Please bear with me for another long post but it’s tough to convey the point without elaborating
What do you do with all the time? You invest this in acquiring new skills and to have a buy list ready when the inevitable market correction comes. If I have to list down the skills I’ve focused on, this is what it looks like over the past 3 years
2014 - Finalized a formal equity research template which forces me to stick to a good process and avoid rushing into something. Also came up with a 70+ item checklist which I run through before I invest into anything new
2015 - Spent 3 months articulating my investment process, what I will do & what I will not do. Next 9 months spent on finer nuances of DCF, competitive advantage and moat period. Output is a qualitative framework which borrows ideas from Morningstar, Michael Mauboussin in addition to some of my own criteria which are suitable to my style of investing
2016 - Focusing on forensic accounting, triangulation and developing an approach to hedge my long only portfolio through F&O. Looking at F&O since I believe we will keep seeing periodic resets in the market due to unprecedented action by policy makers across the world (negative interest rates, fiscal stimulus, FX action etc)
Stock picking by itself ain’t a full time activity, it’s the process of becoming incrementally smarter every quarter that takes a lot of effort. For that a variety of reading sources coupled with multidisciplinary thinking is needed which brings me to point 2
What to read on a regular basis - I am yet to meet a good stock picker who does not love reading and forming a view on a variety of topics. However the exact set of sources to read can be chosen only by you.
Look at this as an approach to bodybuilding - the top 10 in the world may have different training styles because they know what they need to focus on to maximize their chances of success. Someone may decide that his lower body is lagging and emphasize that with a high volume driven routine, someone else may decide that he needs to smash his back muscles to bits with intensity to optimize his chances of success. One top contender will surely not train like another.
Hence the set of things I read may not add too much value to you, each person will need to have a view on what he needs to focus on to become a better investor. For me forensic accounting and hedging through F&O will add maximum value given the stage I am at and my approach to portfolio building, for you it maybe something else.
Starting with a capital of 10L in 2010 and you made your first crore in 2013. That is really commendable considering the fact that you started equity investing in 2010. You created a 10 bagger portfolio in the very first three years of investing.
@investr Can you share the source of your information on the holding period?
Attaching this image I had come across while reading one of the blog posts of Ian Cassel. If this is true and what you’re saying is true, Warren Buffet has certainly started trading a lot more in the last few years.
Here is my take on this topic (Investing as full time)
Quit your job at the bottom of the bear market (not after you have earned 30% returns over 3 years). At the bottom of the bear market, if you still want to do investing full time then you are mentally ready.
Quit when your active investment income is twice your job income… Most of us can earn about 15% buying mutual funds with minimum efforts. Any return you earn above this (net of taxes and expenses) is your active investment income. this income is also likely to be volatile. So a volatile income of X is is equivalent to a steady income of X/2 (just my thumb rule, don’t ask me for calculation) so your active investment income has to be twice your job income.
Secondary market is a zero sum game. You are not contributing to economy much besides efficient allocation of capital. Unless you are planning to be in primary market or a venture capitalist or adding to the GDP in some way, a full time investor is just a dead weight in the economy. Personally, I am in IT exports and earning valuable forex for the economy, so this is keeping me off quitting my job.
Well between 2010 and 2013 all of my savings from salary went into equity, so the capital base was much higher than 10, close to 25L at cost is what I remember it being. 10X in 3 years would be out of this world stuff and I wouldn’t want to mislead anyone
The sequence of hits and misses is very important in addition to the strike rate, that’s where I got lucky in the sense that I hit four consecutive home runs at the beginning of my serious investing phase - I cannot stress this more. All I had to do was average up regularly and things took care of themselves, not sure if one can expect another purple patch like that anytime soon.
The funny thing is delayed consumption works well for folks who have good investing skills. For example if I’d gone ahead and bought a car in 2011 I’d have been poorer by almost 10x that amount today. Anyone who has the potential to compound at 25%+ needs to avoid up fronting lifestyle choices like buying a house, big car too early in life as long as one has the discipline to stick to an investment plan
Do you like your job? I personally feel most people consider 3 factors namely 1. good salary 2. good work environment and 3.the self learning from and interest in their work. If you’re fortunate to score high, say 2.5 pts on 3, I don’t think you contemplate quitting.
I am currently reading some stuff on accounting and will tweak my checklist post that, likely to take me a couple of weeks. Will share my templates for checklist and business/moat analysis in the thread, would love to get some feedback and see if there’s any blind spots
This is a very “seductive” topic as most people who are serious investors dream of becoming a full time investor someday. Most want to be full time investors because the underlying implication is that they would have become financially independent by that time and would not need their day jobs. And that is why people have questions such as what to do after I become a full time investor or how much money is required to be one.
