Hi, How do people in full time equity investing build social circle for social needs. I mean it might be easy to catch someone and talk about stocks or politics. But not that easy to talk about kids, family or other important things or build long lasting friends. (because discussion comes back to stock market only)
Is there any social group (not online one, but real group to meet real people) they join. What kind of activities they do on weekends.
Are there interesting ideas which full time investor do so that they donāt miss out what is happening in the world which one experience in office environment (minus office politics).
Isnāt people in full time investing start feeling isolated (or in island) after 3-5 years?
I am not trying to discuss whether full time investing is good or bad.
But need to know how full time investors have overcome these challenges.
Disclaimer: I am pursuing full time investment.
This is an excellent question and I have been facing this issue. Finding similar age group full time investors locally is not easy. I was able to form a small group so far and we meet once every 2 months. If there is someone from Chennai, please pm me.
The % is never same ā¦ In Bull market it dips and in Bear market it increases .
That s becos dividend in absolute amount increases typically 5-10% annually whereas stock prices suddenly may go by 40% in one year or drop by 20% in another year .
Hence the focus should be on absolute amount ā¦ I have mentioned in this thread that if you are planning to be full time investors - do it only when dividend income absolute is > 1 times your current annual expenses ā¦
Let me suggest one more way,which I have adopted for myself. Keep yourself invested in a few funds up to the amount,where the 4% of the total fund value is equal to the minimum annual expenses. This keeps the full time investor comfortable.In funds,one need to have a good mix of various caps,balanced advantage and debt.It helps to stay comfortable during crashes as well.
Every year a part of equity income can be transferred to these funds if in starting the amount is less.I have experienced it works very well,because sometimes ,if there is any good opportunity some amount can be borrowed from funds for short term as well.Probably,the only requirement is to implement the policy religiously,like using 4% for annual expense,doing only short term borrowing from funds,never staying invested in only one type of fund and so on.So far,it has worked well. I wish to get fellow members critical evaluation of the strategy.
Regarding the usage of time,I always feel the need to have more time,because now there is so much to read,watch, analyse and experiment .
You raised very important point. As long term investing requires āinactionā and āpatienceā, after becoming full time investor, you are faced with dilemma of how to spend time meaningfully. It becomes more critical in down periods like now when you see your portfolio going down on daily basis.
You need to develop hobbies like running, music, photography, trekking/hiking etc. Group sports like Tennis, Badminton or running would be of great help as it takes your mind away from market. Meditation is very useful as it acts as āmental housekeepingā and keeps you sane and balanced in tough times.
If you are lucky, you will get like minded friends with whom you can discuss stocks but unfortunately there are not many forums available for long term stock investors. World is full of āTipā seekersā¦:-
Vijay, i am in chennai. Can join your group. We have a similar value investor guys who joined together from Dr vijay mallick work shop meet / discuss periodically. Please add my
Well these individual habits are in my control to do. One can do that anytime and most people do also to some extent to build social circle. But this is not what I wanted to ask. I wanted to say how to win over the āislandā effect you see if you are an individual investor. ie you get shut-out of the happenings and challenges of real life. For example āwhat career path is good for my childā or āwhere people are travelling these daysā or āfood habitsā. In office setup knowingly or unknowingly you keep talking about such topics. But an individual investor doesnāt get to talk this to anyone. One normally has to google all these things.
Because whoever you meet you talk about stocks or politics or economy.
Life as individual investor can be great. also you get enough time. you can plan your every moment as per your wishes. But this social human to human contact aspect is not under your control. Wanted to know how seasoned investors who are only doing investing has overcome this in life.
All hobbies or sports mentioned above requires you to get in touch with people who are from diverse backgrounds. Thatās how I manage my social contact needs. But these are infrequent and sometime brief interactions. Since I am not very social by nature so it works for me. But for anyone who is very social/outgoing by nature, it may become very toughā¦
It has been almost an year since I got out of my full time job and started managing other peopleās money as a full time career, so I am not exactly a full time investor who only manages his money and lives off it. Looking back in a conventional way it looks like a bad time to have done this but in a counter intuitive way it was probably a very good time to get started. My experience has been that below average times in the business/market are very good to build relationships and go ground up work - this is what pays off big time once the tide turns.
