Investing with Willl - Part A

 

A Little Introduction – the stock market

When some people hear the word “stock market”, the following scenario might be going through their heads’-

“Touching the stock market will lead to years of constant loss, followed by bankruptcy, followed by working as a handy man for your uncle’s business, it is a gamble and nothing more! I would rather invest my hard-earned money in gold/real estate than invest in the Stock market in which I cannot see or physically own”

Less than 2 % of Indians invest in the stock market because of thoughts like these. Investing in the stock market, in the long-term means that you will be a part owner of a public limited company and will benefit greatly if the company is performing well (Y-o-Y increase of the share price). You will receive a portion of the net profit as dividend.

For example, if you invest in the company Hindustan Unilever (HUL), it is responsible for brands like Horlicks, Dove, kissan etc., These are brands that we buy and use daily and known to be a good company to invest in.

Now the stock market is risky if you invest all your money on a company called XYZ because your uncle’s friend told you that XYZ will make you a crore Pati if you invest in it. This is an example of a bad investment, and it will almost definitely lead your investment to be highly risky.

Investing in quality companies which will consistently increase their earnings, while making sure what the company is doing won’t go irrelevant in the coming years is the key factor to successful investing,
Time is also an important element because investing in the long term (10-15 years) will give far greater returns than short term investing (The Intelligent Investor – Benjamin Graham)

What I consider to be the golden achievements of investing: -

1) Annual growth of the initial investment (CAGR of 11%+)
2) Protection of your initial investment (Risk Free)
3) Able to invest without putting a great amount of effort (Quarterly checks to be made)

A Little Background-

The power of compounding was very interesting to me. An amount of 10 lakhs invested in the stock market and kept for 20 years*(with a CAGR of 15%) will lead the amount to be 2 crores! (20x return)

So, I decided to start immediately. First thing I needed was to get the initial investment and a form of income since I am still in college. I decided that the one thing I can do is to list a small property that my father owned (a remade old wooden house) through Airbnb as “quarantine stays”, This initially made me a lot of money as a lot of people were looking for staycations due to the quarantine rules at that time. So, I started building up money in my account and investing it in quality companies. What are “quality companies”?.

I had started reading a book called Coffee-can Investing by an investor called Saurabh Mukherjee, and being a newbie to the investment space, it gave me information about “quality companies”, why people invest in the stock market and why investment favorites of the Indian households are often misleading(I’m looking at you Gold) since the absolute returns were rarely looked into.
If I could sum up what the book (Coffee can Investing) has taught me other than what the requirements for a good portfolio should be,

·      Residential Real estate investment often are misleading and might not be the greatest asset because of the high illiquidity of the asset, and generally poor absolute return. Selling of Residential property could lead to costs up to 10 % of the initial value of the property itself.

·      Mutual funds might be a better option, but expense ratios (~2.5%) each year mean that over the course of a 10-year mutual fund, nearly 30% of your funds will be lost due to the expense. Investing in Index Funds might be a better option

·      Commercial Real estate is better than Residential Real Estate, due to the higher rent yield that is given (in India).

 

The book also gave a good portfolio on how a person should invest his/her hard-earned money. The first part was setting up a goal, and dividing it into 3- security, stability and Ambition. The second step was basing your investment on that investment goal.

Note: Based on the book, The portfolio is usually divided into – 20 % Coffee Can Portfolio (with certain prerequisite requirements such as ROCE and 10-year Revenue Growth), 20% small-cap Mutual funds, 20 % Index funds, 20% good and clean portfolio (based on 2 components – good and clean) and finally 20% debt instruments (Bonds and debentures)).

 

The Willman List: -

The List is my comprehensive equity portfolio for the year 2021-2023. Current Pandemic has caused many pains to the world, but the stock market has been soaring to new heights despite the various effects of Covid-19 on the economy. This is also the year that I started Investing most of my income on buying equity, not because of the recent thirst for exponential short term gains that people are trying to make, but for a longer, stable investment for the next 10-25 years. In the following blogs I will be revealing what the portfolio consists of and the rationale behind it.

In the following blogs I will announce how you can achieve all of this based on principles I have understood from great investors such as Benjamin graham, Warren Buffet and Indian investors too.

Note: I am a beginner investor, with hopes that my vision and mindset will be a major part of the investment. I am still learning the technical aspect of investment, although almost all the important ratios (P/E, ROCE, Free Cash flow, Revenue growth etc.) will be taken into consideration. So, in conclusion, each firm will be given a technical aspect as well as why it might be of great value in the future. (Importance to renewable energy, Infrastructure, FMCG and financial industries)

Thank you for reading my first blog, and hopefully I can keep putting up these blogs.