Equity Investing Strategies for Beginners

With the Nifty scaling peak 10,000 points, a lot of Indians are now opening up to stocks as a form of investment. After all which other asset class can offer 30%+ YOY for decades together? Neither do you have to pay taxes on profit earned & neither do you have to bother about the long waiting time required to sell the asset as in case of other investments especially real estate.
The Opinionated Indian spells out a relatively fool proof way of doubling or probably trebling your investments through stocks. Unless there is a major catastrophe or a black swan event, you can rest assured that with strong fundamentals in place, our economy is poised to grow at fast & steady pace in the coming years. This will have a positive impact on stocks listed on Indian bourses.




The two golden rules of Equity Investing are

1) Buy Stocks Like You Buy Grocery: Experts advise that one should buy stocks like one buys grocery ie buy stocks from all categories. Your stock portfolio or your basket in this case should consist good stocks from all top categories. The lesser you diversify the higher is the risk. On the other hand, diversifying into several categories may lower your returns in some instances, but will protect your investments during a severe meltdown of markets.
2) Buy Low Sell High: Warren Buffett – The golden rule of equity investing is to “buy low & sell high”. Although it is easier said that done, we have found through our own experiences that patience & suppressing your urge to buy stocks when markets are peaking or selling when the markets have crashed go a long way in growing your wealth through stocks. One needs to check the PAT growth/ de-growth or top line growth/de-growth vis-a-vis the previous year & compare it with the stock price increase/decrease, before investing in those stocks. Even when the markets are peaking, there will be a few sectors or a few quality stocks whi are facing temporary issues. This is the best time to invest in those stocks.

Based on the above two rules of equity investing, please find below the ideal composition of a stock portfolio
1) Defensive Stocks: Stocks which give comparatively give lesser returns, but are better at protecting your investments during market crashes are called as defensive stocks. These stocks are BSE – 100 stocks, who are generally from FMCG, Pharma & IT categories. Ideally one should allocate 40% -60% of their investments to defensive stocks. ex. HUL, RIL, ITC, TCS, Infosys, Cipla based on their risk appetite. It has been observed that defensive stock prices perform better in bearish market conditions.
2) Mid-Cap Stocks & Large Cap Stocks from Other Categories: Mid cap stocks ie stocks which are not listed on Nifty or Sensex. They have a market capitalization of INR 50 billion to INR 200 billion. Although riskier than large cap stocks, mid-cap stocks give much better returns than large stocks. Large cap stocks have limited scope for growth as compared to mid-cap stocks & hence mid-cap stock returns tend to be higher than large cap stocks. Large cap stocks from PSU banks, finance, real estate categories too have given decent returns over the years & should be a part of your portfolio. Bajaj Finance, SBI, PVR, Edelweiss Finance etc are good stocks from the mid-cap segment.




3) Small Cap Stocks: Small Cap stocks are the relatively unknown stocks, which have a market capitalization of a few crores. These stocks are high risk & offer high rewards. You may end up losing your entire investment on these stocks. A relatively safer way to make money of these stocks is mirror the investments of ace investors like Rakesh Jhunjhunwala, Porinju Veliyath, Dolly Khanna, Radhakrishna Damani etc. These investors have a team of people who research & run background checks on small cap stocks. Hence the stock prices go up on news of these investors picking up stake in them. we would suggest not to invest more than 10% in such stocks.
4) IPO: A good way to make money in stocks is to invest in good IPO’s. IPO’s like D-Mart(Avenue Supermarts), Mahanagar Gas, Thyrocare etc have given 2X returns to their investors in a short span of time. The deal breaker of investing in IPO’s is that the stocks are allotted through a lottery system. A select lucky few will be allotted the shares, whereas the others will have to buy the stocks post their debut at the market. Good IPO’s always tend to be over-subscribed.

Invest in stocks only when are you sure of staying put for at least 3 years. It is necessary that the stock you are investing in has strong fundamentals. Have a look at the Profit after tax growth, the company’s debt-equity ratio, their cash reserves, the category which the company is from & the company’s annual reports before investing. A good sign of a stable company is when the promoters are investing more money in the company’s stocks. Since the promoters are well versed with their company, a promoter pumping more money into his company is hence a good sign. Do read what the top execs of the company have to say about their company or their company’s category in their interviews to get a good idea of where the company is headed.

Do not believe in tips you receive through random SMS’s or mails, especially if you haven’t paid for them. These SMS’s are mostly sent by the company itself, to inflate their stock price. Like they say, “There is nothing called as a free lunch in this world”.

Do not forget the fact that, only the brokers make money when you are buying & selling stocks too often.

