Growing your Capital!

We understand that over a period of twenty years, equity markets can give returns of 12-15% returns compounded annually, on an average. This is the accepted wisdom and is the starting point of stock market investments. However, luck is more powerful than most of us think. If you spend enough time in the markets, and are on the right side of atleast one good bull market, your life will change forever, in a way you can’t even imagine.

Most of the returns generated by stocks over long term are actually gained over a very short period of time. Stocks go up two-three times in a matter of days and spend a long time there in a range of +/- 10%. For example, Tata Motors went up 100% from 180 to 360 in about a month in January 2021 and hasn’t crossed it’s then high until today. So if you were not invested in TaMo for just a month, your returns would have been next to zero over a three year period. This explains another maxim- time in the market is more important than timing the market.

Why a Bull Market is so powerful a tool to make you rich can be best illustrated by some of the old videos available on YouTube featuring journeys of Rakesh Jhunjhunwala, Ramdeo Agrwal and other big shots who made a big killing in Harshad Mehta bull run which catapulted them to a significantly higher pedestals of investing capital and thus, into the big leagues.

I’m a firm believer in the fact that making low percentage returns on big capital are more important than making high percentage returns on small capital as the absolute returns on the former are much larger. The biggest impediment individual retail investors face vis a vis professional investors is stark difference in availability of capital. A guy investing five ten lakhs in a very good year and making twenty percent will forever be poor than a guy with five crore capital making ten percent,and that too by a margin.

Investing is not about beating an index. It’s about making enough capital to change your life. To be able to afford your life’s needs and aspirations and the ability to retire at 40 with enough to live a prosperous life is the real objective of investing. Unless you grow your capital over half a million dollars, you’ll forever be stuck in middle class, working five days a week, growing obese and bald over time, claiming bills from office to support your lifestyle, which relative to others is declining in value.

Rakesh Jhunjhunwala saw his capital went up from 2 crores in 1990 to 50 crores in 18 months while Ramdeo Agarwal went from basically nothing much to 30 crores in 4 years ending 1993. This is the real power of a bull market. It can change your life, once and for all. The rules of the game doesn’t change, but the game itself changes for you. A sustained growth period can shoot up your investing capital 5-10 times in a few years which will help you achieve the biggest dream we all have- financial independence.

All of us working professionals are financially secure. We have enough cash flows to sustain upper middle class lives, a house and a car,etc. However, we are renting our lives to our employers to get that paycheck. We aren’t financially independent. Being wealthy allows you to do what you want, when you want,with whom you want and for howsoever long you want. Successful investing is the journey from financial security to being wealthy, via financial independence. So unless you’re financially independent, you’ll not dream of wealth and thus never achieve it.

Being wealthy is not a zero sum game. It’s not like only one of ten or hundred people can be wealthy. In a growing market like India, you’ll see a lot more millionaires in next ten years than you have seen in the past ten years. The country will see it’s GDP going up from $3trillion to $5 trillion in ten years or less. This incremental wealth of $2 trillion will be reflected not only in real economy, but also in stocks. The scale of profits big companies will make in a few years will be outlandish. Stock prices of those companies can grow 10-50-100x and if you’re on the right side of this rising tide, the end results will be extremely rewarding.

India is at the cusp of a historic transformation. This is a growing bull market which, if my hunch is right, still in its infancy. The last major bull market took Sensex from 4000 to 20000. We’re at 52000. Even if we double from here in three years, we’ll see an India we can’t even imagine. The portfolios will grow not just twice but 3-5-10 times and that is the opportunity we’re staring at. Don’t listen to the perma-pessimists, the India bashers. They’ve foreign fundings, you don’t. You’ll need to grow your own capital. The big economists will keep beating us down and they’ll always never be rich. This is oppertunity of a lifetime. Don’t lose it. The time to invest is not tomorrow, but yesterday!