I would do well to start by mentioning that I am not an expert investor and that I just started investing about a year early. Why am I making this blog then? And what is my credibility? Short answer, nothing. This blog is more of a documentation of my investment journey which I can look back on after a decade or two to see how far have I come and how has my thought process evolved. In the meantime, if I can provide some ideas (not recommendations) to others that might be helpful, all the better.
Note: I will not focus only on the stock market but on all possible domains I can think of.
Let's start by acknowledging the fact that investment is something that has numerous options for every decision. Many fundamental questions like "Which broker to open an account with?" are well answered throughout the internet. Here, I will try to focus on questions just a level above those questions. This particular post will be more like an FAQ, answered from my perspective.
It is commonly understood that everyone starts their journey with trading, be it in equity, FnO, commodity, currency, or crypto. Once enough capital has been accumulated, as experts say, you should start moving towards value investing, i.e. long-term investments. It could be equity, startups, real estate, etc. The mindset is that in the early stages, with less capital, it is possible to generate high returns which keep getting tougher as your capital increases, after which you should focus on long-term investments.
Coming to my mindset, the first I believe anyone should focus on is optimization. By "optimizing", I am trying to get as many returns as possible with the given capital available to me. How do I do it? Simple, there is always a better investment option out there, which you just have to look out for. Maybe a better strategy, maybe a different segment, maybe just a different company. This doesn't mean changing your risk acumen, it just means constantly being on the lookout for better options. My upcoming blogs would hopefully further make this clear by listing how a new strategy could give better returns out of the same capital.
Moving on to the target returns (per annum), I plan to aim for a minimum of 80% returns annually. Popular belief states that with increasing capital, your expected returns should reduce with higher consistency, letting compounding do its magic. I think otherwise. After accumulating enough capital (Rs 2cr+), I plan on slowly moving towards investing in startups, which even with long exit time and risk, are truly "multibaggers".
I have a very high-risk appetite, but I don't feel that I am taking such high risks. I got this perception that people believe in the "high-risk high-reward" concept. True, but I choose to offset the high risk with a calculated decision, which with a little math, helps in decreasing the risk in an instrument.
For example, let's say you have 5 stocks screened and Rs. 50k available for deployment. Some might invest 10k in each of them, some might go all in on one stock. What I try to do is list down all the variables in play(like PE ratio, RoE, EPS etc.) and assign them a weight. This simple math helps me to assign a rating to each of the 5 stocks based on their weighted performance over the parameters in consideration. Then I may choose to invest in 2/3 stocks according to their weighted rating. Of course, the calculation here seems a little nonsensical as you cannot assign a perfect weight to each parameter relative to another, nor can you convert the value of each parameter to a given rating exactly. However, my point is that even a rough value helps take a rational decision that might reduce the risk for the same investment decision.
Out of all the segments available on my radar, I focus solely on equity. Reason? After crunching some realistic numbers, I concluded that I would make almost the same returns (6-7% monthly) regardless of the segment I choose to trade in.
Originally I thought FnO, especially buying options, would earn me maximum returns, something which I want to be true even to date, but isn't. I haven't yet tried currency and commodities but I believe it would be no different than FnO, after all each of them are some kind of derivatives. Options are heavily affected by time decay which I have experienced first-hand and do not wish to do again. Futures require a lot of capital (in a couple of lakhs).
Intraday trading takes a lot of time and eats away a lot of capital in brokerages. People might argue that "price-action" can help in intraday trading but even after that a random price movement in the opposite direction of the trade can end up in stop loss being hit. If I compare positional/swing trading with intraday for stock in trend, might all give similar returns before tax and brokerages, which if included would rule out intraday trading.
Does that mean equity always comes out on top? No. Investing in any decently performing stock would not lead to the 6-7% monthly returns that I target. For that, I try to find out stocks that have the highest upside potential. Some good examples of the same are stocks like PAYTM, ZOMATO, RVNL etc. which showed excellent returns in a given time frame. How to decide when this timeframe starts or end is a discussion for another time.
This was just an introductory post where I tried to explain my methodology and mindset. A lot of the topics were abruptly cut short to prevent the post from being lengthy. I will cover many of the topics discussed in this post, in detail, in future posts. Till then, I leave you with this short message below, to avoid any legal trouble for myself :)