Do write to us at theopinionatedindian@yahoo.com




Investing In Your Startup V Sticking to Your Job Connundrum

Post his joining a well known IT company in 2011, after being offered a 35% hike on his current salary, Raj Malhotra (we couldn’t have come up with a more stereotypical name) was on cloud nine. With annual appraisals averaging at around 15%-20%, Raj was dreaming with his eyes open. He & his wife – Simran (Duh!), who was also working for an IT company, were thinking of buying an expensive flat & starting their family. At 20% hikes YOY & 35% hikes whenever they jumped jobs, they would live lavish lives & retire rich. By end of December 2012, Simran & Raj moved into a fancy apartment with their newly born child. Although

high paying IT, telecom sector companies are now downsizing




the pay hikes that year was not as per their expectations, they told themselves that, things would definitely change for the better next year. A year later, they promptly bought a new car as well, after all they could afford it, with Raj’s new job at another IT company. Raj’s new company, was known to be a good paymaster & an employee friendly organisation. But the couple was shocked with another dismal pay hike during their appraisals, the next year as well. With their several EMI’s, they were barely left with any disposable income & barely no money to plan their trip abroad. The Malhotras weren’t lucky enough to post minute by minute updates of their vacay abroad on social media, like many of their friends were. We will work harder to get that promotion & then holiday abroad, they promised themselves. But, as luck would have it, instead of getting a promotion, Simran lost her job. The family’s income was nearly halved. Raj is now the sole bread earner for the family.

This horrifying story of the urban couple is similar to a lot of Indians, not just from the IT sector, but across all sectors in India. Post liberalization, Indians were accustomed to humungous appraisals & insane salary hikes on “jumping” from one job to another. All this has come to an abrupt halt, with downsizing in several companies. The average Indian appraisal is now reduced to 5%-7%, a far cry from the 20%-35%, that corporate Indian professionals are accustomed to. On the other hand, we are flooded with news items of people quitting their cushy jobs, or taking a small loans from family & friends to invest in their startup, only to magically get funded by investors, thereby turning the gutsy startup founder into a millionaire overnight! Which has made several Indians ask themselves ” Should I quit my job, & invest in my startup?”

In today’s scenario, it is a given that you have to be hard working & give your 100%, barring which neither will you succeed in business or in a corporate setup.

The Opinionated Indian examines pros, cons of each alternative & helps you arrive at a decision

Sticking to Your Job

Pros:

  • Like they say, “Salary at the end of the month is the biggest addiction”. No business can offer you the kind of security that a corporate job does. Home Loans, car loans are easier to get.
  • Your kid’s admission to top notch schools is a given. You have a fair idea, how much money you will retire with.
  • Even during a recession, you will continue to make decent money ie as long as you don’t get sacked.
  • Your income will mostly keep growing YOY.
  • Depending on the company you work for, you get perks such as incentive trips abroad, chauffeur driven car, money to buy a car, house etc.
  • You are responsible only for your profile ie the finance head won’t have to get into sales & vice versa
  • Companies today pay execs handsomely. You may end up making way more, than what you would make out of running your own business.
  • Pension & PF benefits.

Cons:

  • The harder you work the richer your bosses & company promoters get. Even if your company doubles its profits, you will make a puny part of those earnings.
  • You will always have a boss, who will tell you what to do
  • There will be pressure to keep growing the company YOY.
  • You may get sacked, without prior notice.
  • You may have to deal with office politics for promotions & good appraisals.
  • You may get transferred to another location.
  • Your company may make your work 14-15 hours a day for a pittance.
  • Your job might get monotonous.
  • Getting leave will always be a headache.
  • You can never be in the top 2% of the world’s richest or even super rich, if you are working under someone.

Investing in Your Startup

Pros:





  • quit your job & invest in your startup if you are confident about its concept

    You are your own boss. Nobody tells you what to do. Walk in/out of office when you want to

  • Your are an employer, not an employee
  • The harder you work, the better will be your returns.
  • No pressure to keep expanding your business. You can slow down, if you are content with your turnover.
  • You can borrow from your company for personal expenses & pay it back later.
  • No fear of ever getting sacked or office politics or appraisals.
  • Sky is the limit. You may end up, becoming a billionaire, if your concept is potent enough.
  • You decide when you want to holiday & for how long.
  • You leave something significant for your children or heirs. Your kids will have a solid foundation to rely on.
  • A salaried job will never get you the kind of respect that running a successful business will get you.
  • You can appoint a CEO. You can then sit back & relax.

