Equity Investing as a full time career?


(shreys) #394

Dear all, I’ve deleted a previous post of mine in which I tried to relate philosophy and investing. I did receive some feedback that by discussing topics I have hardly any understanding of I was treading on thin ice. I deem my act irresponsible to share content about which I’ve hardly any knowledge. And, I wouldn’t want to distort the author’s intended meaning. I’ll probably initiate a new thread on that topic when I understand better. Also, yesterday I had shared my thoughts on the contribution of stock markets, trading and investing to one’s life. I was advised by Moderator Sir to merge my thread with the thread here.
My respectful greetings to fellow ValuePickr forum participants.
Today, what I’m sharing is an aspect of life close to my heart. The events I’ll be sharing below have been life shaping ones. They’ve transformed me into a different version of myself, albeit a better one. And, the stock market has had an influential role to play.
I do realise that I post excessively. The reason being the lack of creative channels my entire life. ValuePickr forum has given me an opportunity to learn from the veterans, the experienced, from like minded fellow members and express my thoughts. Please bear with me and help me become a better person.

So, I had, in another post shared myexperience of a break of 3 months I had taken last year to learn more on investing. I was opposed but I persisted. And, it was a truly enlightening experience. But, the reason for this immense desire to learn more on investing has its roots in another monumental event of my life.
The Monumental Event:
I’m a student in my very early twenties. Some years back, I was a student of the 12th grade. Its believed that performance in the 12th grade is crucial for admission to a decent college. I’ve, since childhood struggled with mathematics. However, I had been able to do score well in mathematics exams by working extremely hard. But, in the 12th grade, the syllabus was beyond my comprehension. I’d spend hours staring at the formulae of differentiation, integration understanding nothing. My basics were weak. I memorised formulae but wouldn’t be able to solve problems. What good is memorisation of formulae if I’ve no understanding on how to use them? I couldn’t share my fear of poor basics in mathematics with anyone for the fear of scolding. My parents would have supported me and helped me understand better. But, my mind had concocted horrifying stories. I put on a facade of being confident of calculus. Exams were approaching. My nervousness was skyrocketing. I appeared for the exam. I had worked hard but wasn’t sure I’d score well.
2 months hence, results were declared. I had scored a mere 42% marks in mathematics. My family members were devastated. But, their concerns were assuaged when I was granted admission to a decent college on merit because my performance in physics and chemistry was very good. Things got better. But, I was a mental wreck. Struggling from the within. Doubting myself. First year of graduation passed quickly. Results were declared and I had failed in multiple subjects. I couldn’t believe my eyes. But, that was the truth. It was difficult for my parents to come to with terms with this failure. My mind had expected this failure but my heart wasn’t able to accept it. I then reappeared for the exams. Worked hard and passed them. Fortunately, I was eligible for promotion to second year of graduation. On academics front things got better but on the inside I was at the nadir. A broken person. I had no hope from life. It was during those days I got even more involved in investing. At college some of my friends would discuss trading. I’d just listen quietly. It alleviated some of my troubles. I decided to try a bit of trading. I requested a very small amount from my parents. They obviously refused to grant it to me. But, I kept trying and finally they relented. I was granted Rs. 2000 ( Two thousand). It may not seem like a big amount to fellow members. But, for me, it was life changing. It gave meaning to my meaningless life. I started trading and as expected I lost most of it in some time. But, it motivated me to learn more. I spent time reading, tracking investments, discussing with my friends stocks and academics. My feelings of hollowness, meaninglessness were replaced with vigour. A desire to achieve something. It’s trading/investing that helped me recover from the lowest point of my life. The stock market is not something abstract for me but it’s a friend who prevented me from giving up on life. I didn’t earn money but I earned a reason to live happily. I’m forever indebted to the stock market. It has helped me transform from a feeble, low self esteem person to someone who is patient, dedicated, optimistic.
It has made me who I am. Rescuing me from the dark hallways of my mind.
It’s an event that’ll remain etched in my memory for my entire life. I shall be forever grateful.
And, as a consequence of this development I took a break last year in May, 2017 to delve deeper in investing. I’ve shared my experience in a post above.
This is the way my life changed for the better.
Has the stock market or trading/ investing played a contributory role in your life?
Please share your thoughts.