The practical point is if more people get more serious about keeping their day jobs and becoming better investors, they will realize that to be a good long term compounding investor (and by long term I mean at least 10 years, not 2-3-5 years), you need at 1-2 ideas a year (yes that’s right, a year). So, my suggestion is that one should focus on the process of becoming a better investor and use the time that they have in reading, going through annual reports, concalls etc.
Note: one of the best investors I know, @hitesh2710 continues to be a doctor and a market expert A good model to aspire for.
@Yogesh_s: I would like to differ with your point No 2. What does job income have to do with retirement corpus? Unless you love your job, you should not be looking at compensating that income.
For me your expenses play much more important role here. For 2 people having 6L per year expenses, their retirement corpus should be same; irrespective of their current salary. I feel this relation to the salary is kind of mental block that people have. I have seen lot of serious investors saying, I’ll quit when my dividends equal my salary. For someone progressing well in his career and less than 1% dividend yields in India, I see that as near impossible task.
Perhaps I did not explain my point 2 correctly. Let me try to explain it again.
An investor can always earn passive income from portfolio. i.e. an investor can always buy a mutual fund or a PMS and outsource the investing task while continuing to focus on the non-investing job. With a MF or PMS, investor needs little efforts to earn the passive income and will pay the expense ratio or the PMS fees to earn this passive income. I am assuming most of us can earn about 15% rate of return this way with little efforts. i.e. buying a MF or PMS. This way an investor can earn job income AND passive income from portfolio.
Again, my assumption is an investor needs both job income and portfolio income to support current level of expenses or is trying to maximize his/her income.
Let me try to explain with an example.
Let’s assume an investor has a portfolio of 1 cr so this investor can earn 15% or 15 lakhs as passive income by investing this portfolio in a MF or PMS.
If investor expects to earn same 15% by being a full time investor, there is no additional gain in this arrangement but he will lose the job income in the process. So investor’s gross income from all sources goes down.
On the other hand if investors expects to beat a MF or PMS by being a full time investor and expects to earn 20% (or 20 lakhs on a portfolio of 1 cr) his/her additional gain is 5% (or 5 Lakhs on a portfolio of 1 cr). I consider this 5% or 5 Lakhs as the active portfolio income. If the active portfolio income is higher than job income, it makes financial sense to switch to a full time investor.
However, one must adjust the active portfolio income for volatility. Active portfolio is likely to be highly volatile as stock markets are volatile and investor’s ability to beat the market will also be volatile. There will be periods when an investor will not be able to beat the markets or MF and active portfolio income will be negative. It will need a good outperformance just to cover up the lost ground. My thumb rule is your expected average active portfolio income over a market cycle has to be twice the job income (as job income will be steady - again this is an assumption) to be considered equivalent.
So if you expect to beat MFs or PMS returns by 5% each year, your portfolio needs to be 40 times your annual income (1 / (5% / 2)) for you to be a net gainer as a full time equity investor.
Similarly, if you expect to beat MFs or PMS by 10% each year on average, your portfolio needs to be 20 times your annual income (post tax).
Again, my assumption is you want to maximize your income from all sources using all your assets including whatever you do to earn your current job income. If you hate your job, then that’s a different question and it has nothing to do with investing as full time (and I think one should not be a full time investor just because he/she hates current job). Also, if your investment income covers your current expenses and all future financial goals and liabilities then you shouldn’t be working in first place. the fact that a person has a job means the job income is needed in addition to the investment income.
The suggestion would fit in perfectly where the underlying assumption is your day job leaves you with adequate time to do both - a. cutting trees (keep abreast of existing stocks and research on new ideas) and b. sharpen the axe ( incrementally improve the research methodology, make fewer mistakes).
While that sounds quite easy! the truth is most mainstream jobs are becoming more demanding with every passing day - both on and off schedule. Hence it would be worthwhile for people to consider alternative jobs which might be less taxing in terms of one’s time and leaves them with adequate time for pursuit of interest! and happiness (!!!)
Good point. So, lets invert the problem and see where it gets us.
To get a good return, you need somewhere between 12-15 stocks in your portfolio. Can you find 10 stocks which can be a good compounder (20-25% growth) at reasonable valuation? Start with 4-5 such stocks. Buy HDFC Bank, Pidilite, Asian Paints etc for starters. You will make a decent compounding. Then start focusing on individual industries / stocks you are comfortable with. Study them for 2-3 hours a week (I am sure people who are working also can find that time in a week).
The trick is NOT to get overwhelmed by information overload. If you stop going through blogs, social media etc and focus on going through specific information you want to read, then I think its not that difficult to get time.