Stock Markets — My Life Learnings
I have been passionate about stock markets ever since I was a kid.
As a kid, I was always curious to see stock prices move positive or negative and ponder why /how!! What makes it tick!! and more importantly, know if it is just a scam or one can really make money from stock markets.
2017 was the year when I really got serious about stock market investing.
Since then I have read quite a lot of books, watched countless videos, podcasts, courses. I fell into a few traps of stock tips schemes/scams. Analyzed various strategies from stock picking to asset allocation, even did some research on historical data, coded different backtesting strategies on python (Project Chitti).
More importantly, along the way I found various gurus/role models; whom I look up to this day — not because they are rich, but because of their simplistic lifestyle despite being so rich! Their views on investing, on financial freedom, and on various aspects of life!
This is a blog post is in works for quite some time, has collated a list of all my learnings. I am writing it for myself and sharing it in public so that it might help someone to get one step closer to their financial goals.
(I have tried my best to keep it as short as possible 😉. This is not a blog post on introduction to stock markets — Check Zerodha Varsity if needed)
Basics
Buying a stock is buying a partial stake in a company. You are a part-owner.
Never ever forget this.
There will be lots of people who will want to buy your stakes — price fluctuate based on the demand.
Over a period of time, good companies grow faster, expand into new markets, make more profits. This naturally will increase the demand for the share hence stock price rises up.
That’s how you create wealth for yourself! No Shortcuts.
Saving
It all starts with savings.
It does not matter if you make a profit of 2%, 5%, or even 100% if you have nothing or very little to invest.
Little by little you can build huge wealth, but not until you first start!
Spend less than you earn each month. (Obvious one. Do a reality check often)
Time
Start saving early. Time is money.
The secret of getting rich slowly but surely is the miracle of compounding.
Albert Einstein described Compounding as “Eight Wonder of the World”
Amazing Rule of 72: LINK
Index Investing
An Index is a basket of stocks — stock picks and its percentage weights in the portfolio are decided algorithmically by a formula automatically.
This means ZERO human emotions. Formula decides everything.
The formula can be as simple as — “Top 50 companies in India and each company in the basket gets percentage of money invested based on how big the companies are in terms of market cap.”
Imagine for a second — What if you own stakes of top 50 companies in India!
Well, that is exactly what Nifty 50 Index is all about. Nifty is one of the most popular indexes in India. This comprises 50 largest companies in India and their percentage weights are equal to how big they are in relative terms to their peers in the portfolio.
The best part is that you can invest all top 50 companies in India with just INR120.
Nifty 100 is another index that is similar to Nifty 50 but has the top 100 Indian Companies of India and these companies in total form 76% of all Indian listed company’s net worth.
There are several other mutual funds and ETFs that offer options to invest in such indexes.
Interestingly there are ETFs that offer you a chance to invest even American companies — N100 is an ETF that allows you to invest in the top 100 American companies including Google, Amazon, Facebook, Microsoft, Apple, Netflix, Tesla, Pepsi, etc.
You can buy stakes in top 100 American companies with just INR 775
Fun Fact:
It is extremely hard to imagine that in the entire world, with so much of budget, Research & Development, such talented mutual fund managers having studied from elite world-class universities, having work experience from some of the world’s best companies, etc… of all those thousands of mutual funds managed by them only 5–10 funds have beaten Index funds in entire history!!! (10–20 year investing period)
If you think you can beat the index, think again.!!
Advantages of Index Investing
- Simplified Investing. (No need to waste time researching stocks/funds)
- Cost Efficient. (Extremely low expense ratio compared to any other fund)
- Predictable. (You get overall market returns)
Diversification
Every investor has to diversify.
The main objective is to reduce risk — not to increase returns.
Think of it as an insurance policy 😉
Diversify across Securities (multiple stocks from multiple sectors).
Diversify across Asset Classes (Equity, Debt, Gold, etc)
Diversify across Markets (India, US, China, etc.)
Diversify across time (Invest periodically to avoid peaks/bottoms. SIP n Chill.)
Tips
#1: Bonds go up when interest rates fall. See-Saw Rule.
#2: Gold is seen as a hedge against inflation and geopolitical uncertainties. Also Generally Gold tends to negatively co-relate to stocks. So better for diversification.
Market Crashes
Imagine you had to buy a car, will you be happy if there’s a sale of 50% off!!
Will you be happy or sad?
The same is the case with stocks. When stocks fall crashing — be happy that you are getting for a much cheaper price.
You must develop the confidence to continue investing even when the sky is the darkest!! Remember — It can’t rain forever!
If you follow index investing, odds favor your side because you would have bought the best top companies in the country and rest assured even if markets crash, it will eventually recover; You would have bought the best companies!
Rumors, Forecasts, and Predictions
Just ignore them.
Time vs Timing
After having explored quite a lot, I can confidently say that there is no strategy to consistently catch the exact peaks or bottoms of the market cycle.
Keep it simple, stay invested.
Adjust asset allocation based on timelines of your goals
“Time in the market” is more important than “Timing the market”
Costs
Avoid too many transactions.
Avoid “Regular Mutual Funds” — instead opt “Direct Mutual Funds”.
Avoid high expense ratio funds — instead, follow index funds / ETFs.
I wanna end this blog with a quote from the book “The Elements of Investing” (the first book I ever read on “Investing”):
As with so many human endeavors, the secrets to success are patience, persistence, and minimizing mistakes — Burton Malkiel