Cons:

  • Your business may not work out & you may end up losing all the money invested.
  • Your business is your baby. You will have to be invested in mentally & physically, slogging 6-7 days a week, for it to succeed.
  • Angel Investors may put undue pressure on you to grow the company at an unrealistic pace.
  • You are responsible for the incomes of all the people in your company.
  • You may have to get into every aspect of your business, till there are enough employees to handle the various issues.
  • Your employees will always turn to you, for the final decision making. A decision will have to be made by you in seconds.
  • Your vision may/may not align with your CEO’s.
  • After making millions in one year. your business may run into losses or just break even for the next few years.
  • Not suited for everyone.
  • If it is a family business, you may have to take your parent/relative’s approval for literally everything.

Our Verdict

We are programmed to look only at the successful people & ignore the failures. Behind every successful entrepreneur are 100’s if not 1000’s of unsuccessful ones. Besides it takes a certain breed to survive in business. Unless you have a killer business idea & are ready to slog day in & day out for your business to succeed, it is better you stick to a job. Business is not suited for everyone. If you are not very motivated, are gullible, or laid back or not to ambitious, please do not venture into your own business & take up a corporate job.

But, if you are convinced that you concept will work & you are motivated to go all the way, please do go for it. else, you will always wonder, how your life would have turned out, had you taken that chance.

One option is, will be to do a bit of both. There are millions of part time business ideas, that you can try. The best way to earn more money & or be independent is to take up a teaching job. A teaching job over the weekend, can add up to 20% of your monthly income. With the growth in the number of colleges in the cities across the country, there is an acute shortage of quality teachers. Other lucrative ideas include, renting your property, or selling insurance. If a part time job doesn’t excite you & you have money to spare, you can invest in a startup through a crowd funding website like investmentnetwork.in or wishberry.in. This should satiate your urge of investing in a startup.

Lastly, the best thing one can do is spend 10-15 years at a big company & then join a small/medium sized startup with good funding as their CXO. If the startup grows, you grow with it at a rate which will never be possible in a well established company. Perks may include ESOP’s ie stock options – something even a big company may never be able to provide. In the event of the startup not taking off, all you need to do is look for another job. Remember to spend time speaking to the promoters before taking up that offer to join the startup, as a lot depends on the person running the show & the concept idea. Well funded startups can are known to offer 2X salary growth to their employees, so remember to ask for it!




Tips To Get Wealthy

A man saw his 60 yr old father planting a tree. “Which tree is this Papa?”, asked the 30 year old son. “It is a mango tree” replied the father. “Ohh great! How long before this tree gives its first mango?” asked the son inquisitively. “18 years” said the father. “What? You will probably be dead by the time this tree starts giving fruit Papa!” exclaimed the befuddled son. “I know son, but you & your kids, kids after them will reap the fruits of my labor for years to come. I think it is worth it” said the father matter of factly.




This story is not written by us. You have probably heard about this story quite a few times. Nobody even knows where this story originated from. But, the underlying message of this short story is priceless. The mango is a metaphor for wealth & riches one earns by being disciplined, working hard towards their objective. Anybody who fails to “look after” the tree & loses interest will be devoid of the sweet taste of the “mango”.

It requires a lot of discipline at your end to achieve the goal of becoming wealthy. It will require you sacrifricing a lot . But, The Opinionated Indian promises you, that following these steps will make you rich & wealthy.

Warren buffett lives in amodest house & doesnt own fancy cars

Make your money work for You: What ever your profession maybe, how much ever you may earn, it is imperative that you save at least 10% of your income. Although,  we recommend that you save 35% of your income. The rise of social media, has lead to a lot of pressure on millennials to buy the latest clothes, holiday abroad, buy the latest smartphone, expensive gadgets & to buy  expensive cars, just so that they can post about it on social media.  Most millennials tend to spend their entire salaries & then max their credit cards to buy the latest smartphone, designer clothes, cars or on that holiday in New Zealand/Europe etc, just to seem successful in the eyes of people, who barely care. The truly successful & wealthy people don’t care much for other people’s opinion.

Warren Buffett famously said ” If you buy things you don’t need, you will end up selling things that you need”. The world richest people are frugal spenders. Warren Buffett, Carlos Slim, Azim Premji all drive modest cars. Warren Buffett & Carlos Slim- both worth billions, live in modest houses. Most millionaires spend just 10% of their incomes & invest the rest. 80% of the millionaires drive second hand cars. Mark Zuckerberg, the inventor of Facebook, drives a modest car & barely spends on clothing. On the other hand, Mike Tyson, Johnny Depp are bankrupt, despite earning millions!

So how do we save, you ask? The trick is to first take money off your salary account & invest it, only post that should you spend. Your car loan ideally shouldn’t be more than 15% of your income. Apply for a credit card, instead of taking high interest personal loans. Overall, your monthly EMI’s shouldn’t be more than 50% of your income. Resist the temptation to buy on every fashion sale, use your smartphone for at least 2 years before  splurging on the latest i-phone, use your car at least for 5-6 years before buying/upgrading to a new one, travel abroad once in 2-3 years. Travel during off season if possible, do not overspend on hotels & eating out. Safeguard your investments from theft or fraud. Have multiple sources of income. In today’s times, where there is no job security & with the shelf life of businesses being short, it is advisable to have multiple streams of income. 

