Creating a perpetual system to make wealth!

I’m a UX Designer by profession and I love making UIs, designing intricate software systems that helps humans to take decisions and visualise, like what’s going around the eco-system majorly in Education and Finance.

I’m here to share my story on the Indian stock market, which I started as a hobby during my final day’s as a M.Des student, in IIT Bombay. I have been in the stock market for half a decade now and I pretty much understand how money moves/flows around the stock market. I’m focussed on the Indian market as I understand the dynamics, so whatever I say, would apply more in context towards the subcontinent’s financial eco-system. But I will try to keep things more concise which you may compare them with your own experiences.

Wall Street’s Wheel of Fortune, by David Fojdvari

Indians primarily invest in FD’s, buying properties (#DemographicTaboo, even if you have nothing to eat, buy a house), Mutual funds and still a very small pie of people invest in equities directly. Understand this buying a house or land was financially viable, it was cheaper before compared to the ridiculous prices we pay today which spurs the burden of loans. One might argue that we can still, invest in cheaper land & build houses which are so ridiculously far away from work. This increases traveling time and the horrible traffic we have to go through. Think about it did people had those issues then? But if you earn a high salary, one can afford luxury of buying villas.

Where do I invest money? Invest in multiple financial instruments always. I give less emphasis on Land & Property as I’m not comfortable to get stuck in a place for more than 4/5 years, statistically. Lands and properties need more maintenance money too, compared to other assets, plus don’t forget chances of illegally being taken over by others. Compared to FD’s, stocks are more liquid (if & only if you did buy at really good levels, you will be in profit for a larger chunk of your holding period). Don’t forget stocks give dividends too and they compound, but not all. If you do invest in mutual funds, you don’t get 100% of the dividends, the money managers and banks will take their hefty cuts. I believe it’s my personal choice or outlook, but never ever invest all money in one instrument or a single stock.

Following are the instruments I use, placed in an order with the percentage of investment share. I believe it’s my personal choice or outlook, it’s not necessary that you have to copy my style.

1. Equity market (55%)
2. FD’s (30%)
3. Try a new business/Accidental family needs (liquid cash) (10%)
4. Mutual Funds, ELSS, Tax saving schemes! (5%)
5. Land property (None as of now, but I do maintain my parents properties)
6. Term Insurance (Planning to take one)

I’m in my early 30’s, I took riskier investment methods. I believe slowly as I grow old, I will move towards more stable instruments. I will primarily talk about the stock market now and I want people to try out personally. Many don’t jump in, after hearing stories of burning fingers. But do ask them more why did they burn their fingers? Did they do gambling or traded without any knowledge. You can find a guru or professional who can guide you initially and after that, you can pick up if you have time. ValuePick, Valine from Moneycontrol, ValuePickr forum are my gurus and I have learned a lot from them.

I do manage a group of close friends and keep an eye on their investments. We dream to cross 10 million USD individually by 2025.

The Wipro story! A sum of Rs 10,000 (154 USD) invested in 1980 would have become Rs 704 Crore (108 million USD), with Rs 60 Crore (9 million USD) as dividends by 2010

All stock investment stories are not like Wipro, there are wealth destroyers too. Never invest in a single stock, no matter how promising it looks at that phase of time.

Imagine this, why not find the best possible firms that can give returns like Wipro, invest in 100 such firms, a small amount in each. Where can I reach? I don’t know, you would have a wonderful success story to share.

There are mainly three ways you can make money in terms of time, from the bourses.

1. Long Term (They are primarily investments, you can think of it like as a lifelong hold and you may pass on to kids)
2. Mid-Term (Say you have a possible goal in mind, holding period of fewer than 2 years)
3. Short Term (Holding securities with targets for the day, week or a month with calculated risks)

Different people will have different opinions; with the time period and the terms associated. But the bottom line is,

“The longer you hold a security or a stock, you will have a bigger window of opportunity to book profits”.

I have gained massively in Long Term, good profits in Mid-Term but Short Term has always been a bleak. As even Buffet admits he failed in short term trades (FnO: Futures and Options), miserably for 7 years. FnO has the potential to make your bank balance 0, if not done with utmost care. Buffet calls them ‘Weapons to destroy wealth’. FnO is suited for people who can give more time to technical analysis, or the technical analysis is done with HFT trading systems and trades are done in secs or you are a part of big hedge fund, who is reading all these and smiling right now.

There are mainly two ways to take a risk and make profits from a stock, either by fundamental or technical analysis. I will give a gist on both of them in this article. Technical analysis needs more active time in the market which is almost impossible if you have an 8hr job.

Well, things are not that easy by fundamental analysis too, just putting money in stocks which are fundamentally sound, doesn’t earn you money. One has to understand where and when to invest, plus you need patience and a big heart if you take more risks than others.

Let me try to simplify.

A. Where do you put money in a stock market? Identifying stocks with potential growth… eh, what? Say HDFC Bank, which came into the Indian banking sector in 1994. It was originally started by a handful of Indian’s who had priorly worked in CITI Bank. They more-less became the promoters, I call them jockey of the firm.

Direction is so much more important than speed. Many are going nowhere fast.

HDFC Bank is considered to be the best bank created in India ever, as the DNA matches with CITI Bank’s proven working principle. India has still a long way to go and it’s quite possible HDFC’s revenues (11 Billion USD current) can go 5/6 times from here, as India potentially catches up with China’s GDP. Wait! am not selling HDFC Bank stocks here. I don’t invest in stocks which are known to people, blue chips or the indices directly. I may trade midterm or short term on them rather, if any opportunity arises.

