I want to be wealthy. Not just rich.
Rich people just live it up. The wealthy possess the moolah.
My dad is wealthy.
He has one car which he drives himself.
He never shops for anything branded where attire is concerned.
He hates eating out.
Detests ostentatious living.
Yet, his net worth (if you take both his houses, stocks, fixed-return investments, paintings, a few antiques and a jewellery collection) will easily amount to more than a crore.
My brother is far from wealthy. He is, however, what many would refer to as rich.
He has a lifestyle my father loathes.
Two cars (one for himself and the other for his wife), each fitted with an enviable music system.
A strong penchant for expensive brands (Levi's, Reebok, Pepe, Tag Huer, Boss, Oakley).
A home theatre, whose price he refused to disclose to my parents.
An ability to spend a mini fortune month after month on wining, dining and checking out all the possible eating and drinking joints in the city.
Huge credit card and cell phone bills.
His philosophy: I work hard and earn well, so why not live it up?
After looking at these two important people in my life, I have decided I don't just want to be rich and earn a good monthly income. I want to be wealthy. This means I have decided to build up my net worth.
So, I figured, I should be doing the opposite of what my brother does.
Here's how I plan to build my wealth with this three pronged strategy.
Trading is for the impatient
My brother trades all the time. Well, he is not a trader in the true sense of the word but he is certainly not a buy-and-hold investor either.
His modus operandi goes like this. Buy a few shares and, the moment you get a 15% or 20% return, sell.
So, during this current bull run, he does bizarre stuff like buying shares on Monday and selling them on Wednesday. If the price dips over the next few days, he will buy some more again on Monday and probably sell them the following week.
Sure, he makes money here and there. But he ends up paying a short-term capital gains tax (tax on the profit made), brokerage (percentage paid to the broker when shares are bought and sold) as well as the Securities Transaction Tax (percentage paid to the tax man when shares are sold).
My modus operandi will be different. I will buy into an undervalued stock that has only one way to go: UP. And I am not talking of a few days or months. I am looking at holding on for years. I will sell it with a grin and a satisfied heart after it has gained substantially in value.
I have realised trading is not for me. No wasting money on constant brokerage and the taxes. I want the returns to come to me, not to my broker and the taxman.
Diversification is not for the brave
There is no virtue in diversification.
Diversification is for cowards who cannot for the life of them figure out what makes a good investment.
I like to consider myself brave, so I shall not diversify. I shall focus, and keep getting more focussed. No distributing my money into hundreds of stocks; I will pick a few and back them.
How do I decide which stocks to invest in?
That's where skill comes in. No more listening to market punters and what the guy on the next treadmill in the gym is recommending.
Firstly, I will wait for a bear run. When everyone is discussing stocks at a party is when you should never buy them. When they become a taboo and the topic is shunned, take the plunge. That's the time to shop for stocks.
The next thing is to make some intelligent guesses. This means taking a step back, snooping around and looking behind the scenes.
So, when the talk is about malls and department stores sprouting across the landscape, look at ceramics, sanitary suppliers and the glass industry. Infrastructure boom? Look at the cement and steel industry.
Look for the long-term forces that will propel some sectors and then scout for good buys within them. The key is to latch on to an emerging trend at the outset, ride it for a while (I'm talking about years here, not weeks) and, when tired of the ride, sell and make a profitable exit.
Blue chips are for the meek
Blue chips are the elephants of the financial jungle. Not the cheetahs.
They are strapping and sturdy and give you a sense of security when you are riding them. But they never seem to give that zing to your investments.
I like to be adventurous, so I'll take a risk.
Get logical. Is it not easy for a company with a Rs 10 crore turnover to increase it to Rs 20 crore and then Rs 30, Rs 40, Rs 50 and even Rs 100 crore?
Well, it is certainly easier for that company to do so than for a blue chip with Rs 1,000 crore turnover to increase it to Rs 1 million crore.
So, I think I need just around five good stocks to invest in every five years. These, if smartly selected, should turn out to be ten-baggers over time. Ten baggers are stocks that increase 10 times in value from the price at which I purchased them.
Got to admit though, holding on to the stocks for a decade is the easy part. Laying hands on the right ones is what is going to be tough.
Will I be successful in my quest to get wealthy? Time will definitely tell.
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