Creating Wealth!
Money is to be earned, Rich is a feeling, but you have to go and Create Wealth!
This is the noblest and Sincere effort that goes into creating Legitimately created wealth. On the road to creating wealth you start living and behaving like a monk and people say “why does he need so much wealth” Or “he is such a miser” – but it is YOUR amazing choice of living a simple life, but creating an heirloom for your future generations!
What are the things that you need to create wealth?
Patience – understanding that in the Compound interest formula, ‘n’ is the hero, and it takes time to compound your money!
Discipline – to invest regularly, and be willing to be in equities for a real long period of time. Each generation has a life of say 90 years, out of which they spend 30 years in earning money. You need to spend at least a few years learning about how to use/grow the money.
To yield good returns on long-term assets such as equity, gold, & real estate, one needs to have patience. There is no shortcut to success, appreciation in assets take time. It takes 6 years for a small mango plant to yield fruits. Discipline when investing in equities can lead to superior returns, as ups and downs in equity is the norm. staying invested in quality assets is key to value creation.
Mathematics – never very interesting, but you have no choice. Along with patience, discipline, Math is also very useful – mean, median, mode, standard deviation, regression to the mean, Variance, Co-variance – knowing all this is simple, but surely worth knowing.
Even if you belong to a very risk averse household – most middle-class and lower middle class people have survived by being risk averse. So it is necessary for you to learn to increase your appetite for risk. Your ability to understand, and manage risk instead of trying to avoid it will take you a long way in making you a good investor.
Learn about Asset Allocation, Risk Reduction, and portfolio diversification. When you invest in various asset classes, you will benefit by controlling your feelings – 2 asset classes may move in opposite direction!
Call it bias or whatever – I do think that for the small investor – who can invest from Rs.500 to Rs. 5000, there is not too much of a choice, he has to start with Equity.
Most Importantly, Focus on your Goals, Learning, and the wealth creation Journey. Learn to enjoy the process!
rkhgajjar
Rightly said
It is more of Non Financial skills that determines Financial life.
If you are not a good & Rational human being ,you can not be a good Investor.
Being Good is basic to Financial Success.
Only long cut or way
,No short cuts.
Dr Rajnikant Gajjar Bharuch
Aditya
It boils down to allocation of capital to the most productive ideas. I am commenting about creating wealth at a corporate level; especially in a capital starved country like India. We think that capital is a scarce resource but there is enough capital in this country. It is not allocated well. First, the government of the day wastes a lot of capital by investing in industries that don’t need government capital. Imagine how much money could have been saved had the government not been allocating thousands of crores as capital to loss making PSUs and that money left for private sector. Second, the “conglomerates” of India blow up a lot of capital. I know a start up making good profits in the space of co-living with a very asset light model and good cash flows. When they wanted to borrow from a private bank about a year ago, the ROI quoted was 15%. The TATA group leads the way in mis-allocation of capital followed by other names like Birlas, Mahindras, Reliance, ITC etc. These groups ventured into unrelated businesses and over diversified. The capital blown away by these groups is phenomenal. One commendable group is HDFC which stayed only in financial services with relentless focus. Among all the groups in the country, HDFC has the best capital allocation strategy. These large groups suck away the capital which should rightfully back better ideas. The best ideas get backed by foreign capital? Isn’t it strange?
Look at the largest companies by market cap in the world – Amazon, Alphabet, Microsoft, Alibaba, TSM, Novartis etc; is there any company that makes salt and also runs a tech company and also has retail and an airline? Petrochem, Telecom, Retail and anything else? A simple example, my daughter used to buy a lot of useless stuff from a toy/stationary shop whenever we took her shopping. My wife said that she would give her 500 rs if she does all her home work and class work within the dead lines. She started spending wisely. No useless stuff anymore as she gets only 500 once a month. But the big groups of India got free capital like my daughter did earlier. They invested a lot in unrelated businesses and capital got wasted. I wish we could give the money that was raised by a power company IPO in January 2008 to 100 different start ups. We would have definitely seen a few unicorns with domestic capital alone. Unfortunately, we don’t have that relentless focus and commitment to efficient use of capital. The day we get it, we don’t need any foreign capital.