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 it’s 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 !!
One question, recently we have seen that dividend yield for average growth portfolio’s 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?
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 one’s own house in which one is staying) unless it is a not more than 20-25% of non-equity portfolio.
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 can’t compensate annual expense in most cases unless the portfolio is 50 cr plus. In which case you don’t anyways need to set aside any money as you are a master in the game already or endowed with too much wealth.
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.
Also, one needs to be a very aggressive seller in the wake of instances like coronavirus. When one doesn’t 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 …
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 … 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 … This is important if one has to maintain his lifestyle across business cycle … Say like in CY if dividend yield gets reduced one should get way with minimum pain …
I became full time investor at age of 43 after 17 years of corporate life –
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 “scarcity premium” 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:
Do an engineering because everyone else is doing
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
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 “Second life”
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:
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 don’t 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 don’t 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).
Real estate : money should not be blocked here now if someone wants to do a paradigm shift
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.
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 someone’s cash deployment requirement when he is out of monthly salary
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 shouldn’t 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 bearmarket… Things would have been lot of different for people who would have accumulated a corpus at the of 2017 and were thinking about Retirement…
Let’s 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 market… 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 expenses… This is the sort of cycle which has to be considered over longer periods of time…
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 you’ll go wrong and can lose up on 20% upside. One has to accept that. 1 out of 3 when you are correct, it’ll save your portfolio. It’s 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 din’t work out well and lost 15% upside in rally that followed but he’s fine with this. In 2020 bear market, this worked perfectly for him.
If we take 2008 example, how many investor portfolio’s reached top’s 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 wouldn’t 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.
I would definitely subscribe to this important point put forward by you.I am not a full time investor but intend to be one in the future. This home quarantine period could be rough proxy to how it could be after one becomes a full time investor as our interaction would almost reduce by 80-90% as compared to being full time employed and we will have almost entire time all by our-self. So this period will give you an idea of how would feel mentally after becoming a full time investor.
The above points is how I am looking towards the situations, ofcoure could be wrong way but gives me a rough idea of how would I feel mentally.
Reviewing during covid issue:
FD still pays 6% and I don’t see any impact here in the medium term as I locked the rates for next 18 to 36 months. Dividends have gone up to close to 2% and expecting around 3% by next year for a few businesses. So cash flow from my business has been ok as my companies are impacted only marginally in the long term. Some of my companies sell essential items and are not impacted much even in the short term. A few are semi essentials and they will recover only after few quarters. Hence next year dividends may drop for these companies but the other businesses might help me out.
Overall no impact so far in terms of cash flow. Need to evaluate by next year to see if dividends are impacted. Dividends marginally increased as DDT was removed and I noticed dividends were paid little early.
I am looking for like minded people who is thinking about taking a big step being a fulltime investor.
One thing i am sure is i cant be all alone and be a fulltime investor as it means social isolation.
So i am looking fot people in south Tamil Nadu around Trichy , Karaikudi area.
You can PM me if u r interested.
Hello guys, I am looking for an internship in an equity firm or under an investor. I want to get the real hand experience and understand how the experts in the industry invest in the stock market and analyze companies. Therefore, wanted to intern where I could get such an opportunity.
I have been investing in the stock market for just 2 years and tried to gain knowledge through reading books. So far I have read around 25+ books on investing. Some books that really changed the way I used to think are: Poor Charlie’s Almanack, Warren Buffett Letters(Partnership + Berkshire), Masterclass with Super-Investors, Intelligent Investor(but I no longer follow Cigar Butt approach), Measuring the Moat, One Up Wall street, etc.
Here is a company analysis report I made on CCL Products (India) Ltd: CCL Products
Full time investing is almost an impossible Herculean achievement.
It can only happen by accident after netting in substantial wealth either through entrepreneurship or outstanding returns in initial trades.
Expenses are personal and there is no point in discussing how much one needs. Everything depends on your size of corpus and the rest will follow.
This thread is a classical example of what bull markets do to rationality. When the markets were surging, almost everyone wanted to quit his job, live off dividends, annual 4% withdrawal rate, 25-50x annual income etc. Then came a black swan (though Taleb refuses to call the current COVID crisis a black swan. A pandemic was always in the equation of most think -tanks and strategic planners according to him).
Now nobody anticipated a complete lockdown in India - I always wondered how anybody however powerful can shut down 1.3 billion people for two months; how anybody can remove cash from an 85% cash based poor/developing economy in hours. But then we have seen both happen - as they say “fiction has to make sense, truth doesn’t.”
Whoever anticipated a stupendous rally from the March lows? If anyone says they saw the crash coming or they predicted the ferocious rally since - they are simply liars. They just played momentum or got incredibly lucky.
Asset Allocation matters. Never be 100% aggressive. Never mock a defensive portfolio. We all need our FDs, bonds, emergency funds, real estate.
When young, keep a job. A job gives you social connections, a purpose, a sense of achievement, intellectual engagement. Full time investing appears great in a raging bull market. Otherwise it is tedious, boring and not very intellectually stimulating once we get our couple of ideas researched for the year.
No one can predict macro-events and their impact on stocks. We are living in unprecedented times of negative or falling interest rates.
We can now brag about our Great Depression. Our generation saw the GFC and the COVID crisis. We have seen a demonetization and a world wide lockdown. Unprecedented events. Books are going to be written about these. We are in the thick of things.
Fate is a cruel mistress. Stay humble. As Munger says - we are not all going to be in the top 1%; be content, accept what life gives you, avoid stupidities, greed and envy - we will get good results.
Equity Investing as full time career is not about money and living off on dividends .
It is about passion for studying industry and love for investing . If you don’t enjoy this both in bull and bear market … equity investing is not for you …
Now on capital required for full time investing - It should be such that dividend income should equal to 1.2 X of annual expenses .
Now one may debate on this - but it is like should you do Engineering or be school dropout to start tech company … No right answers , but being Engg from best school helps with knowledge and networks …
Translating into real numbers, Conservatively if your annual expense is 5 lakh per annum. Then your equity corpus in the market should be minimum 05 crores with dividend yield ranging from 1.2% to 1.5%.
The 5-6 crores of equity capital base for children of middle class people is far fetched dream for majority. One has to work atleast 15-20 years in high paying job navigating the continuous never ending politics of workplace to realize the dream of full time investing. The full time investing is not difficult but extremely tough and challenging for majority of common people. IMO general people should assess their financial and family conditions before jumping to the never ending, glamorous and fascinating world of full time investing career! Having passion just doesn’t help in normal circumstance all of the time. More often than not there are myriads of variables beyond human control which will impact individual negatively and bring him to their knee.
True … I worked for 18 years before being Full time Investor
First 6 years I focussed on Investing in Self so that my income expands such that I could save 60% of my income w/o compromising my lifestyle
The second phase for 5 year I learned investing by reading books and trying different styles to see what suits investing style suit me best . Actually by this time I became financially independent . My annual expenses were taken care by interest and dividend income
Next 7 years while working in corporate life I built software which could help me create alpha over benchmark and top rated mutual fund . These 7 years also helped me create decent buffer in net worth and annual dividend income …