(KKP_Investor) #395

Equity Investing as a Career is for professionals who come out of college with a finance degree or for Investors who have more than 3 bulls and 3 bear markets under their belt and have made 20%+ CAGR in each of the Bull + Bear periods. So, measure Bull + Bear time period each time, and see if you are near/above 20% CAGR and if the 3rd time you are doing it, then you should have 1) Enough money from your 3 bull and bear investments and 2) All the knowledge and skills to do it full time as an individual investor turning into a professional investor.

If you violate the above, I guarantee you will be coming back to a job or some kind or doing fixed income investments to sustain a family life. My 30+ years of investment experience is telling me this, and lots of Hot Shots get ‘high’ and quit their job, only to find themselves working for someone, doing a lousy job somewhere, or feeding a bunch of balony (bogus) answers to their family.

KKP Investor


(shreys) #396

Dear @kkpatel1924 Ji,
I completely agree with you. Frankly, until some time ago I was enamoured by the job of an equity analyst. I thought that it would be my occupation for life. But, as time passed I realised that there are several vocations that I may enjoy. They may pay a little less but could be satisfying. Hence, in my humble opinion, decisions needn’t be arrived at in a hurry. We must contemplate, perform thought experiments and then decide. And, if it doesn’t augur well there should be no hesitation to switch to alternatives.


(shreys) #397

Dear @kkpatel1924 Ji,
I have a few queries to make. I request your guidance.
In the message you’ve posted you’ve shared your thoughts that equity investing as an occupation should be for those who’ve graduated with a relevant finance degree or those who have experienced 3 bull runs and 3 bear runs.
I’m inclined to believe that the average duration of a bull run is 6-7 years and the duration of a bear run is 2-3 years. My belief is not backed by data.
So, that would imply that only those with at least 25 years of experience of outperforming the market should become full time investors.
But, recent finance graduates with not much experience of investing can embrace investing as their occupation.
This disparity is intriguing.
I would like to humbly present my thoughts-
Even 25 years of outperformance can seldom assure a person of healthy returns in the future. Past is never a good indicator of the future.
25 years will definitely equip a person with the skills required to survive in the market.
But, then the question is that can’t a person acquire the same skills in 5 years or 7 years or 10 years?
Your guidance is much appreciated.


(KKP_Investor) #398

Investment Career with the appropriate education would automatically give you ‘returns’ with salary.

So, save money from the salary and invest in SIP. Done. So, you are already in an investment career.

If you get really good, jump ship, do some certifications and manage your own portfolio (investment and trading).

Now, if you are not into the investment career path, my subtle and sub-conscious message above was to use your brain and earn money through the profession that you have created (IT, Mechanical, Robotics, Pharma etc). Save money. Invest money. Do SIP.

If again, over the longer term (3Bull + 3Bear) you can prove that you can do well, then you can think about going solo and become an investment professional. If not, then continue with job, and invest the cash flow from job income to invest with professionals. It is the BEST way to build “wealth” since you are almost doubling the speed of money gains (creating wealth through job, and growing the capital invested).

If you jump too early without proven experience, then you would have given up your job, and also not do well with investments. Now, you are going into negative on two fronts > No Job Income i.e no Wealth Creation, and also Losing on Returns.

Nothing in life is guaranteed, and just as past is no indication of future, if you can double up with Job + Investment (DIY or MF) you are almost guaranteeing a good outcome (much high probability).

So, it is logical, and I know you understand. I am practicing this method and it is working well, and I have gotten lots of people like me who wait until 60, 62, 65 or even 70 before they retire. Jumping off the train early needs assurity and guarantee that I WILL definitely make a good return and a bear market will not kill me!

KKP


(Shiv Kumar) #399

KKPji,

I do not agree with you that one needs a finance degree to become a
full-time equity investor. A lot of the skills can be gained by reading and
exploring on one’s own. However this would require considerable amount of
time and patience and tuition fees need to be paid to the market.

You are right in saying that an investor has to sit through multiple bull
and bear phases to formulate the investing philosophy s/he is comfortable
with. A 15-20 year timeframe is sufficient to teach one the magic of
compounding. And if one has compounded his or her capital well in this
period, the investor can consider himself or herself financially
independent.


(shreys) #400

Dear @kkpatel1924 Ji,
Many thanks for replying. I had erred in interpreting your message. What you’ve mentioned is a great strategy to follow.
Thanks again.


