Equity Investing as a full time career?

(Yogesh Sane) #166

You will find many spreadsheets here.

Dcf is nothing but time value of money arithmetic. Simplest formula for value of a steady state company is CF/(r-g) where CF is the expected cash flow in one year, g is the perpetual growth rate of CF and r is the discount rate.

Damodaran has written extensively on valuation and much of that is free on his website. One of his book on valuation is available here. http://pages.stern.nyu.edu/~adamodar/pdfiles/valn2ed/

(Yogesh Sane) #167

Doing nothing is not necessarily a part of value investing. Being patient is but being patient is not doing nothing. Value investing is calculating value and buying and holding only undervalued companies. Unless the market is grossly overvalued, there are always some companies that are undervalued. Its a matter of finding them. Every year several companies post huge returns and not all of them are pure chance. Some of them must be undervalued.

A full time investor can use the time to acquire expertise in more industries so he can value more companies or evaluate risk and rewards and calculate value more accurately. If you value 100 companies you may find 10 undervalued companies in a year, if you value 1000 companies, you may find 100 undervalued companies in a year. Its what you do with all that extra time that matters.

Ideally, I would like to attend more AGMs, visit factories, do more ground level research, invest in unlisted companies, be an angel investor or a venture capitalist etc.Last three activities is when you actually begin to contribute to the society and GDP as a primary investor. By being an investor in secondary market, you are just enabling someone else to be a primary investor by offering an exit route. A full time investor has a better chance of becoming a primary investor.

(Bheeshma Sanghani, PhD) #168

People have different styles of investing based on how they view investing. I am highly attracted to the inactivity levels. This field is one of the few professions where you need very less effort to produce acceptable returns. You will of course have to work hard to find an investment idea that interests you but after you have found one and invested you really don’t have to start looking for another one. I am perfectly ok with a few ideas over a span of lets say 10 years partly because i know jackshit about a vast majority of companies out there and i don’t really want to expend the effort to know more. for e.g i know nothing about oil exploration, telecom and don’t want to know. But i know about amusement parks. People having fun sitting on a ride hooked to a motor. That’s a super simple industry to understand! I would love to get a blockbuster multibagger hit in my portfolio of course but i am equally happy if i don’t. I am super satisfied with a few percent points extra over an FD with very little effort. That’s my thinking & as Mr Jhunjhunwala says , i reserve the right to be wrong :slight_smile:

(Yogesh Sane) #169

In case you haven’t found a suitable model, here is one.

Simple 2 Stage DDM.xls (18.5 KB)

Here is a sample.

Disclaimer: This is too simplistic model. I don’t use it but someone who is just starting with valuations will find this useful. I use dividends as a measure of cash flow as I believe for Indian companies, one has to take a perspective of minority investor rather a control perspective that is essential for free cash flow based DCF models. This is useful for moderate to slow growing companies. It will give a low value for high growth / high ROE type companies. Just like all other DCF model this model is too sensitive to growth and discount rates. I have also included CAPM based discount rate formula.

My model is based on Damodaran’s formula

Page 8.

(Peabody) #170

thank you so much. Will revert after working on it

(Bheeshma Sanghani, PhD) #171

For those contemplating a career shift to full time investing here is a wonderful writeup on the Professors personal journey towards being a full time investor. There is this part in his email exchange that is just great and highlights how each & everyone of us ( as budding students ) with a little bit of reading and passion can make money in this interesting profession. This is a great read for anyone contemplating a shift and that too from one of the worlds most respected figures in value investing. Happy reading!

“…In 2001, one student, using the ideas of identifying cheap stocks taught by me, submitted a project report on Trent as a cash bargain. I instantly recognised the value of the idea and implemented it by buying the stock. What was I to do? I teach the subject. I teach how to recognise opportunities. If someone brought one to me, should I ignore it? Does the fact that its a student project report make it worthless? And if I ignore it, am I being smart or foolish? Well, I decided not to ignore it. I went and bought 1.5% of the company at Rs 65 per share. And, of course, I made a killing…”

Here is the link

(klmehta03) #172

I am not trying to be offensive. But,I have seen too many guys jumping or trying to jump into full time investing after seeing multi-baggers flying around everywhere. IMO, you need to work atleast five more years and saveup enough to make a sizable portfolio to invest (patient capital). I dont belive investing needs a full time job. You buy a decent companies and fair valuations and sit tight on it. You have a decent marketable educationall background. Try to encash it for few years. Let the job pay your bills.

