Equity Investing as a full time career?

[valuelife]

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.

[Uservijay]

@Uservijay

As of now, I have not seen any impact to my source of funding, which are dividends and interest income from liquid funds/FD

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.

[Annamalai]

Hello Friends,
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.

[arjunbadola]

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

[Wolf]

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.

[Ediacaran97]

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.

1. Asset Allocation matters. Never be 100% aggressive. Never mock a defensive portfolio. We all need our FDs, bonds, emergency funds, real estate.
2. 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.
3. No one can predict macro-events and their impact on stocks. We are living in unprecedented times of negative or falling interest rates.
4. 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.
5. 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.

[kb_snn]

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 …

Same is with Capital …

[Vijay_Kiran]

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.

[kb_snn]

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 …

Once I was convinced with result I quit my job …

[gautham1]

hi @kb_snn . Could you tell what you mean by "built software which could help me create alpha over benchmark ". Do you mean some sort of an algorithm for trading?

On the topic, I agree with you that one needs to be passionate. But I think, in the absence of earnings growth ( I mean corporate earnings/not stock price ) , it will be very confusing. Corporate governance, quality of business is also a problem in India. I was looking at tech space in US market. What I liked is that they have so many innovative companies with very high sales growth. But after covid, the valuation is ridiculous. Forget about PE, EV/EBIDTA etc. The P/S ratio is worse than 2000 dot com bubble. That makes investing very difficult
I posted a question in abhishek’s thread. AA - Abhishek's Attic (place to store stuff to clear my head)! . I would love to hear your views.

[kb_snn]

It is algo to grade company on fundamental basis ( historical P&L and Balance sheet data) and compute intrinsic value for purchase and sale . This I have converted then into APP that I can access on my mobile with simple dashboards .

I invest in large diversified portfolio with 50 odd stocks having high probability of giving > 15% CAGR over next 5 years …

I follow strict asset allocation , position & sector limits

[lsubs]

@Vijay_Kiran

equity corpus in the market should be minimum 05 crores with dividend yield ranging from 1.2% to 1.5%.

Novice question - Why not park 2.5cr in a mix of liquid and ultra-short term debt funds which typically give 4% returns. Lesser risk compared to equity and you can still match the required returns…

[Vijay_Kiran]

There is possibility of infinite permutations and combinations to play asset allocation between Debt:Equity. If it suits one’s risk profile and financial goals and obligations then one can park 2.5 cr or 3 cr or even 5 cr if has to debt instruments and earn safe returns.

Adding to this IMO the market linked debt instruments as you mentioned are highly risky and dangerous and like sleeping volcano than equity. I would rather put my life time earning of so much magnitude in post office or bank than debt fund

IMO proper Asset allocation based on individual risk and financial obligations is sine qua non for any style of investing. Those who take pride in saying and propagating 100% investing in equity or debt theme are doing injustice to novice, amateur and beginners. This is far from truth.

Happy investing.
VK

[Likeadiamond]

To make a career in Indian equities, one needs to understand difference between the terms ‘investing’ and ‘business of/from investing’.

Investing is a journey (more of art and less of science) involving a mix of reading, researching, analyzing, waiting, buying, selling, holding and monitoring. Investing might involve doing nothing in up markets and remaining too busy in down markets. Although dividend yields can help meeting daily expenses but ideally should be reinvested to improve CAGR. Chiefly, it is advisable to set aside a fund to meet daily expenses and not tinker with funds intended for investments.

Business of/from investing (more of science and less of art) is completely different from investing. Fee income or margins are pivotal to success in this category. Broadly, it entails offerings like educational courses, advisory services, money management services (MF, PMS, etc.), trading strategies, book writing etc. Specifically in money management/advisement businesses, you might do same or completely opposite (most of the time) of what is required under investing. Generally in extreme bull markets, demand is highest and hard to resist as a result it becomes difficult to decide between self interest or customer interest.

Needless to say that wise, honest and experienced people who keep customer interest first can master both the categories to some extent. All the best!

[zygo23554]

It has been 2 years since I moved out of my full time corporate job. To set the right context, I have been managing external capital since 2019, so I am surely not a full time investor just managing and living off my capital (I also do not yet have enough if it).

