This is a guest post by Amit Jain. A businessman and a valuation+quality conscious investor focusing on generating reasonably high returns from long term investing.
In this post, he discusses about our moral duty to earn higher returns (when available).
So over to Amit…
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When it comes to jobs and professions, most people work sincerely.
Not because they like their jobs but because they want to provide for their families. The well being of their families is at the forefront.
And if they had a choice, very few would want to remain in this rat race.
Well then, I ask…
Aren’t people who are responsible for earning money (to bring food on the table), equally responsible for safely growing their savings at the rate of doubling the capital every 6 odd years?
Shouldn’t they take full responsibility of ensuring that their invested/saved money grows properly, as opposed to only doing it half-heartedly?
If there is an asset that can give handsome returns without weighing down on the quality of their lives, then isn’t it their responsibility to pay similar (serious) attention to such opportunities like they give to their everyday jobs?
Let’s look at it a little differently.
If there was a job opportunity to double your salary every 6 years without having to get some out-of-reach kind of graduate degree or overseas work experience, wouldn’t you grab it with both hands?
A responsible person would do everything in his power to get that job. It’s a no-brainer!
But if a similar opportunity came in the form of the option to make an investment properly, how many would take that step?
Maybe just 1-in-50.
So why is this?
Is it because of a lack of understanding or because of lack of investment capital?
I think it’s neither.
What stops people is the sense of risk that comes with the process of making any investment.
In most people’s mind, equity markets are nothing short of a Raging Bull! And they themselves are like matadors; where an ill trained one, is a dead one.
Therefore, understanding this Risk element is of prime importance; know the common pitfalls, and they are only a handful.
It’d take much less IQ and effort to get your head around the process of investment, than you need to get your Graduation Degree.
Once this concept of RISK is understood correctly, taking actionable steps to invest sensibly and profitably will only be natural.
So, let me try and put a foot forward in that direction.
We work very hard for money, so it’d be a psychological contradiction if we played around taking risks with it. Over the years, we develop an aversion towards risk taking, because we’ve had bad experiences, where MOST risks looked like very stupid decisions in hindsight. In fact, in this time and age, nine out of ten risks are likely to go bust. Every agency out there (be it individuals, businesses or even the government) are looking to make money, by hook or by crook (In fact, some are abashedly out and out of a fraudulent category.)
Therefore, it is very sensible and responsible of people to not want to part with their hard earned monies, unless they are getting maybe a brick of gold for it.
So far so good, it is very wise to be cautious.
However, let us loosen the noose slightly. Not too much… just slightly…
What if you were told, that there are companies out there that are Gold Standard? Getting shares of these companies is as good as buying gold, probably even better. In fact, the most successful investor in the world deliberately chooses to invest his billions of dollars in some such companies, and, categorically, not in gold, and makes a point about it every time he gets onto a podium.
Hold onto this thought, while I assert the importance of doing so.
If money is lost in the process of doing a business, making a real estate investment, giving a personal loan etc., the person gets depressed and often beyond consolation.
Rightly so, because hard earned money is lost.
On the other hand, if the same person just carelessly let’s go the chance of doubling his capital in 6 years (while investing in companies of the gold standard) then does it not qualify as a BIG mistake, a risk gone bust?
Should he not feel really (REALLY!) stupid in hindsight?
Why should he be excused, serious money has been lost, all due to negligence? He did lose money and a lot of it.
He chose to take the risk of ‘not taking a risk’, and lost 100% equivalent of his capital!
In conclusion, what I mean is that one must learn to loosen the noose a bit and learn to segregate investments into categories ranging from stupid to smart.
Don’t go by hearsay or go with the herd. Get educated.
There are ways to get good returns on your investments without taking too much ‘actual’ risks.
To get a feel of what actual risk means, consider the following comparisons.
The former seems low risk, because the herd is doing it, but can turn into a nightmare when the music goes off. However, the latter is a winner hands down as it is a Low risk in the truest sense with potential for giving perpetual returns.
- Compare your chances of success in getting possession of a flat you booked with a reputed builder, against your chances of success in investment in top 30 listed companies of India? Which is a more sensible risk? Forget the capital appreciation. Where is your money safer?
It is nothing new to hear a builder who has stopped construction because the local government body has repealed a license or simply because his funds have dried out.
- Compare your chances of success when investing in small companies (which many self-proclaimed successful investors suggest) vs investment in top-30 listed companies of India? The latter wins, hands down. Why would I even think of giving my money to a source with little or no credibility?
Lastly, the most controversial dilemma
- Should one purchase the first flat of residence (in ready possession; cash against delivery)? Given the current scenario, one cannot hope for must price appreciation for the next decade as they are already so heated up
- Rent a home, which costs a meager 1.8% (annually) of the value of the property, and invest this capital in the top companies of the nation, and perpetually earn 12 to 15% CAGR? Only the people, who have learned to identify low-risk ways in the equity market, will go for the latter.
Point being, we ought to loosen the noose a little and learn the ropes of making proper investments.
We must strive to introduce the magic of compounding in our family finances and let the generations reap the benefits.
We owe it to ourselves, and our families to resolve this Twisted Morality in our finances; Work hard and invest harder as it is your moral duty to earn better returns and provide the best for your family.