kashinath2013

Like millions of Indian families, my family was also financially poor 😦 but ethically rich 🙂 . But as we all know ethics doesn’t fulfill needs of the family, it requires money. There is a saying in poor families that money is not the solution to all the problems. But I would say that the lack of money creates new problems and drains our time and energy. Hence, having decent amount of money to fulfill our basic needs will free us to focus on the real work we want to do in life.

So, what is the way to reach a level where we have sufficient money? My point of view is from a salaried class and not from a businessman point of view. First and foremost, we should have good enough skills for which people will be ready to hire us for a decent salary. Decent means, after all the monthly expenses like rent, grocery, travel we should be left with at least 30% of salary. If there is no monthly savings, there wont be any scope for investment and money will not grow and we will remain poor or wherever we are.

India is a pretty hopeless country. For poor people there are hardly any way where a poor family can upgrade to middle or middle to rich class. The only way people are able to upgrade is by getting a job in US/UK/Middle east, etc. It is almost impossible for a salaried person to become rich before he grows old. The only other way, I see possible is – if they become entrepreneur. But this is a very difficult path and only few or we can say negligible number of people can do it. In these given harsh conditions, I tried to find a way to grow my money. I think that wisely investing in stock market can help to grow our money.

Once, I decided to invest in stock market, now the question was how and where to get started. I started to learn about stock market as much as possible from experts. The very first learnings were from CA Rachana Ranade on her youtube channel. Here, basic concepts were explained like Market cap, total number of shares issued, ownership of the shares, P/E ratio. The next few videos focused on how to read a balance sheet – Revenue, expenses, EBITA, PAT, EPS. Once, we are comfortable with these terms, we have some basic knowledge about how to evaluate whether a share is costly, reasonable or cheap. Also, we can do some comparative analysis between the companies, looking at these figures.

The next step was – how to select the stocks or companies to invest in? The philosophy, I follow is – Focus only on my areas of expertise. Hence, I studied which are the public listed companies which fall in my domain like – IT (I focus on product companies), Telecom/Networking, Defence. The next step is to look at the management of those companies, on whom we can trust. Do some background check on internet about the promoters of the company – If the background is tainted, then don’t invest in such companies. The next step is to look at the history, how long have they been established, what are their achievements, etc. Do they have USP and good market share? Do they have good business model and marketing team? Is the company valued reasonably – look at the current P/E ratio, calculate expected future growth/cash flow. Now, try to arrive at future P/E ratio – is it fairly valued? If so, then invest in such companies.

Once, invested then forget about the investment and don’t follow the news. Just follow up on quarterly results and listen to their commentary. Don’t look at the share price on day to day basis, it eats up a lot of time and will not allow you to do your core job. Depending on the quarterly results and future outlook, take a call to either add/reduce/hold. The aim is to invest in companies which will survive long term (till you are alive) and create a good corpus. This investment in the stocks should become cash generating machine. We should be able to live off their dividends in the future (at least partially). Since, we were not able to build a business, we have participated in the business setup by others.

The steps mentioned above, if followed, will help to build a decent corpus. But not all things are rosy. To achieve this final goal, it requires us to be mentally sound and emotionally strong. It is tempting to book profits when the share price goes high. But we need to be invested because it will go further higher. It is really painful when the share price drops by 50-60%, we may lose sleep for a few days. But again we need to be invested as there is no material change in the fundamentals of the business. Generally share price fluctuation is speculative, based on some market news/rumor. Hence, our style of investing is very boring, we don’t do anything except analyze business, invest and wait. Having an emergency fund and a bit of diversity in investments (gold/real estate/debt) will always give a cushion and reduce risk. This style of investing has the possibility of better returns than most other investments. But to get mastery of this skill, it requires time, effort and patience. Best wishes for this boring but fruitful journey to investing in direct stocks!!