Long-awaited launch of New Package "YIELD FOCUS" on the auspicious day of Ganesh Chaturthi, 19th Sep'23.

Life is a series of Opportunity Costs, it's your choice/alternatives that matter.

As an investor, we are in the business of intelligently allocating capital. With limited capital at our disposal and several alternatives, the critical concept of opportunity cost arises. Always remember: the highest and best use of capital should always be measured by the next best possible use.

Charlie Munger says, there are ONLY 3 things required to generate higher returns (say ~50% annual returns) consistently from stock investment. Actually, he is taking about doubling the money in approx. 18 months (i.e., ~58% CAGR).

Let us see what are these 3 things…

#1) Identify few exceptional businesses (you need max 4-5 outstanding businesses, trading at an attractive valuation, run by capable promoters) from Small Cap, Micro Cap or SME segment. Such investment opportunities are often overlooked by large investors, creating potential for inefficiencies. A concentrated portfolio (consists of max. 4-5 stocks) focused on a few outstanding businesses can lead to higher returns.

#2) Look/wait for the inefficient market condition (i.e., correction or dull phases like 2000-01, 2005-06, 2008-09, 2012-13, 2018-19, 2020, 2022, 2024 (Expect sudden dip in late 2023 or early 2024) & 2026-27 (Expected major correction). Successful investing requires waiting for the right opportunities and avoiding the wrong ones. You can’t make big money investing in good market condition, you will have to have patience to wait for the right time.

#3) You need descent capital, minimum 20-25% capital allocation in a single stocks done during corrective/dull phase, holding patiently for 3-5 years. There is an old saying that it “takes money to make money”. And that’s very much true, you need a descent capital to make it big. In our opinion in Indian context a descent capital must be at least 20-25L plus because here we are looking for exceptional portfolio returns in next 10 years (with 50% CAGR it can become ~50x in 10 years). A capital of 20-25L may become 10-12 Cr in next 10 years if compounded with 50% CAGR (practically tough to do, not suitable for most of the investors but yes it’s not impossible too).

Again in Indian context to live a life with financial freedom one need approx. 10-12 Cr assuming that your monthly expenses are 2L (in a metro city in India it’s quite possible that you need such amount as monthly expenses), annual 24-25L and as a thumb rule 50x of annual expenses which is generally considered for financial freedom comes around 10-12 Cr. Not to forget that, 10 years down the line these number will also change!

Single most important thing, investor should take care is - RISK

What is Risk? - Risk is the probability of a permanent loss of capital.

Permanent is important here. If you buy an index representing the market, downturns will be temporary. E.g. NIFTY (Index) has always recovered from its drawdowns, no matter how severe. Risk is almost ZERO when you buy Nifty ETF or when you invest in Index Fund.

Individual companies don’t act that way. They come and go. Some strive, some die. And if you bet on the wrong company, your investment is gone. Permanently.

This is the risk an investor faces every day.

Understanding the Uncertainty that comes with Risk

We can think about the future as a probability distribution, and we never know which outcome will happen. We wouldn’t even know if we knew the exact probabilities and all possible outcomes.

The most unlikely things happen all the time, and the most certain things fail to happen all the time.

‘We live in the sample, not the universe.” - Chris Geczy

The markets are a great example of that. A reason for that is the behavior of the market participants. The risk of an activity often lies in the behavior of participants, not the activity itself.

When investors think there’s no risk involved, usually at the market top, the risk is the greatest. The same goes for downtrends. The higher the perceived risk, the lower the actual risk.

As an investor, you need to be aware that you’ll never know about all possible outcomes and that it’s impossible to be certain about anything. Your challenge is to be prepared for outcomes you were unaware of before and survive them when they occur.

One key element of investing is looking for asymmetrical bets. Bets that have unlimited upside but limited downside.

Note: Complete package offerings of “YIELD FOCUS” along with pricing, eligibility criterion will be shared on Sunday, 17th Sep 2023.