(gautham1) #401

@phreakv67d @maverickroger @shreys
Thanks for your replies. Well, i agree with you on scalability and the long term value creation. I didnt mean to say doing real business is better. My point was on sense of ownership. ( even if the portfolio is large). One’s net worth can fluctuate every second. Also, as they say in the very long term everyone will be dead. Anyways there is no right answer to this question.


(dvdinesh) #402

One could argue that you are lucky to have the ability to focus and work hard :slight_smile:
Congratulations on your success so far. Is there a place where you have shares insights on how you identified specific companies and how the story played out?
Thanks in advance,
Dinesh


(Cshar) #403

Thanks a ton for kind words, it’s really encouraging.

I am trading in equities from 2005, didn’t have a vision of “what can happen to stock if we hold for long term” at that stage. Missed lot of opportunities to create wealth, bought Shree cement 144, Maruti 400, unitech at 100 10 rupees face value, capital was very short less than one lakh hence tendency was to book profits when money doubles & move on. :grinning::grinning::grinning:

In 2007 I had been very active in future trading, by God’s grace made a killing & generated 10x return on capital in 6 months using SBI, L&T, BHEL & reliance. Took out 70% or capital in Nov 2007 due to marriage if my younger sister​:grinning::grinning::grinning:, remaining capital wiped out when markets crashed in Jan 2008, that was an eye opener. Wasn’t actively involved between 2008 to 2012. Started taking interest in 2013 when one of my friend recommended Mt to read Peter Lynch “one up on wall street”. That was an eye opener for me & have me a broad perspective in equities as wealth generator in long term. I liquidated my insurance policies, other small FD investment & out in money in equities. I think to one of moneycontrol boarder ReddyM to teach some valuation techniques that really helped out.

Took major bets on below 5 stocks in 2014

  1. Madhucon Project ( was operating on 90% PLF, market cap 90 cr, asset 2000 cr)
  2. Gayatri Projects ( had firm PPA with AP government, market cap 300 cr)
  3. Rattan power ( firm PPA with Maharashtra)
  4. Suzlon ( sold repower )

Gayatri went 7x, madhucon sold at 5 x, rattan power though trading at lower levels still generated 2x trading returns.
BJP government came & piyush goyal started replacing high power florescent bulbs to LED, country moved to power surplus from power deficit. Sold all power holdings & moved to pharma ( suven life, jubilant Life, granules, wockhardt, natco) , had to sell out pharma in 2017 th
Thanks to Donald Trump’s, he started giving ANDA approval to all companies which killed pricing power, rotated capital to chemicals, cement sector in 2017 & bingo, hit a jackpot(meghmani, Kiri) , best investment is waterbase bought at 120 levels in Sept 2017 & sold 50% at 400​:grinning::grinning::grinning:

Financial have dragged my always apart from yes bank.

I am betting on below sectors

  1. Cement
  2. Shrimp
  3. Rice
  4. Ac
  5. Small finance banks
  6. Niche companies
    7 chemicals

(baniyainvestor) #404

My 2 cents- First post on VP

I also aspire to be a full time investor but I would use the below mentioned framework to time the transition from a full time job to a full time investor.

Always remember

  1. Networth = P(1+r/100)^n- So when you quit a full time job to get into full time equities always answer the question that how will your principle amount be affected and can you improve the rate of return by deeper research. Once your base principal and your incremental rate of return marry each other in a way that the return is higher than the annual salary that is your time.
  2. Managing Cashflows- We all know markets are unpredictable and can price very good investments at a discounts- The larger point is that you should not be dependent on your monthly expenses- Be it EMI or any other fixed expenses etc on you selling some stock.
    When your Portfolio Dividend= 1.5 x Annual Expense then it is a good time/safe . Typically dividend yield should be 0.5-1% of your portfolio value but would greatly depend on your style of investing/choice of stocks so do check this
  3. Let markets not be an escape route: We all face challenges at work and full time investing seems an easy way out. To my mind it is elegant but not easy by any stretch of imagination
  4. Make sure you see the full cycle- Make sure that your gains are due to your brilliant stock picking rather than buoyant markets.

(Cshar) #405

I have 2 corrections here

  1. Before opting for thought of full time equity investment, please do below as mandatory
    A. Clear of home loan
    B. Clear all other car/personal loan, keep credit card in hiding
    C. Generate fixed income to cover your monthly expenses, salary is not right creteria, my expenses are 30% of my salary as I am being paid very handsomely.
    D. Take minimum 30 lakh family floater health
    insurance for parents as well
    E. Take a term plan if you have any long term liability else not required

Now you are ready to think for full time trading or investing.

