Archive for January, 2015

One kick, 10000 times

I fear not the man who has practiced 10,000 kicks once but one kick 10,000 times – Bruce Lee.

Best selling author Malcolm Gladwell wrote that it takes around 10,000 hours of practice for anyone to be an expert. Bruce Lee seems to have found that out much before with the above quote!

As investors most of us are try different things to increase our wealth, which is not wrong but we also need to practice that one kick ( consistent investments over the years ) to make a meaningful difference. the one kick that i can think of in investing world is SIP, ( systematic investment plan which is fancy way of saying monthly investment!) that one kick once a month patiently done over last 20 years has made people ‘ Crorepatis’ without winning KBC !!

Let us see how one can do this. Franklin Prima Plus, an equity fund was started in 1994, completed 20 years last year. A monthly investment of 5000 Rs since Jan 1995, is worth 2.2 Crs today. All one needed was the patience to keep investing that 5000 Rs and not stop it for any reason. Even 2000 Rs, for 20 years ( 2000* 12 months * 20) precisely what i could have afforded from my salary of 5000 RS then, would be 88 Lacs today as against invested value of 4.8 lac’s. All this by investing amounts that one can afford and leaving it be for long term.

I’m telling this because young investors should not repeat the same mistake, salaries are much higher today, and people spend 2000 Rs on their phone bill every month, not to mention 1000 Rs for going to the movie in a multiplex.

So if you would like to practice one kick 10000 times and become rich slowly but easily, start investing today and keep investing for next 20 years or more, If you can increase your investment as your salary increases may be you can make 10 Crs or more with the same 18-20% returns, though i would be extremely happy with any return over 12-15%. As the return is not in our hands but investing monthly is ( one kick, repeated every month !)

Remember even Bruce Lee feared the man who learnt one kick 10000 times !!

PS :The 20% return mentioned above has come with years of low or negative returns (of even 50% once! ) and years of high positive returns (ranging from 30%+ to even 233% in one year! ) but those who stayed the course reaped the benefits. Future will also hold such negative surprises as well as +ve surprises, and the investor will be tested and tempted to quit, and as in past rewards are likely to be for people who hold on.

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The forgetful investor

Wish you a happy and forgetful new year 2015 !!

Let me explain 🙂

Fidelity Investments did a study of their investors to find out who made the best returns, one would like to think that those who made the best returns were either most educated, or people who carefully analysed their investments and went to investments conferences to get new ideas etc or even people who were emotionally strong investors who did not sell during a panic or buy at the top. The answer to who makes the best investor is surprisingly simple that people who had forgotten that they had investments made the best investors.

Why is this so? Investments compound wealth over long periods, so when some one says 15% annual growth our minds immediately calculate 100 Rs becomes 115 at end of year 1 and stops there (not exciting,right), but does not move on to think it will be 132 Rs at end of 3rd year, things get very interesting from there on. At the end of 9th year the total return is 50 Rs approx which is half of the initial investment of 100 Rs, at the end of 15 years the annual return exceeds the initial value of 100 Rs and by 20th year it is almost twice the initial investment every year. So if you spend Rs 50k today instead of investing it, you are potentially losing around 8 Lacs in twenty years, and around 1 lac per year after 20 years. 1.5 lacs per year in returns after 22 years etc.

So the really large returns ( not % returns but amount wise returns) happen after longer period of times, While someone who invested Rs 50000 and took out Rs 1 lac + change at end of year 5 did make 15%, he never made 50k per annum that the investor who stayed till 15 years made or 1.2 Lacs per annum that investor who stayed till 22 years made.

I can hear some of you say where do i get 15% fixed return, I agree we can’t get 15% but the volatile markets where one could lose money in some years and make more in some others have delivered an astronomical 18%+ over 20 years, so anyone who stayed the course for 2 decades has made 20 lacs out of 50000 Rs. In fact mutual funds like franklin bluechip have delivered 20% over last 20 years.

The reason why the fidelity investor made large returns was because they had forgotten that they had invested and the money was compounding for them quietly all the time, if they had known that there was such an investment, chances are they would have taken the money out and donated the money to poor companies like Apple or Google for buying gadgets that will be outdated in about 2 weeks 🙂

So, in 2015 please ensure that you invest in a good diversified mutual fund via monthly installments or SIP and forget that you invest till you retire, the results are likely to be an happy surprise for you !!

Disclaimer : Mutual Fund investments like just about everything else in life carry risks, please understand them before investing.