Introduction:
(1) Hi everyone. Welcome to today's video. So let me start today's video by talking about the story of Jyoti Raisins. This is the video that I had done on that particular stock and the date is approximately six months ago. So let me present a very quick analysis what has happened with that stock in the last last six months. So here is the analysis and you will see that in the last six months the stock has given 155 percent return. Now you will see Akshat, you are a brilliant investor and you would have invested all of your money in this particular stock because you knew it was going to give an uprun and you would be sitting on billions and billions of dollars right now. The answer is no. I made money on this stock but I invested
(2) a very little portion of my entire investment on this stock. More importantly, when we are starting our stock market journey what we tend to do is that we try to find these type of multi bagger stocks. And I can say this with certainty that no one can predict these multi bagger opportunities. That's the second key point is that when you are starting out your investment journey it is very important to keep the sustainability in mind. You have started investment as a habit and you are likely to have a 40 50 year investing career ahead of you. So please be patient. Please understand the system. Please don't run after these multi baggage stocks and at the beginning, you should not even be investing in these type of companies. So with that viewpoint in mind on this particular video I'm going to help you understand the system as to how you can invest your 1st 25000 in the stock market.
(3) In case you're an advanced level user in the stock market, still watch this video because there are a lot of basic things that I will talk about that we typically tend to forget. So I'm going to recap everything and systematically present the viewpoint as to how to build an investment system through which you can easily invest 25000 a month in the stock market buying stocks directly. So let me speak in a point wise manner and please listen to all the points carefully. Prepare notes. Only then this video will make sense. Otherwise, if you watch half the video, implement half the learning then you will end up making losses in the stock market. So point number one is that what exactly can you do with Rs25,000 in the stock market? And why should you even bother investing Rs25,000 in the stock market?
(4) Is it going to help you generate enough purpose? So the answer is absolutely yes. You can easily invest Rs25,000 a month in the stock market if you have that amount. If you have lesser amount, let's say 10000 or RS5000, that is also okay. So let me run 2 - 3 computations and through this you will understand the compounding math very quickly. So here I am showing you the data for 25,000, if you are able to increase your money at just 12% CAGR growth, you will be able to make approximately 60 lakh rupees within ten year time period. So this is a decent amount of money. Now you say inflation will happen, inflation will not happen. Yes, inflation will happen. But people who invest and are able to grow their money at 12%, they are much better off compared to people who just keep on talking about inflation and keep writing weird YouTube
(5) comments that you know what, inflation is going to eat money. Inflation is going to eat everyone's money. That does not mean that you should stop investing. So this is part one of the math. Now you might say that, hey, I don't have 25000 to invest, it's a lot of money. So what about 10,000? Will I be able to create a decent corpus with 10,000? So here is the math for that. So again you will see that you are able to build out a decent sized corpus just by investing 10,000 a month. And also I'm stressing on the fact regarding inflation that yes, inflation will eat into this purpose. But think about it this way, that right now assume you are 25 years old and you are able to put only Rs10,000 in the stock market on a monthly basis. Now with time, with inflation, even your salary will increase.
(6) So your principal investment in the stock market will also increase. So therefore, I'm not factoring inflation into this discussion. So I hope this particular point helps you understand the power of compounding in the stock market. And hopefully with this viewpoint you will at least think about investing your money in the stock market. So naturally you will have a question that hey, in what method should I invest in the stock market? Should I go and invest via mutual funds? Should I go and invest via small cases or should I go and directly purchase equities? So I will explain you the pros and cons of all three methods very very quickly.
Mutual Fund Investing:
(1) So number one is mutual fund investing. So what exactly is mutual fund investing? It is collection of stocks or collection of bonds. And that briefcase is called as a mutual fund. So hypothetically speaking, if a mutual fund manager purchases ITC Hindustan Unilever, Britannia and collects and picks these three stocks, keeps it in a briefcase, that becomes a mutual fund. On the flip side, what is a stock? A stock is an individual company. So when you are purchasing mutual funds, what exactly you are purchasing?
