Akshat Shrivastava on LinkedIn: If you make 1 Lakh, live with 50,000, especially when you are young. My… | 351 comments (2024)

Here is the Mutual Fund portfolio I built publicly around 1.25 years back. I made close to 4.5 Crores in profits. Before, you get excited to make crores, let me share some honest lessons with you that I have learnt along the way: [1] Without big capital, you are very unlikely to make big money. [2] Leaving your job to do stock markets full time is a recipe for disaster. Focus on your job to build an income. Invest that income to build wealth. [3] Unless you learn about stock markets fundamentally, you won't have the real courage to put 60-70% of your net worth in the markets. [4] The real change in your wealth happens ONLY when you have the courage to put a big chunk of your NET WORTH into a high growth asset (like stocks) - Putting 5Lakhs, when your net worth is 1Cr won't make any difference- But, putting 70Lakhs, when your net worth is 1Cr will create a massive change[5] To do #4, you need courage. Courage comes from knowledge. [6] Almost all this MF was bought in bulk (no SIPs nothing), 95% Index funds [7] This means that I saved on at least 0.5-1% commissions, compared to an average investor in Mutual Funds [8] You might ask: what difference would a 1% commission make? Well, it makes a lot of difference: for example[9] A SIP of 25K, for 40 years: - At 11% gives you= 21.69 Crore- At 12% gives you= 29.7 Crore That is almost 37% difference in wealth if you are a long-term investor. [10] If you do not invest more in bad times, you will never make above market returns. If you chase the markets in good times, you will almost always make below market returns [11] Since, I have a fairly decent sized portfolio: I do have hedges, and most of my positions are in direct equities (not in MF). Because it is easier to do hedging there. Risk management is the #1 rule of building a big portfolio. I am sharing these notes, to help you get started. I invested most of this money when the markets were sideways. I saw a good cycle: part luck, part courage. To make my next set of big returns, I need to play another cycle. * I sold SmallCap 250 entirely (hence, my profits notional + real comes out around 4.5Cr) ** I don't do SIP, buy/forget etc. I invest when opportunities are there.

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Tell people facts, they think it is some scare tactic. Facts: [1] The % of taxes paid by middle class white collar job is de-facto the highest [2] The FDs (post inflation) adjustment is giving lowest returns [3] Segmental inflation in the economy is the highest for the middle class [4] Our savings rate are a 5 decade lowest[5] We are seeing the highest HNI migration (as a % of HNI, within country) now If you step back. There are many issues you can solve for "yourself". For example: in India, to even preserve wealth, you need to take risk. (Choose your asset class, you are comfortable with) Am I forcing you to take risk? No But, think about: you work 9-to-5, for what? For most folks, for earning money (so that they can have a better future) How does your wealth really grow: if the inflation for YOU (Segmental inflation) is growing at 10%, but your wealth growth post-tax is like 5-6%? Anyone telling you these facts is your friend, not your foe.

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How much money do you need to retire in India? [1] Okay, let's start with 2 Crores.- You put this in a FD- Pay 30% tax (roughly), you make after tax 4.5% - Inflation is 4-6% (official) You lose money really fast. Can't retire[2] How about 10 Crores? - You put it in a EPF/PF/PPF - Grow at 8% after tax - Inflation for your segment might be 10% (eg. private heathcare, education for kids etc) - Again, you are losing money each year [3] How about 100 Crores? - You put it in the stock market - Grow it at 12% - Beat segmental inflation After 30 years, its time to reap rewards: but the government comes. And, imposes a 30% LTCG? What does the excel you built when you were 30, tells you now? Point is: retirement is a moving number:- - You need a big enough corpus - Control your inflation (your lifestyle growth rate) - And, control your exit tax Easy to do? absolutely not. But, this is the real deal. Speak with anyone who has made 100Cr of wealth, they will all tell the same thing: hedge your bets. And, avoid single point of failure. Applies to investing, careers, life.