I have closed home loans & rent on one property equal to remaining home loan EMI of 2nd investment property hence, my loan monthly EMI liability are zero. My EPF is adding monthly interest which is 40% of my monthly expenses requirements, need to plan 60% more & am done.


(shreys) #406

The past 4-5 years have been virtuous for retail investors. The rally in nano, small and mid caps has generated tremendous wealth. But, there’s also a dark side to this sharp upward move- It has elevated expectations of average returns to unreasonable, unsustainable levels. And, in calculations for retirement corpus projections are made using the CAGR for the past 4 years. I’ve personally seen this happen with my family members.
My father’s cousin, a person in his late 50s, who until 7-8 years ago invested predominantly in fixed deposits, switched to futures and options, where he lost money and then to direct equity. And, investments in direct equity served him very, very well. He generated a CAGR of around 30% in the past 5 years. And, he’s truly pleased. His returns are almost 3 times the interest from fixed deposits. There’s nothing to not like about it.
But, the problem being his plan to shift funds from other investments to equity and perform investing full time. It’d be imprudent for him to expect high returns to persist. Markets will fall, its a question of when and not if. During those times his returns will moderate. But, this regression to the mean will be excruciating for him- Because he didn’t expect it.
Another point, his switch to investing is not out of love for investing but the illusion of skill.
1)For most people full time equity investing is not suitable- A job or business is often more meaningful and satisfying.
Full time investing could do more harm than good.

2)But, if someone’s desirous it should be done, as seniors have shared, after experiencing a full cycle- Bull and bear market.

3)If person is too keen and can’t wait for complete cycle, then it must be ensured as @Cshar Ji mentioned that no loans are outstanding.

4)And, if someone disregards all the above points and still wants to invest full time there’s a very high risk that the outcome will be catastrophic.


(Cshar) #407

Hi Shreys

When we say stock market is down not everything is down. You need to have a overview of economy, movement if currency, crude price/ fiscal deficit if you are interested in financials. Even in today’s market there are stocks which will be multibaggar returns.

Whatever wealth I have created it’s from most risky section (small/mid cap) of stocks declared by these so called analyst’s​:grinning::grinning::grinning:.

I am an avid F&O trader & despite so much volatility, able to generate returns in F&O as well. This is very personal & can’t be followed or duplicated.

Look for businesses which have long term moat like basmati rice, shrimp, FMCG with valuation fair. 2018 will be difficult to generate returns as you will make money in some & loose in some however long term indicators are very positive.


(shreys) #408

Dear @Cshar Ji,
Many thanks for replying. I agree that a meltdown in the market doesn’t necessarily mean a slowdown in the economy. But, for someone who has invested entire savings in capital markets a bearish environment could give a rude shock. It could be devastating. The massive appreciation in microcaps accrued over the past few years is definitely not sustainable.
@Cshar Ji, You have equipped yourself with the relevant skills and have the necessary financial cushion.
But,most people are lured by extraordinary returns offered by the market recently. Once market meltdown begins I’m fairly certain that even SIP inflows will reduce. At the end of the day, humans are governed by emotions more than cognition. Few can survive the onslaught of fear and greed.
And, regarding long term moat, I politely disagree. Everything around us is changing rapidly. It’s very difficult to predict if a company can maintain its competitive advantage over 10 years. It’s almost impossible to tell. I do realise that in most of my posts I do sound like an eternal pessimist. But, I’m not. It’s just that markets are being heroized and people lose money when reality strikes- Regression to the mean. This keeps happening time and again. In 2000, in 2008 and in the future as well.


(8sarveshg) #409

I think this is a very important point and I thank @kkpatel1924 for bringing it out - that you need to have a solid finance background either by education or experience. This is perhaps the most understated point in this entire thread which mostly relates to subjectivity about philosophy of investing, how to handle life etc.

One of the gurus of investing said to someone I know - you can’t do masters in engineering before you do a bachelors. The same holds true for investing. You can’t expect to do well over the long term as a full time investor unless you have your basics clear.