The story of Amaraja Batteries (Amaron is the product name) and Exide has become quite classic. Exide is still the market leader in India, but you can research what Amaraja has done, since inception. Remember the ad “My Amaron last long very long”, marked the entry of Amaron Batteries in Indian market with a bang. Since then, it has created quite a brand in itself, with its quality of products and has kept improving its operational numbers compared to Exide, each quarter since inception. I do have few stocks of Amaraja at Rs 100 and I plan to hold them for really long.

Sales per share metric is a fundamental measure, there are humongous amounts of metric to find quality, potential growth, etc of a stock. But no fundamental metric can’t assure, that a stock won’t crash. Stock market crashes will happen on and off and I believe they are perfect opportunities to invest more. Quoting in Baron Rothschild’s words

“Buy when there’s blood in the streets, even if the blood is your own.”

The rise of Marico as an FMCG major, how can a small firm that used to sell only Parachute coconut oil owns a big brand like Saffola. If you still have an old bottle of Parachute, you can find ‘Edible Oil’ written on it. They did it to save taxes and they did save the ridiculous amount of taxes by doing that repeatedly, each quarter. And probably they used that money in their CAPEX growth, creating a name in market. This brought a demand amongst investors to buy it’s stocks for their portfolios. Please understand that there is a greater amount of people in India, who doesn’t have the luxury to eat what they really want. Hair oil is a luxury item compared to an edible oil, by Indian law. Had Marico printed ‘Hair Oil’ instead of ‘Edible Oil’ in Parachute, maybe we would have a different story to talk.

How do I know such stories? You need to read articles, economic newspapers, companies tying up, mergers acquisitions, ideas of possible growth, a vision for a sector, get financial updates from groups of friends who are from that sector. You can create a group of like-minded friends & reach heights you can’t believe. This may take awhile but they act like good foundations for your portfolio. Good things take time, so does a creating a good amount of wealth. Attend group conference calls with CEOs, directors of companies after they release quarter results, the ones that interests you. Proven investors ask tricky questions, during such talks, and if these questions baffles the board of directors, you can sniff off dangers quite early.

B. When do I put money on a stock market? No brainer, the first answer, buy when market crashes or the individual stock crashes. Now, this is a catch, when a stock or an Index falls massively, you really don’t know where the bottom is, you would have emotions, psychological questions. How much are you willing to risk? These kind of scenarios are called catching falling knives and you will find countless examples if you Google around.

So do you catch a shooting rocket then? i.e buy stocks that are going north? I will not prefer to invest, but maybe a short term trade with a small sum to risk, if the opportunity sounds really good. Getting inside a rocket with a huge amount might be catastrophic too. Do read on Issac Newton’s episode with South Sea shares, well after his awful experience Newton said:

“I can calculate the motion of heavenly bodies, but not the madness of people”.

Each stock which is fundamentally sound has a support price, a price which normally doesn’t break. Even if the market price goes down, below the specific price also called support, it comes up quickly (also can be called oversold zones). There are multiple ways to find the price, the most simple method is to draw a line connecting the lowest prices, for a period that interests you.

Example TV18BRDCST has a solid support at Rs 32/35, it’s just a blind eye buy at that price for long term investments or opportunity to make quick money. You can see below.

So when to buy? comes from technical analysis.

Let’s draw a comparison of the art of investment to fishing, with a rod and line, to increase your chance to catch a fish, one needs to know where and when to drop the lure.

1. Location of catching fish matters, this needs the idea of the terrain, underneath the water, big predator fishes stay near eddy currents near a waterfall, to catch easy preys.

2. Morning and evening times are better compared to try fishing rather than mid-day times. There are more things to consider though but I hope you get the idea.

All these principles increase your probability to catch one, but worst case scenarios does happen, you may get none. As Jeremy Wade says to catch a fish “You need to be at the right place at the right time”, so using fundamental analysis & technical analysis, one can find sweet spots to buy a stock.

There are no shortcuts in creating a massive wealth if someone does in quick time, it’s sheer luck or a rare case scenario. I understand in today’s time most of us can’t invest such time to identify stocks and even if the price comes, people are busy with work or family affairs or quite possible you are in a vacation on that very day. All these small difference in ethics may not be that visible now, but these can potentially add up to your portfolio by millions, depending on the size of your portfolio swells in a decade.

Here are some stocks that I did gain from in last 5 years. I kept adding them when they kept going down religiously.

Some highest gained stocks in my portfolio, in 5 years.

My max losses from some stocks in last 5 years

Some major losses in my portfolio.

Investing takes patience and time and life is not just about to earn money, I believe there are many wonderful things to experience. I love traveling new places, spending time with old friends, family. Take up new hobbies, talk to new people as it opens up newer perspectives and ideas about the world.

Well, the story doesn’t end here, with the help of machine learning (planning to migrate to deep learning); we have created a system that finds the stocks to invest in the Indian market . We are using the system for a few group of friends and it’s bootstrapped amongst us. Who are we? a bunch of IITians (experts in UX, Backend, Data Science) who slogged nights/days, weekends and came with such an idea & tool. If you are interested in funding us as an angel investor and being a part of the system, you can reach me at rajdeep007123@gmail.com

Rajdeep Basumatary, UX Consultant.