(Hardik) #173

Interesting read.

Want to Become a Full-Time Investor? Here’s Your Checklist

Why You Must Not Quit Your Job to Become a Full-Time Investor

(sanketkulkarni1987) #174

I agree. The biggest benefit of having a decent job is that it keeps the cash flow coming in the form of monthly salary. If you started with a salary ‘X’, you can double it to 2X in 4-5 years and probably 3X in 8-10 years (assuming good performance, company switch at right time, etc). Now, if you can manage to compound the savings from salary at 20-25% CAGR, then you have decent multiplication of your wealth.
In about 8-10 years, you can build a decent corpus, build good knowledge and develop all the other skills mentioned in the posts here, before you take a dive in it for full time. So equity investing as full time career makes sense to me after about 8-10 years in a decent job.

(csteja) #175

What about land appreciation ?

(Rohit) #176

Its v good. Thanks for sharing.

(Shareking) #177

For long term investors who don’t churn their portfolios much, the returns will remain on paper for most part. If the dividend yield is not much and if there is no other steady income, paying bills will be a challenge. Agree with @thestocklady - it’s better to have rental income and 2-3 years expenses stashed aside.

2008-2011 was a really tough time. There was value everywhere but stocks were just not moving up.

My dream would be to do something like Dmart while being a full time investor :sunglasses:

(Vijayk) #178

instead of 2% rental income- why can’t you earn 7% from tax free bonds (also enjoy capital appreciation as they move up with long term interest rates falling in India)- money comes automatically, no hassle of tenant, no legal, regulatory issues.
Even people from IIM/IIT/stock investors seem to have this strange love with real estate- which is just not rationale!

(csteja) #180

You cant guarantee a stock like Nalco, REC (PSU) to hold a specific price (capital appreciation). Basically, after the dividend is stripped they correct to post dividend net worth. You have to time them (cyclical) to get capital appreciation unlike a HDFC or Asian paints.
Also, tax free bonds don’t appreciate in value (ignore your best case interest rate fall from 12% to 7%).

I may agree/disagree with you on a case by case basic on which asset class to choose. I generally prefer asset light models like stock, bonds over real estate. But currently, as the rental yields are high in Hyderabad 4-4.5% (2016) and property values stagnant, I believe it is not as bad an investment 5 years ago. Also, I don’t see interest rates falling further 6.25% considering fed hikes, inflation in growing rural economy like India and oil prices consolidating. Hence there would n’t be any appreciation due to bonds.

Now what kind of asset gives yield + most probably appreciates in value ?

(Vijayk) #181

then you can buy and hold HDFC, and other high corp gov shares instead. As simple as it gets!

(Sarvesh Gupta) #182

I have been reading this with a lot of interest.

Personally I feel that the Pareto principle of 80/20 is applicable everywhere including in this game. So top 20 percentile of population with generate 80% of the returns (not alpha) while bottom 80 percentile with have to be satisfied with a return significantly lower than even market. Such, is the name of any game in a world which is increasingly specialized, more so in stock markets.

My advice to all of you would be to please please assess yourself really well before becoming a full time investor - cause a) it is not that a noble profession and b) it is difficult for an average investor to even get average return - its an unfair scale

(reacher) #183

8 years now as full time investor post quitting job.I agree 99% of the aspirants must try not to quit your job.For me personally now its difficult to contemplate being in a job again having tasted the other side.Plus i doubt i will survive in a job now .Those who have working wife or those with some level of spartan world view can survive the waiting period somehow.I think one gets used to the new life.Its a strange experience which the working employee might not understand.Its not theory.Its also not a straight road.

The problem is how to negotiate the waiting period till your stocks or your dreams actually happens.Its v v tough.My smoking has come down from my job days but i worry always if i will make it now that option of going back to job is almost gone.Chances of mistakes also more since one may make errors of exiting early as compared to being in job when one may not even look at stock prices on a busy work day.

My advice to 99% of readers-hold on to that job even if its tough.

(Nolan) #184

I feel elated to read through the discussion. It offers plentiful - a bag full of dreams and a wealth of worldly advice. Having gone through it, I couldn’t refrain myself from getting entangled. A recluse in my personal life, I never thought I’ll share about myself with complete strangers on a random forum, but life has funny ways, and so it brings me to you with my experiments with life. Pardon me if its long but I hope its worth a read. None of it is an advice but if someone happens to find anything worthy, my purpose is served.