A surge in small and mid caps in recent years have made many online gurus and pundits as well as their followers. These gurus mostly have left their jobs in IT, project management and non-finance backgrounds and have been mostly investing since 2009. The problem is that since then market for such small and midcaps have been great in this period, a lack of financial knowledge hardly hurt them. While many people know common financial terms, they lack the conceptual understanding of the same - few have taken the efforts to build the base first, which is crucial towards sound performance over the very long term.

One of the most famous bloggers recently valued a cement company on EV/ton basis, came to a number which he then compared to market cap and hence said that company is undervalued. He failed to subtract the net debt and made a disastrous error in comparing it to current market cap coming to an altogether wrong conclusion. Similarly, on a discussion on FEL on this forum, many people started valuing it on EV/EBITDA and saying it is very cheap - failing to understand that any organized retail outlet gets obsolete in less than 10 years (or the tenant throws them out much earlier by increasing rent) and hence 1/10th of the stores need to be completely rebuilt and hence depreciation is a very real cash cost (unlike many Indian factories which keep chugging along for 30+ years) and needs to be deducted to understand and arrive at real profitability of core business. Both these cases of exhibition of superficial knowledge. The problem is success hardly teaches us anything and there has been lack of experience of failure among many of the new age full time investors and gurus. These are anyways examples of very basic mistakes - a full time investor clearly needs to be much more nuanced than not making basic mistakes to logically justify to himself that he is a full time investor. Clearly, given the uncertainty of equity - you will demand much more than your salaried income in the medium term over a normal return on your portfolio to justify being a full time investor.

Hence, for people wishing to graduate to the highest level - i.e. being a full time investor - the first question that they need to ask is whether they are well versed with the basics first. Do you understand the basics, have you taken conscious time and effort to learn it, have you read basic books on corporate finance and accounting and have you been able to absorb the concepts well.

Some people say that they love investing but make no mistake - nobody loves to loose money, and many are destined to achieve sub-optimal results and rue their decisions to become full time investors if they don’t have the basics corrected first. Also, even a mere CA or MBA degree wouldn’t help - there are dime a dozen of them who know just the theory but not the application and what concepts to use when.

All the best,
Sarvesh


(KKP_Investor) #410

Also, I would highly recommend that the ‘educated’ use the grey matter between the ears to ‘generate wealth’ by using that ‘education’ to get a nice pay-check. Invest in MF initially (early) during your career. If and when you get more time in your 40’s think about quitting the job. You will NOT. Cause, the career is generating such good incomes, and investments are doing well also, and now you realize that you have DUAL sources of income.

In reality, you are already doing Equity Investing as a Full Time Career, but now you have TWO FULL TIME careers. How’s that for converting Silver to Gold to Diamonds! How about that?

Think seriously about this cause it is what my Seniors recommended to me, and I am sitting here having been on that path, and so so so so many times I wanted to just quit and get to investing, and today, I am so much (3x) better off since I invested in India, invested outside of India, and also continue to generating a career income also. There is a time to retire also, but I am not there yet, but that is for a different forum topic, so lets not go there!!!


(Deepak Venkatesh) #411

Hi

Something of interest for this thread. Income Tax publishes analysis of filings. It is freely available online for 2015-2016.

If we look at only the Individual Tax Payers (and not all types of taxpayers - table 2.1 & 2.2 in the report) we get some interesting insights. On Gross Total Income basis 2.08% individuals earned 19.97% of the top total Gross Income. On a Salary Income basis 1.35% individuals earned 20.65% of the top total salaries. The cut off mark is 15 to 20 lakh income bracket in both these cases. So any individual in this bracket or above is the cream in terms of earnings.

Another interesting observation is the difference between total gross income and income from salary at a mean level. Only after the income bracket goes above 1Cr then there is an appreciable incremental positive difference, meaning the person with 1Cr or more is earning more than 1 lakh of rupee of additional income other than his or her salary (actual number is 3.94lakhs). If one earns below 25 lakhs in salary he or she doesnt earn anything outside it, infact loses money loses money below 15 lakhs of income.

Disclaimer is that this is a very superficial analysis. But my hunch is that trends in HUF and other likely suitable categories would be similar. My point echoes with what @kkpatel1924 has said in the post above. I would safely say its better to continue with a job and keep investing than to go full fledged into investing unless you are entering the money management business as a founder perhaps.

And offcourse the most basic prerequisite is real depth in investment techniques as @kkpatel1924 and @8sarveshg mentioned.

Regards
Deepak