(2) You are purchasing a portfolio or briefcase of stocks. Now what is the advantage of mutual fund investing? The advantage is that you don't have to manage your money per se. There is a mutual fund manager, you are giving your money to that mutual fund manager and they are managing your portfolio on your behalf. So this is the great part. Some people say that, hey, this money is professionally managed so we should give our money to professional managers also, correct? No doubt about that. But here is the problem that there are
(3) almost 1500 mutual funds there in the market. So which mutual fund you should pay? That itself becomes like a headache. I had done a separate video on that. You can go and check it out. There are hosts of other problems with mutual fund investments as well that sometimes we don't check the expense ratio. Sometimes the mutual fund house itself does some scam and there are hosts of different problems in terms of investing in mutual funds. Then comes the second option,
(4) which is the small case option and they are the sponsors of this video. And it's not as if that I'm just going to say nice things about them and not explain the negatives. So let me explain the pros and cons of a small case. So the primary advantage of small cases, that those are easier to understand. Why? Because small cases usually are thematic driven or theme driven. For example, let's say that you are very bullish about the rural economy or you are very bullish about manufacturing, then you can go pick that particular theme and invest in that particular small case.
(5) So this is the primary advantage that they are much easier to understand. The negatives are that again, there are expense ratios associated with certain small cases and you are losing out some amount in form of commissions. So this is the primary negative side. Now, if you don't want to pay commissions, then you need to do what you need to do direct stock investing.
Direct Investing:
- You need to go and start a demat or a trading account and start investing in the market. But what is the advantage or disadvantages of buying stocks directly? The primary advantage is that you don't need to pay additional commissions, that you have to pay in small pieces or in mutual funds. What is the negative? The primary negative is that you must know about the stock markets. If you don't know about the stock markets,
- then it can become a very bad decision on your part to go and directly invest in stocks because you stand to lose a lot of money. So I hope these basic categorizations of primary options available to you is clear. Now, with that viewpoint in mind, let us move to point 3. Now on point number three, let me give you a very quick crash course as to how you should consider investing.
Risk Reward Equation:
- The most important thing here is that you must understand the risk reward equation. Now, what is the meaning of risk reward equation? So let us break apart the reward part first. Reward simply means return. So for example, let's say that you purchased HUL at two and a half thousand rupees and now that stock has given a run up and it has reached three and a half thousand rupees. What is your reward? Your reward is Rs1000 per stock 3500 -2500 so reward is very easy to understand.
Company Size:
- But what is the level of risk that you are taking when you are purchasing that particular stock? This is an aspect that people have a very hard time figuring it out. So let me break down the risk part of it. So primarily risk comes from five specific things. The first and foremost is the size of the company. For example, earlier on when I started the video, I talked about a company called as Jyoti Residence. Now, that is a small cap company. It is somewhat of a competitor to Pidilite. Now, if you look at the market cap
- of Pity Lite, it is much, much bigger compared to Jyoti Resins. So what is the key message that I'm trying to give you? I'm trying to tell you that here, if you are picking small cap companies, they have much higher chances of growth. But the risk that you're taking, that is very, very high. But when you move to large cap companies, which are big companies, your risk goes down in terms of the company size. Second key thing is that the risk also comes from the type of sector that you are considering to invest.
Sector:
- For example, when you are investing in finance stocks or tech stocks, those sectors are high growth sector. They have something called a high beta. High beta simply means that the market, if it goes up by 100 points, these finance or tech stocks are likely to go up by 120 points. But when the markets fall by 100 points,
- it is very likely that these sectors, for example finance, technology, are slightly more volatile and they might fall by 120 points also. So please understand high risk sectors versus low risk sector. This is where the second category of risk comes from. Now, the third category of risk comes from the price of the stock itself.
Example:
(1) So let me take the example of Adani Green. And this is not a recommendation from my side to sell or buy the stock. I'm just using it as an example. So here what you will see is that within a year, so this is November of 2020 and within approximately an hour and a half, this stock almost became 3X. Now, what happens is that when this type of a run up is happening, what people do is that they will start buying stuff here or here or here and consider someone who had purchased a lot of this quantity of stock here. What are you doing? You are taking a lot of price risk for the stock. This is trading at an all time high
(2) and you are investing your money over and over again on this stock. It might come down. There is a very high chance that some level of profit booking will happen in this stock and you will lose some bit of your capital and you can see that the stock connected quite a lot. It corrected by almost 35% 40% at its bottom and this is when people start panicking. Now, very quick disclaimer here that for advanced level users in the stock market it is okay to purchase some stuff at its all time high. But for majority of the beginners, even if you are buying really good stocks, always try to figure out that there is
(3) at least a 10% gap from its all time high and from your purchase price. If that is the buying price that you are getting, it is somewhat OK. But please do not invest in huge amounts when they are trading at a premium. Because when it comes to advanced level users in the stock market they can still do business analysis, they can do fundamental analysis. You might struggle with those aspects and you will start trembling the moment the stock that you had purchased it falls by 30 40%. You would not know why it is falling, whether you should be holding, not holding and you will unnecessarily book a lot of losses. So the third related point is the risk of the price associated with the stock. Then the fourth type of risk is called as the macros risk.