So where to invest the money saved? Here are your options

Stocks or Mutual Funds: It is imperative, you get at least a basic understanding of stocks or mutual funds. Invest money you won’t be requiring for the next 3-5 years. INR 50,000 invested in nifty in 1999 had grown to INR 522,000 by 2014 ( http://moneyexcel.com/8790/nifty-50-performance-last-15-years ). Investing the same money in a fixed deposit @8% interest would give you INR 119,827 post deducting taxes. Einstein once said “Compounding is the eight wonder of the world”. You totally stay away from investing in equities, you will end up paying a high price for it. Based on your risk appetite &  your age, financial planners will advise you on the money you invest in equities. Equities are the most liquid form of investment. Long term capital gains on equities attract no income tax whatsoever. High dividend yielding stocks lead to decent returns in terms of dividend income. Track your investments regularly. For people not too interested in following the market, investing in mutual funds is recommended.

Real Estate is a sound investment

Real Estate: Indians tend to love investing in real estate. Buying a house, can get you a steady stream of rental income. The property can give you handsome returns, on being sold after a few years. The three important ingredients for a real estate investment is Location , location, location. Although we would like to tweak the formula a bit. Apart from the location, please do your due diligence, in terms of the property papers, ownership etc. It is recommended, that you take a bank loan to finance your real estate buy. Apart from saving tax, bank loans guarantee the safety of your investment, A bank won’t sanction your loan, before checking each & every aspect of the deal. But, unlike stocks, real estate is not a liquid investment.

Gold: Indians love their gold. Owing to the curbs on gold imports, gold prices have been highly volatile &, have offered dismal returns.Unless there is a huge calamity, Indians don’t tend to sell their gold due to the emotional attachment to their gold.Gold tends to just lie in your locker & ads no value. So it is advisable not to allocate huge amounts to this investment. We do suggest investing 10% of your portfolio in gold, as it is a counter to your other investments. It has been observed that, when real estate & stocks go down, gold prices tend to go up & vice versa.

Invest in a Startup: A new form of investment, which offers decent to very good returns. People have started to invest in startups, through crowd funding websites. There have been several examples of crowd funded startups giving handsome returns to their investors. People should invest only after thoroughly researching the company.

Fixed Deposits: It is one investment we hate to make, owing to the sub par returns. But, it is an essential part of your portfolio. Owing to the liquidity & guaranteed returns of the money invested, it helps safeguard your investment against stock market crashes & delays in selling your real estate investments. If your honeymoon/kid’s college fees are a few months or a year away, we would suggest you sell your stocks & or real estate & put it in an FD.



Be very careful while investing your hard earned money. Research thoroughly before investing.

Dont’s:

  1. Credit cards might be a very important tool, if used wisely. You can buy important things, with money you don’t have. But, this often leads people into a huge debt trap. Clear all your credit card dues in full, every month. The interest rates on credit cards are deadly.
  2. Invest in multiple asset classes. Your portfolio should be a mix of equities/ mutual funds, real estate, gold & fixed deposits.
  3. If the returns sound too good to be true, there probably is something wrong. Never invest in dubious schemes, promising 200% returns on your money in a few months & no effort whatsoever.
  4. Investing money in a tech startup, founded by your dhobi is a horrible idea. Invest in companies, whose founders have a solid background & sound knowledge of their field & have clarity of vision. Investing in a laundromat, founded by your dhobi makes much better sense!
  5. When it comes to lending money, consider money lent as gone. It is advisable not to lend money.In case you do, don’t ever expect to get it back. If you do get it back, it is a bonus.
  6. When it comes to gambling in a casino or intra day stock trades, always keep a cut off limit. It is strongly advisable, to stay away from gambling in casinos or betting, as they are designed in a way that the house will always win.
  7. Never live on borrowed money. Clear of all your loans, as early as possible. Do not account for sporadic income earned from royalties/performance bonuses or inheritances. 80% money earned from inheritances or royalties or performance bonuses should be invested.
  8. Do not neglect your health. Health is Wealth. Do not eat in unhygienic restaurants or stay in dingy hotels just to save money. Be frugal & not stingy. It is one thing to value money & people respect it. It is another thing to live just to save money & watch your money grow.
  9. At the same time, do not spend way too extravagantly on weddings or throwing parties to friends whom you barely know.

Follow these steps, slowly & steadily you will see your wealth grow to desired levels. We never said it was easy! Like they say ” There is nothing called a free lunch”