We do not need to be financial experts to make uncommon gains in the market. All you need to do is pick one company after careful study which will last through the turbulence of market. “Last Through, Huh?”, It means a business that can survive for a long period of time and still give reasonable return to the investor.
I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.
Some studies have shown that an average life of a startup is less than 5 years and there are a few companies that survive past 30 years. These are the companies that qualify to be good investments given that there is no much changed in the focus* of the company. (Will talk about focus later on in this article).
One such company is SBI (State Bank of India), this is a company that has survived the test of time and has given reasonable returns to an investor.
Now, let us say you decided to spare Rs. 5000 (also decided to buy it at days high on the first day of every month. Just to make the investor look dumb) and invested in SBI from Jan 2000 till today. The net worth today would be a whopping RS.2,05,86,752 (2.o5 Crores, excluding dividends) for a mere investment of Rs.8,97,751.79 (9 Lakh).
The total units you would hold today is 80,417. The last dividend given by SBI is Rs. 2.60 that means that you would be able to generate passive income of Rs.2,09,084.2 (2.09 Lakhs).
You might be wondering that I am not getting 80,417. This number is arrived considering the stock split of 10:1 on 22 November 2014. Therefore all investments prior to that are multiplied by 10. A link to the excel sheet has been provided in the resources section below for your reference.
Trees that are slow to grow bear the best fruit.
Being an investor can be a very rewarding experience if we can circumvent the temptation of making bad decisions (like selling a company stock too early). All you need is discipline.
So what is the discipline that we need to maintain?
- Invest small amounts of money that you do not need for a long time (10 to 20 years). This should be 10% of what you earn (Taken from the book The Richest Man in Babylon which is a must read). This is the money you are paying yourself so that you can live a reasonable life when you are unable to earn. Warren Buffet says, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”
- Stay away from the Marcos. Do not be subscribe to the ups and downs in the market and experts calls on the market (Avoid them). If you believe in the future of the company (Read Annual report, notices from the company to check company has not waived from your original belief) then buy it. It reminds me of a Chinese proverb, “The best time to plant a tree was 20 years ago. The second best time is now.”
- Focus*: What do we mean by focus of the company changes? This is usually a time when the company starts moving away from its core values. For SBI, it would be moving away from banking business to something like starting a Pharmaceutical company. Yeah, That is drastic, It can also be as simple as taking large some’s of money and investing in a secondary loss-making business in order to revive it. The example for this would Kingfisher, where the owner focused on the loss-making business instead of focusing on the primary business (In Kingfisher’s case liquor).
- Intelligence: Keep things simple and only invest in a company that is easy to understand no matter how much attractive the latter might look. Associating intelligence with investment can only lead to bad investments. Warren Buffet, “Never invest in a business you cannot understand”. Not understanding an business has nothing to do with intelligence. Keep things simple !!! Invest only in your circle of competence (This can be evolved by reading).