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In the last 5 years: 1) Indian Stock Market has doubled. 2) Gold has doubled. 3) Indian Real Estate has doubled. 4) US Stock Market has doubled. 5) Dubai Real Estate has doubled. 6) BTC has more than doubled. 7) Small cap has given close to 100% returns in the last 15 months. 8) Taxes (might not have doubled), but have gone up significantly. 9) Cost of living (inflation, might not have doubled), but have gone up significantly. People who invested money, were able to grow it. People who considered FD's as an investment, lost money. People who kept sitting on cash, lost opportunities. The cycle will repeat, like always. Take your lessons this time. And, prepare better for the next opportunity :)

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If you don't know how to protect your wealth: you will work your way towards poverty. Let me explain: [1] Option 1: Work hard, build 1Cr wealth, put it in a Fixed Deposit (7%). You will pay slab rates on capital gains. So out of 7 Lakhs, you are likely to pay 30%+ tax. You will be left with roughly 5L. The stated inflation in the economy = 5-6% Your wealth growth = negative. [2] Option 2: Work hard, build 1Cr wealth, put it in Equities (let's say it grows 7%) So our of 7 Lakhs gains, you will pay 12.5% as capital gains (I'm not counting exemptions here). You are left with roughly = 6.1 Lakhs Your wealth growth = roughly equals inflation. **Equities can give -100 to +x% (we are assuming 7% for parity) [3] Point is: people keep worrying about "returns" but hardly a handful of people understand after-tax returns. Going forward the game is going to get more complex.

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NVIDIA's stock created several millionaires. Since 2019, it gave 3776% since 2019. And, many employees who owned the ESOPs became millionaires. Now, you might not be able to replicate this story, but there is a very important lesson: that to get rich, you need to own equity. [1] Equity means "a share" in a firm [2] Many get this as a part of their job (ESPOs) [3] Most can buy it from public markets in the form of listed stocks [4] You can also buy it from unlisted firms (at an angel or pre IPO stage) [5] You can also build a firm: and create equity. More interesting question is: why does equity create wealth? Well this happens due to something called as a PE ratio. You might have often seen that IT firms trade at a PE of 30, AI stocks are trading at 70-80 PE. Why such a difference? And, what does it really mean? In simple words: PE depicts the price an investor wants to pay for a particular type of business. For eg. PE of 70 means: that for for 1Rs of earning, the investor wants to pay 70Rs as price right now. The expectation is: that this industry/firm will grow really fast in the future. So when things heat up, people want to bet more money on the growth rate of certain stocks/industries. And, the PE can expand to insane levels. For example: just after before COVID good IT firms were trading at a PE of 23.Post COVID, everyone thought that: people will just sit at home and use computers. The PE expanded to 45. Or in other words: the valuation of the firm almost 2Xed. People can speculate on an equity. And, speculation creates a market that creates wealth. Unless you own equity, you are never really "in the game".

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This will hurt retail investors: In one of the latest moves: the taxation on Share buyback is changing from Oct 1st, 2024. [1] Share buyback simply means: that the firm buys its own shares (eg. TCS buying its own stock from the market)[2] Before 2024, the firms used to pay 20% tax on the buyback. This will be eliminated. [3] Now, the buyback will be taxed as dividends for shareholders (will hurt retail) [4] Firms will not deduct TDS on buyback proceeds at 10% for residents and 20% for NRIs [5] Crux: before budget 2024, if the firm bought its own share, the firms paid the tax. The amount that the investors got was tax free. Now it will be treated as a dividend.What would be the impact? Let's understand from an example. In old tax structure (pre 2024): on a 100Rs buyback, the firm paid roughly 20Rs tax. Leaving the investor with roughly 80Rs Under new structure (post 2024): on a 100Rs buyback, the investor gets 100Rs, and is taxed at slab. So if you are in a 30% slab, you will roughly pay 35.8Rs as tax. Leaving you with 64Rs. Investing is getting tougher by the day in India.

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Wow, it is amazing to see young folks create such massive wealth. If we have to read between the lines, here are some things we would find:- [1] Almost all are direct to consumer businesses [2] Food, Education, Finance seem to be top 3 sectors for next gen wealth [3] Ideas looked contrarian at first (eg. Zepto), almost everyone criticised the 10 minute delivery model [4] Almost every business had to constantly pivot: eg. PW started online, and like most ed-tech startup went the traditional way ("offline") [5] If you are a young person reading this, you will start feeling the FOMO:- for you, please understand that this wealth is tied to the stocks of their firm. This is not the money sitting in someone's bank account. This wealth fluctuates massively. For example: OYO went from 10.5Bn$ valuation to 2.5Bn$ valuation. The wealth in Bank is very different from wealth in firms. When you build a firm, you get a PE multiple (it could be 100X)But, the wealth in your bank account has a PE of (X). So don't FOMO: do the best you can, learn from these young folks. And, craft your own story.

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