Here are my observations when I look back at the last 24 months -

1. Getting out of your full time job and focusing 100% on investing surely enhances your skill level multifold. I am a far better investor today than I was in 2018 for the simple reason that I have spent more time researching businesses and constructing portfolios over the past 2 years than I did in the previous five years. When I had a full time job, I was hardly spending 15 productive hours per week on investing, today I spend 3-4x of that time. The volume of work tells within a short period of time.

2. Knowledge, temperament and good judgement are cumulative and follow step functions by design. Once you understand X well, you can understand Y much quicker and better. I was mostly clueless about Pharma till 2017, the first thing I did after I went full time investing was to spend a month on building an industry map of pharma and noting my preferences. Once I had researched 3-4 businesses well enough, I moved onto specialty chemicals which has certain similarities with bulk drug (API) manufacturing. End result - I have had a couple of 2 baggers and 3 multibaggers from these two segments since the beginning of 2019. Of course there is the luck/timing factor involved but my return today would have been different if it weren’t for that considerable effort into pharma in Oct and Nov 2018.

3. Bigger tracking universe means a better reference class and a cleaner mirror. Unless one sets the right context to view the world, it is tough to be objective and not to get carried away by the results. A broader/better reference class brings to the fore differences between skill and luck much more clearly. Today I have a better sense of where and how I am getting lucky than was the case 5 years ago, then I was more vulnerable to mistaking luck for skill. Today I know that any damn stock in the API theme would have turned in 3-4x within 6 months, I wasn’t a genius to have picked one of them.

4. You have greater sense of purpose when you work at your own pace Everything I have done over the past 24 months has been about 100% ownership, I have done things because I wanted to and not because I had to. I chose every single stock/sector I wanted to research based on certain preferences, which are consistent with who I am. When there is congruence between your thoughts and actions, the world looks much more saner and tolerable.

My experience so far has been mostly positive since my operating cash flow generation isn’t much worse off than what it was as a corporate employee. I am not sure if my frame of mind would have been this positive if that weren’t the case, though the market has been very generous to me over the period.

[newrb]

Excellent post @zygo23554.

How did you build credibility and the business of managing external capital, while working in a full time corporate job? This would help many others considering similar approach.

Thanks

[Likeadiamond]

Adding color to my earlier post on business from/of investing - particularly on external capital management (ECM) side.

ECM is the most desired profession for investors as they start becoming successful in personal life. We tend to assume that we can emulate personal success on external capital too. However, differentiating factor here is that external capital brings unwanted gifts along in the form of external minds which are generally more volatile than portfolio scripts, thus adding new risk dimensions to be managed by the fund manager. Since, remaining 100% invested is a given for fund managers, it become further difficult for them to manage external minds during market excesses - specifically in bear markets. To summarize, more than stable money, stable minds are a blessing for money managers.

Real test of money managers - length of time-wise correction

In the last 15 years, bear markets have been relatively shorter, while degree of correction being on higher side. Perhaps, longest bear market streak on benchmark indices is of 1.3 years - during great financial crises (GFC) (Jan 2008-Mar 2009). Surprisingly, in the last century, US markets have shown nearly 3-year correction only on 2 counts - (1) Great Depression (1929 - 1932) and (2) Dot Com bubble burst (2000-2003). Important to note, such market conditions are still untested waters for most of the new generation money managers.

Therefore, real test of fund manager acumen, psychology and investment strategy will be during conjunction of both long time-wise corrections and large price-wise downturns. To substantiate in Indian context, small caps have been in a slightly more than 2-year down cycle (Jan 2018 to Mar 2020). Sans professional MFs, how many small cap money managers starting before Jan 2018 are still clinging to their small cap bets? May be very few.

Volatile Minds - Bubbles and Crashes

Bubbles are created and deflated by humans over time in a repetitive fashion, although people on both the extremes could be different. The success achieved by series of actions undertaken by global central banks and governments - particularly on Western World side - during GFC has brought confidence among such institutions that ‘easy money’ is the solution to any problem. Speed of infusing liquidity is now far more relevant than quantum of liquidity to avert crisis. Further, this has built assumption among market participants that central banks/governments will continue to support financial markets through liquidity infusion in the long term.

