Hi buddy,
Hold on we already have a winner for this year: Neeman’s and The Whole Truth
If this is your first time with us, allow me to extend a personal invitation for you to spend a couple of minutes in your day learning something new.
In today’s article you’ll be reading about:
How to invest like the Rich
A Product on Amazon
A good tweet
Let’s begin.
A little interesting fact I would like to share with you.
In 1973, Princeton University professor Burton Malkiel claimed that he could find a group of blindfolded monkeys that would through darts at random stocks. Those stocks could just perform as better as the carefully picked stocks. And he was wrong because the monkeys didn’t do as well as the experts, but the monkeys did better.
I was like “Sign me up Scotty. Where do I find these monkeys?”
You can read more about that here: Any monkey can beat the market
I always had these questions when I started investing where do you look to find good stocks to buy and what do you look for. All of the videos and articles I watched or read on the internet none of those explained in full. Most of them didn’t explain it step-by-step. Most importantly they didn’t explain why they did what they did.
Chances are right now if you randomly throw darts at stocks you might make money in the short term. That’s precisely why I encourage you to be very cautious when trying to find individual stocks. The reason I still pick individual stocks is because of something called “index funds” and “ETFs”. There’s one specific one called HDFCNIFETF (HDFC Nifty 50 ETF). At the time of writing this article, it costs ₹183.12. By owning 1 share you’ll spread out that ₹183.12 among the top 50 companies in India. All you have to do now is keep contributing to it every single month as much as you can afford. When you like to retire chances are most likely your investment might beat all the experts who actively pick their stocks.
I still buy individual stocks they give me a little room for flexibility. I got massive returns around 38% in the stock market which I’m very proud of as I beat both the S&P 500 and Nifty 50 by a mile. I’m not trying to sell you any course here as it would be very dishonest on my part. If you find someone who’s claiming with 100% certainty on how they found a perfect strategy to be profitable I wanted you to stand up and turn 180 degrees and run away as far as you can.
The only real way to consistently make money in the stock market is through long term value investing.
Let’s dive
Think of a coin. Just like the coin has two sides, investing requires you to look at both sides: 1. Quantitative analysis. 2. Qualitative analysis
Quantitative analysis
This is where an investor will look at the numbers of a company to determine its real value. When I say the real value I mean if you Google a company’s stock and Google will show you whatever the price it is trading at. It is not the real price. It is more of an illusion that is based on rumours, media and expectations.
Quantitative analysis specifically takes a look at Income statements, Balance sheets, Cash-flow statements and other fancy ratios to determine the real value of the stock. Collectively these words mean “Fundamental analysis”.
I use TIKR Terminal to do my own Quantitative research and find the true value of the stock.
If you want to learn more about how to do Quantitative analysis, I suggest you read this book.
Qualitative analysis
The other side of the coin is “Qualitative analysis”.
Now, this focuses less on the numbers and more so on the qualities that make a great company (the stock).
Qualitative analysis helps us find the true value of the stock in relation to the Quantitative analysis and helps understand whether the stock is undervalued or overvalued.
Other Qualitative analysis questions we have to ask ourselves. Is this company boring? If the answer is yes, that’s great and that is what we want.
Another question we have to ask ourselves. Do people have to buy these products over and over again? The answer should be “Yes”.
Stick to simple business rules and apply them to your research. Do not overcomplicate it.
If you want to learn more about Qualitative analysis, another great book I suggest.
A quick example:
A couple of months ago, we did our research for the stock Reliance Industries Ltd, stock ticker: NSE: RELIANCE. At that time RELIANCE was trading at ₹2,424.17. Based on the Discounted Cash Flow Model using analysts estimation for free cash flow.
When we adjusted the price with net debt we got the fair value of around ₹2,022. It is overvalued back then. At the time of writing this article, Reliance is trading at ₹2,397.55
Quantitative and Qualitative analysis helps us find the true value of the stock. Become a fan of the right price. Never buy a Toyota for the price of a Rolls-Royce.
Shameless plug
I know you didn’t understand from the above, I have been there I understand. It takes time. All you can do in the meanwhile is to gather resources to learn and make connections with people.
There are two ways to learn
1. The hardest route - Learning it by yourself
2. The fastest route - Get help, learn along the path and make better decisions
If you’re not sure how to do the analysis, you can grab our spreadsheet which automatically tells you the true value of the stock and identifies whether it is Over-valued or Undervalued.
Buy the necessary stock tools from here:
1. Identify the true value of the stock
2. Checklist for identifying stocks with massive gains in the stock market
3. Portfolio Tracker
Snackin’
Here comes the interesting part. How to invest like the rich?
Steps to invest like the Rich
Most people investing is all about downloading an app like Upstox and Yolo their money into some random stocks and then hoping for the best. You can do that, but there’s a far better way.
I always get this question “Why does the wealthy borrow money?” If they already have and make a lot of money why do they need to borrow more money. The answer to this question is fascinating because they do it control their wealth without actually selling their wealth in the first place. They borrow against their assets and that allows them to borrow money to pay for their lifestyle. That is how generational wealth is passed down from family to family. In simple terms, it looks like this Buy - Borrow - Die.
Start using a credit card.
I couldn't emphasize it more. A credit card is an essential tool. You can read more about it below.Pay of any high-interest debt.
High-interest debt could be something like your credit card debt (Important note: Always pay in full every single month, never pay any interest). It can be as high as 25% or maybe even higher. The reason to pay of any high-interest debt is that very few investments give us that kind of return. Maybe bitcoin or stocks in a good year, but that is not guaranteed.Insurance.
This is optional. It is just peace of mind. I don’t have one thinking of getting one.Buy three most popular investments (Real estate, Stocks, Cryptocurrency).
I know there are a lot of them, but these are the popular ones.
Anything that puts money in our pocket is an asset.
Anything that takes money from our pocket is a liability.
Our house is considered a liability (even if you paid for it full with cash). You still have various kinds of taxes, utilities and various monthly expenses. Now, that is a liability. It only becomes an asset once you put it to work like rent it or put it on Airbnb. Real estate is arguably one of if not the best asset in this strategy. Real estate generates cash flow, preserves value and helps in tax write off, and I can borrow against it.
Similarly, I do the same with stocks and crypto. I accumulate and hopefully, they grow in value over time. One thing you can do with stocks is something called SBLOC (Security Backed Line Of Credit).
Interest rate arbitrage:
Let’s say you want to invest ₹1,00,000 that is making you 10% per year. Now, you could borrow another ₹1,00,000 at 2% interest (to get that low-interest rate you need a good credit score. To get a good credit score you’ve to use a credit card responsibly) and invest it. Now, you’re investing ₹2,00,000. Since it is only costing you 2% per year or just ₹2,000. Technically, that ₹1,00,000 you brought is making you ₹10,000. This means you’re getting an extra ₹8,000 for free. Take that strategy and multiply it by infinity. Infinite money glitch
But, there’s a downside. If something bad happens and your portfolio goes down by half. Now that ₹2,00,000 is worth ₹1,00,000. You still technically owe ₹1,00,000. Be careful with leverage.
Coming to cryptocurrency, you do this by depositing your respective cryptocurrency and getting paid in interest.
I use BlockFi for BAT, Nexo for ADA
I use to buy BTC (Bitcoin), ETH ( Ether) and I stake them there and get interest.
Simple things you have to do first
Build an Emergency Fund
Save 3 - 6 months of expenses
Invest at least 15% every month from your income
At the end of the day, you can’t hate the player you gotta hate the game, but instead of hating the game just learn the game’s rules learn how to play the game and learn to love the game of finance.
Love you. Thanks for reading this article.
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