Most of my time has been spent in building a portfolio that can stand the test of market gyrations without compromising on the thought process which caused me to experience initial success in the markets in the first place. As things stand, given how the past 1 year has been my confidence in my own abilities to weather market downside as well as hone portfolio management skills have gone up a lot. It is only when you take blows that you realize how robust you really are - looks like I have been able to stand up to whatever standards I expected of myself.
I am not sure if this would have been my mood if I had only been living off my surplus. My belief that one needs to have other constructive pursuits (not just hobbies that sound cute) for full time investors has been reinforced. These pursuits should have the potential to payoff well over the next 3-4 years and are very important for full time investors to be able to deal with market gyrations. The human mind by construct needs to see progress to be able to stay balanced, the direction should be clear even if the payoff isnāt really large.
Also even after becoming a full time asset manager, I notice that the equity research/portfolio management work does not need more than 5-6 hrs a day, this can stretch to 8 hrs per day only during results season. There is always time handy for equity market professionals who are long time investors, use this time to seed other thoughts/businesses which can keep you constructively occupied and can pay off in the days to come.
In my business I deal with people who have built a corpus of 40+ Cr but are forced to go back to corporate jobs which hardly pay them 1.5 Cr per year in exchange for 10 hrs of stressful life every day - the primary reason is that they cannot deal with the concept of just reading and learning for a living. They need to stay productive and have external factors that impose a schedule on them, else they just lose their sense of importance and purpose. A majority of the people contemplating full time investing will fall into this category and will regret their decision within a year.
Spend a lot of time knowing yourself & your motivations in life, choose rationally and wisely
I think this thread is in sleeping mode for a quite long time ( as expected , indeed). After a lot of discussions about different metrics to be used to identify whether itās suitable for a person to consider equity investing as a full time career, I think , this type of market gives you the exact mental model to decide.
An ongoing bull run will make everyone feels like him as next Buffet, but reality checks are only provided in turbulent times.
So to sum it up, if your performance and cash flow are sufficient for you to think that, you have the material to be a full time investor, for time being and for next few quarters , GO FOR IT !!
āA smooth sea never made a skilled sailor.ā
ā Franklin D. Roosevelt
Right ā¦
Long term survival is key to be full time investor
I keep
- Min Cash that can cover next 5 years annual expense
- Dividend income should be > 1.2 times of annual expenses ( that is what was the rule when I thought of becoming full time investor in 2013 ) - Now it is > 3/4 times of annual expenditure
Point No 1) is reqd to cover for any dividend shortfall in bad recession years ā¦
One question, recently we have seen that dividend yield for average growth portfolioās has been 0.5 to 0.75% only. With your rule of dividend > 4 times annual expenditure, the portfolio size would have to be 500 to 800X years of expenses. That is huge sum in any case and not possible for 99% of investors (those who are considering to move full time by 45-50). People have laughed at me when I have mentioned necessary figures of 50X expenses. 800X is simply beyond imagination.
Example, for 12L annual expense, 800X comes to 96 crore. How many investors do you know have that size portfolio only through equity? Even on ValuePickr?
i think he meant 3/4 or 0.75 times.
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Actually, if you have 5 years of expenses in very safe and liquid instruments and rest in equity that is good enough. A full time investor in India should strive to get out of illiquid investments like real-estate (not counting oneās own house in which one is staying) unless it is a not more than 20-25% of non-equity portfolio.
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The dividend yield is an overly stressed item unnecessarily. To my mind whether you get your capital back as a dividend paid by the company or by selling some shares each year is one and the same. Money has got no color. The only thing is one should have the money in safe and sound instruments where the yields are not being chased (for example AT1 bonds) and that is good enough. And yes, dividend yield canāt compensate annual expense in most cases unless the portfolio is 50 cr plus. In which case you donāt anyways need to set aside any money as you are a master in the game already or endowed with too much wealth.
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Most importantly, point 1 and point 2 is valid only when you are starting as a full-time investor. But the above also needs to be continuously calibrated seeing how your portfolio is performing and what your expectations of the future are. For instance, if your performance is not that good and you feel that has got to do with your investing capability, you might want to take out some money from your equity portfolio till you feel more confident in your capabilities. This will mean more years of expenses than just 5.