Though it might not seem shameful for me to admit today that I was a poor student at school, it was the greatest embarrassment in my childhood throughout my teens. Passing exams was the only goal and surviving the year was my only dream. Finishing high-school with mediocrity and not revealing my twelfth results back home for a good time for fear of being reprimanded were only a few highlights. Though I loved writing, and pursuing sports, they were never considered worthy careers in my family.

Wise men say that character is built in testing times. Its only when I was faced with the dilemma of not having a future in life, the most adventurous transformation started shaping me. Somehow I managed to get in the University for Graduation. That was the first time ever I made a goal in life - that I would pass with first division. The day I achieved this goal (only by a small margin though), I realized what goals can do to you. They make you optimistic, confident and happy in life. It was my first victory and a stepping stone. After this small success, I went on to complete MBA in Finance with flying colors and got a job. That’s when I started my first SIP in mutual funds. Thereafter I started investing in stocks directly too. Meanwhile I got a big opportunity to work with the management consulting giant, Mckinsey. I worked with them for a few years before moving to Middle East to work for a private equity firm. During this period I had started investing on tips as I had no time to analyze stocks. In 2008 slowdown, I lost almost 70% of my portfolio. However, that didn’t bother me much as I was having a high paying job. I was not an extravagant spender which helped in building a corpus. But deep inside, I was doing my job only for money with little interest in working for corporates for long. I dreamed of being independent. Yes I was dreaming – After learning how to set goals and achieve them, the second most important thing I learnt during this period was to dream. There is a difference in goal-setting and dreaming. Simply put goal is like what your heart wants to have and your mind says ‘okay its possible’ while dream is what your heart wants to have and your mind says ‘maybe not’. One of my dreams was to retire and retirement meant doing what I love to do.

I came back to India and joined a management institute as an academician. The salary was less compared to corporate but it allowed me balance in life. My goal was to make time for my passion. Last year I took a sabbatical from job to pursue PhD from an IIT.

Starting as a mediocre student and going through a whole transformation, I am ending as a scholar from an institution of repute. Inside I feel it should redeem me from my childhood setbacks.

I am 35 now. I am independent, well-invested (MFs, equity market and real estate) and in a way retiring soon. For last 2-3 years, I have been investing good time in stock analysis. Although it’s a passion for me, its not what is closest to my heart. My first love is to write. I’ll be happy writing full-time from next year onwards although it hardly pays bills (already have a goal for this year). But I like investing too. So I’ll find time to manage my portfolio. Also with PhD completion my intellectual goals will be accomplished. After sorting out my financial, artistic and intellectual goals, I wish to someday set some spiritual goals too in future. But I’ll keep that for later. :slight_smile:

I feel if someone as mediocre as me can take writing as a full time job, then investing is far more paying to anyone who has a passion for it. So if you think its an advice feel free to, but I would encourage anyone to take up the profession they love. Just take a moment to ask yourself if you can do something over and over in life without getting bored with reasonable success, and if the answer is yes then just do it without making it too complex. I do not know how rich you would become but I know for sure you’ll be most happy with your choice of work (its not work actually, its play) :slight_smile:

My learnings

  1. Your bad times is your learning ground. Keep persisting, keep surviving. Clouds will clear and the sun will shine. It taught me patience.
  2. Most of us in India are not allowed to choose our profession unless we are a prodigy. We have to play on someone else’ turf and win there before we do what we want to do. It taught me perseverance.
  3. Set goals in life and work for them sincerely. It taught me hardwork.
  4. Time and again people keep discouraging me about my decisions in life. It does not bother me anymore. Going against the tide and proving others wrong time and again has given me confidence.
  5. Dream. It teaches me to stretch and to better myself.

Today Independence for me is to be able to ask my heart what it dreams of and to be able to instruct my mind to do what it takes to achieve it. My best wishes to everyone for your goals and dreams.

(Kamal) #185

@Nolan, thanks for sharing your life experience, it is an interesting read.

I felt more connected to your thoughts and life experiences as I also been to similar experinces. Patience ( during cloudy years of the journey still being optimistic about the sunshine) and courage ( to stand by your dreams when everyone else is discouraging and times testing your beliefs) are precious assets to navigate through the tough times in once life.

(Prasanna Rajasekaran) #186

Hey Nolan, thanks for sharing your life experience.