You need to work hard to maximize your returns here, no free lunches.
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As the famous actor Raj kapoor said, Life is 90% hard work and 10% luck but without that 10% you cant succeed.
When you want to invest in equities you have to think like business men be shrewd, oppurtunistic etc etc. and as there are losses in business and people get wiped out you can get wiped out in stocks too.
People look at only successful people and try to emulate. Lot of people get sucked into this trap also and humans have overconfidence on themselves esp the educated ones are more overconfident.
Be careful. invest wisely. If you have a job to keep which pays you well keep doing it and invest only if you have the knack and time for it.