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Also, one needs to be a very aggressive seller in the wake of instances like coronavirus. When one doesnāt have any other source of income, it is imperative for a full-time investor to be more fearful than a general investor like a mutual fund or investors who are earning salaries. This is one additional lesson that I had learned from one of my mentors who faced this gut-wrenching situation in the 2009 crisis. Delay in selling in the wake of any once in decade black-swan like an event for a full-time investor is dangerous. Surviving to fight another day is more important than winning the immediate battle.
Growth portfolio dividend yield has to be low is a myth . But that said my portfolio tends to be focussed more on stocks that offer higher value .
Capital appreciation is better than most mutual fund Gr option & Index TSR over 1yr , 3 yr and 5yr period ā¦
My current portfolio dividend yield is >2.8% . Again this is because equity price has depressed in this downturn otherwise in normal case it is around 2.4% - 2.5%
Now on your example of annual example of 12 L annual expenses
When one is starting as Full time investor one needs to have min 1.2 times dividend yield ie equity PF will be around 5 crores Min ā¦ for person with annual expenses of around 12 L
Assuming equity debt ratio of 75% -25% you need to have 1.25 crores in debt .
Plus primary residence w/o debt otherwise living within 12L annual expense is difficult .
So in all you are right one needs have net worth of 70- 80X annual expenses for being full time investor ā¦ This is important if one has to maintain his lifestyle across business cycle ā¦ Say like in CY if dividend yield gets reduced one should get way with minimum pain ā¦
I became full time investor at age of 43 after 17 years of corporate life ā
More details are in thread Portfolio Analysis - Shailesh
Brilliant thread; for sure this must be close to heart for most of the folks out here.
Lot of people want to either become full time investor or a paradigm shift to do something they are passionate about.
Truth be told, we in India are taught to live in a āscarcity premiumā mode; what I mean by this is the fallacy to grab whatever available to you, else you are doomed. Some of the examples of this:
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Do an engineering because everyone else is doing
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Take whatever job you get after you graduate, whether you like it or not; else you will regret big time; you will not get another job
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Accept any job offer because you are desperate for a change, no matter it does not meet your criterion and will be a deja vu moment
All I am trying is to relate to: how much is too much?
How can you do a full stop and at what point? I would call it as āSecond lifeā
I agree with above view that if you keep 5 years of expenses in FD or some secure debt fund, then it is a good starting point. Along with it comes the Equity investments with a premise that you do not(in any condition) need this at least for the next 5 years.
To make it engaging, I would put some numbers:
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5 year expenses : I consider Rs 1 lacs per month expenses; thus for 60 months, this is 60 Lacs. Consider that you will get some interest on this amount, I would broadly consider 50 Lacs and over 5 years, at a blended interest rate of 4%, this will become 60 Lacs
That dividend from your equity corpus to take care of your monthly expenses, I donāt understand this logic at all. -
Equity allocation : this is quite open and varies from person to person; I think INR 2 crores equity corpus once built should be a good starting point. Now why 2 crores and not less or more, I donāt have any concrete answers; My premise is that 2 crores will grow to 8 crores over a period of 10 years at 15% CAGR(quite reasonable expectation I feel); You can buy a good house worth 2-3 crores, use it for your kids education or marriage and remaining 5 crores can continue to remain invested; even this 5 crores at 1% dividend yield will give you additional 5 lacs per year;I have not factored in the time value of money 10 years down the line.My sense is that basic necessities of life do not move that much(food, clothes etc).
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Real estate : money should not be blocked here now if someone wants to do a paradigm shift
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Gold : Should be accumulated in physical form(jewellery, gold bars etc) over a period of time when you are doing the job, so that it gives some diversification; this should not be counted in your overall assets; but then it can be liquidated in case of an emergency.
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PF proceeds : When you leave the corporate, you get a good chunk of investable money from PF proceeds; since the 60 months expense criterion is already met, this money can be slowly invested into equity in a staggered manner over few months/years. This is a good comfort money to take care of someoneās cash deployment requirement when he is out of monthly salary
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Term insurance and health insurance : sufficient to take care in case of an emergency
Again the final question still remains - how much is too much?
