If you invested Rs. 100,000 in a mutual fund when you were say 30 years of age, and left it untouched, it can become about Rs. 30L when you turn 60. Assuming that you got 12% return and you did not interrupt the compounding.

Not impressive at all, right? Who wants to invest in such a poor instrument? This is not exactly what your IFA told you when he said do a SIP and you will get rich, right?

It is customary to see some flashing a leading lights saying – how somebody became so rich by investing. True and not true. Now if somebody told you that your 1L will become 30L in 30 years you are not going to be impressed. So you are told ‘Rakesh Jhunjhunwala came with Rs. 5000 in his pockets and today he has Rs. 9000 crores’. Now that is impressive. Not 1L to 30L. RJ has also spent 30+ years in the market but he has many 100 baggers. That is the story sold to you.

It is like saying “Sachin Tendulkar played cricket and has a Rs. 1000 crore net worth’. So if you play cricket you can also have a networth of Rs.100 crores at least. Ha, the problem with outliers.  There are so many – almost endless number of TV shows, new paper articles, and magazines reporting short-term gains in stocks and telling stories about people who got rich by trading!! The problem is, these stories are usually some more outliers and a lucky few! The vast majority of the people trying to trade their portfolio are perennial and almost guaranteed under performers.  Is there something even more sinister?

Let us understand 3 terms here. We earn money and save. That is called savings. Since savings do not give us good returns we ALLOCATE our money to other asset classes – shares, gold, real estate etc. hoping to improve our returns. We are REALLOCATING capital which has been used to create assets already. So some companies raised money, bought plant and machinery and created new products – THAT IS CALLED INVESTING. That has already been done. The market rewards the guys doing well and punishes the guy who did not do well.

Just for reallocating our capital we can expect only decent returns. Yes once in a while we will see some explosive return, but in the long run, the mean will prevail. See what happened in the recent D’Mart IPO, when you applied for shares maybe you invested Rs. 20,000 maybe you sold it for Rs. 30,000. Great. However who got RICHER? obviously Mr. RK Damani. Remember it was not an overnight success story. It was at least a 16 year story. So even if you have a Google or a D’Mart in your hands TODAY…it will take a long time for you to convert it into real wealth. You will have to invest money, time, sweat and blood. Then make it a successful entity. Then take it public – and then you get wealthy. If you are just buying somebody else’s listed share, remember you are making THAT person wealthy.

The share market is not the place where you get rich in the first place. You see, when shares are issued in an IPO (secondary market) they are being issued by companies that have to meet lots of listing requirements.  And by the time any company has grown to the point that they are listed, they OBVIOUSLY must have established a business that is valuable.  “Going public” and listing their shares on an exchange gives the firm access to funds and it also gives the owners an exit from their real investment.  These owners spent for future production and are (at least partially) exiting from their investment on the secondary market.  YOU are allocating your SAVINGS to buy what was somebody else’s investment – in the REAL sense of the term. Their money, diligence, sweat, toil, and risk are now bearing fruit for them. So the promoters of D’Mart got fabulously wealthy BECAUSE 100,000 people thought EXACTLY like you. Most of the rich people you see around you who are wealthy or very wealthy did not do so by picking stocks, but they built companies, built real goods or services over a long period of time ( 20 years is pretty normal but this is coming down) and the only reason you hear about them is because they have already built something valuable, and are now taking it public. I am sure if you were in western India you had heard about D’mart before the IPO hit the market.

Of course it is possible to become wealthy picking shares on the secondary market.  RK Damani is really different from the Azim Premjis and Munjals of the world. His capital for D’Mart actually came from RKD’s previous role of being a great value investor. He picked good shares, made money, used that capital for D’Mart and has not taken the IPO route to have a company with a net worth of Rs. 40,000 crores and perhaps headed upwards. Vallabh Bhansali is another name that comes to mind – he too made his pile by picking stocks, but he ran a BFSI business too. However it is doubtful whether even he could create the 40K crore kinda wealth without taking a company public. People like VB, RKD, Rakesh J will always be around and there will always be people who “beat the market” and ride stocks to riches.  In fact, many of the people who get rich from the share market will be famous fund managers who sensibly allocated their own incomes to the markets which they believed. We all saw Prashant Jain’s portfolio did we not?