How far we can go on this remains to be seen. What volatile minds will do next in case economic recovery is not on expected lines? Add more liquidity? Future will tell.

[zygo23554]

@newrb

How did you build credibility and the business of managing external capital, while working in a full time corporate job? This would help many others considering similar approach.
Thanks

The business of managing external capital needs two things to get started -

1. Proven competence
2. Relationships with people with deep pockets who can commit some capital initially

(2) is the tougher part to build and scale, not that I have ready answers on how to scale. I’d worked in the investment management industry as a wealth manager for some years, hence had a network handy which gave me some sort of a start. Most people will wish you well from a distance but will be reluctant to commit capital initially given the plethora of options they have in the market.

One also needs a product marketing mindset to succeed in asset management, a narrative that helps you differentiate yourself from the other products though everyone is playing the same damn game - Buy good businesses at reasonable valuations and hold them over the medium/long term. Unless you can bring a differentiated content delivery style (usually a function of who you are) to the table most prospective customers switch off mentally within 10 mins when you start talking economy, business quality and valuation. Speak about politics and you will suddenly see them light up. You should see this in action to believe it, I have for more than a decade now.

The average user at valuepickr is not what the average customer is like. The average customer has 2x more confidence but at a skill/knowledge level that is 10% of what the average user has here. The educational background/success in their professional rarely translates to the investment world. Some of the worst investment decisions I have seen are made by highly educated and intelligent Ivy league schoolers. Their ego and success in other aspects of life prevents them from seeing/admitting their own flaws. These are the very same people who can commit big money to you, so it is a paradox one needs to manage.

The research and portfolio management aspects are scalable but the marketing and business development aspects aren’t easy to scale, unless you get to a stage where you can sign distributions agreements with wealth managers who can cross sell your product to their customer base. But these will touch you only after you have a base minimum AUM and a track record over a respectable time frame. Doing your own selling gets to you if you have never done it before. Analysts make bad salesmen since they focus too much on the content part, they don’t appreciate that buying decisions have a large emotional component; no matter how logical the customer is. It is not easy to toggle between the sales/product marketer/investors hats, though I have done all of these formally in some way or the other.

People aren’t easy to deal with when you underperform the FD return for an year Two years of underperformance and some of them will dump you like a bag of dirt, the very same people would have told you that they have a long term horizon to investing when they signed up. At best one can sign up only like minded customers but you will take ages to get to scale that way.

This is like any other business, one should not be guilty of romanticizing the asset management business. Unless you’ve done some selling and know what it takes, starting off on your own as an independent equity adviser isn’t a smart idea just because you have a good investing track record.

[bhavveshh]

Excellent thread this one!! I aspire to become a full time investor in a few years (hopefully soon). I am working as a sell-side analyst currently and have 10 years of experience. I would like to devote more time to investing. Also i have a different perspective with regards to investing your own money as it adds no value to anyone other than yourself. So, I would also like to manage money for other small investors alongside my own money. I also feel that financial literacy is very low in India and would like to help many investors in their financial planning. This way i feel i complete two sides of the coin, “Shubh” - good for others, “Labh” good for me.
A lot of questions regarding how much money should be accumulated before you call quits to your job and become a full time investor. Well, I feel it depends on how many years of back-testing have you done. How you have felt in bear cycles. Do you honestly feel you have delivered good risk adjusted returns for atleast 5 years?
So rather than a rule, I feel its a customized number (lumpsum amount) that one need to evaluate for oneself. A guy managing my money a decade back had only 2 lakhs with him when he became full time investor and started managing other people’s money. He has had his share of struggles but overall has managed great returns.
Net-net i feel its combination of 1) a lumpsum amount (x times your annual expense) and 2) your confidence to generate returns. Without either of these, I dont think you are eligible

Lot of wisdom shared on this thread. Many points comprehensively covered.

[krkarthikeyan]

Whenever this thread gets busy, it can be a good leading indicator to a market top.

In a Bull market, large majority of stocks keep going higher, giving false confidence to investors. When all this liquidity starts affecting inflation, the party will end. Then this thread will go into a lull. Check how many posted here in March / April 2020.