Ending the thread with a beautiful video of Warren Buffet; please watch at 24:10 minutes on what he has to say about this.
P.S.: Full time investing seems quite lonely and not sure whether you require full day time beyond a point.Besides, it has its own perils of doing something for excitement(dopamine effect); I personally feel, someone should do something in addition that can become a source of income also : - be it teaching, social work,writing,whatever. But without harming your motive of being a student of markets(which is the primary passion)
I am looking for validation of my thoughts; please provide your feedback
One of the common advices I see on this topic is , keep X year of expenses in liquid assets and the rest in equity. The first one is easy. The second one is not. (Of course we know that one shouldnāt be in equity if one cant handle 50% draw down. But thats not easy to practice). I dont know how many people can handle net worth erosion. (Even if we assume its a notional paper loss). One cant assume V shaped recovery for every crisis.
Other problem is that if you liquidate the enter portfolio, it will be very difficult to build from scratch again. Just look at the US market recovery. It took every expert by surprise ( We dont know if its a dead cat bounce yet). One can argue, its because of the 2 trillion dollar QE. But the markets fell by 10% or so ( single day) on the day it was announced. So the efficient market theory is also puzzling.
I know there is no right/wrong answer for this. But wanted to know how other full time investors handle this.
I think this is good time for people who are thinking about getting into equity to have a fruitful discussion as we seem to be in the onset of a bearmarketā¦ Things would have been lot of different for people who would have accumulated a corpus at the of 2017 and were thinking about Retirementā¦
Letās consider an imaginary scenario where the investor who have accumulated 30 x of his annual expenses. Have put down 5x of his corpus for next 5 year expenses in debt and have kept the 25 x in marketā¦ Most average investor portfolios are 30-40% down from Jan 2018 highs and considering a 30% draw down,his equity portfolio would be around 17-18X and he has to next take the dip in 2022 end for his next 5 year expensesā¦ This is the sort of cycle which has to be considered over longer periods of timeā¦
On this point, what @8sarveshg mentioned is very important.
As individual investors, we do not have to compete with any funds or show returns quarter on quarter. If you focus on protecting capital in such bear situations, 2 out of 3 times youāll go wrong and can lose up on 20% upside. One has to accept that. 1 out of 3 when you are correct, itāll save your portfolio. Itās not necessary to get in back at bottom. None can do that. But mentally, one will be much better off rather than see the downturn.
One of my mentor has rule of going into 100% cash when there is 20%+ draw-down in both index and portfolio. He did it in 2016 and that dināt work out well and lost 15% upside in rally that followed but heās fine with this. In 2020 bear market, this worked perfectly for him.
If we take 2008 example, how many investor portfolioās reached topās made in Jan 2008? I think even with Rally till May 2009, some might have reached 80% of top. Those who got out at say 30% draw-down had time to enter later after April 2009 when technicals confirmed the trend reversal. He might have lost 40% rally from exact bottom but wouldnāt have made much difference in returns. Plus mental health would be great.
I just want to reiterate this point above, in the din of net worth and how much money is enough the most important point gets missed out. Full time investing is not just about meeting whatever economic thresholds you have. You can have 100 Cr in the bank and yet be completely clueless about what to do with your time.
The most difficult thing about turning a full time investor is the complete lack of external factors to drive you to be productively engaged on a daily basis. It is extremely difficult to be self motivated and spend 5-6 hrs a day just reading and thinking about businesses/economy/markets. No one is going to call you/want to spend time with you on a regular basis. Once you take the full time investor ticket out of your regular corporate career, majority of your professional network will stop seeing the value in interacting with you regularly.
The average person needs external validation on a daily basis and thrives on the sense of importance one derives when he is a cog in the economic machine. By turning full time investor, one is getting out of the daily grind in a lot of ways - this also takes away the sense of validation/gratification that a regular corporate job provides. No more emails, no more conference calls, no more politics and no more daily activity. Also no designation one can tout to friends, family and others.
The only thing scarier than total slavery is total freedom - more I see the world, the more I tend towards this observation.
Majority of the people who become full time investors are likely to regret their decision for non e-economic factors. Net worth discussions are useful but the temperamental fit is more important over the medium term, even if the decision works out economically.