(4) So you might be reading a lot of news sitting on 19 August that stock market has fallen by roughly one and a half percent today. Why? Because the inflation considerations are there. This that. Now, here is the problem with news. That number one, you are going to get a load of articles, a lot of articles, and your head will hurt if you start reading all those articles. Second key point you would not know what is correct to assume and what is incorrect to assume. So therefore I say that please don't consider news, consider analysis.
(5) Analysis is more important because at least it gives you some insights on which you can act. But if you simply just keep on consuming news you will get hurt. And therefore people have trouble understanding macros. They will just look at news and they will start trading. That is a horrible, horrible way of investing in the stock market. Now comes the final point of the final risk, which is the business risk of a business. Now, business risk simply means that,
Business Risk:
(1) for example, that Pidilite is established there in adhesive space in India. Now Jody residence, which is a new upcoming emerging player, it is taking market share away from Pidilite. Now you have to do a business analysis and make a call whether Pidilite will be able to fend someone off like Jyoti Residence in the market and will be able to retain its market share.
(2) So this is business analysis. This is complex. This is something that I spent numerous hours on teaching on my stock market course, so I can't do it via a video. But this is something that you need to understand in case you are building direct positions in certain types of stocks.
(3) And therefore it is said that stock market investing is a highly complicated game. Please get into it only when you understand the space a little bit better. Otherwise, check some of my small pieces in the description box. I have aggregated those, you can go and check it out. At least I have filtered some of the stocks for you. So the next point is around diversification of stocks.
Diversification:
- se between ten to 20 stocks. How did I get that number? Because I call this number as a five to 10% rule. For every stock that you are purchasing, you should not have a holding of more than five to 10% on that particular stoNow, what is meant by diversification? Because we often get a question that I want to invest Rs25,000, but how many stocks should I consider buying? So at the very least, you should purchack. So let's say that there are only three stocks in your portfolio. ITC , HUL and Pidilite and you are investing in equal amounts.
Portfolio Allocation:
- Then what is the portfolio allocation? It becomes 33. 33% per stock. Now, if something bad happens to even one company, your portfolio overall will tank quite a lot. What you are doing in this scenario is something called a concentrated form of investing. Please do not do it. This does not mostly work out for retail investors. It's a very high risk strategy. What I recommend is that you should invest between five to 10% of your money on every stock that you're purchasing. So if you have to invest Rs25,000, how many stocks you should purchase?
How to purchase stocks:
- You should purchase between ten to 20 stocks. So now comes the next point. That how you should purchase stocks. So there are four specific points that I would outline. So first and foremost, for every one aggressive stock that you purchase, please have two defensive stocks when you are starting out. So 66% of your portfolio should be defensive. Only 33% to 40% of your portfolio should be aggressive. Now, what are aggressive sectors? I have spoken briefly about it. This could be tech, this could be finance, these could be small cap companies, these could be companies like Jyoti Resins. So your portfolio in terms of aggressiveness should be on the lower side and your portfolio on the defense side should be slightly higher.
Defensive stocks:
- For example, these would be FMCG companies. So these are regular oriented products, they do not change too much in value. And therefore when you analyze the price chart of HUL, that is the price chart of Hol you will see a linear growth on these type of stocks. Why? Because these are somewhat defensive sectors. So this is the first key point that you need to understand. Second key point please follow the margin
- of safety that I have spoken about in terms of price. In terms of lowering your risk. Your goal at the start of your investment journey should be fairly simple it should not be to make insane amount of money it should be survival that you end up surviving in the market for 20 - 30 years automatically money will be made so please don't worry about that just figure out low risk strategy at the beginning and then with time as you gain more confidence you can complicate your strategies further then let's move on to the third point
Low debt stocks:
that you should buy low debt companies there is so much talk about Adani stocks these days but analyze any Adani stock and here is how the debt situation looks like and this can be analyzed by going on screen up and you can take a look at a ratio called as debt to equity ratio and you will find that for almost all Adani stocks the debt to equity ratio is very high it is okay if you want to invest in these type of companies but please understand that you are taking higher unit of risk here as a beginner you should not be running after such things now fourth
Large cap stocks:
