Does Size Matter?
Chinmaya Amte
Valuation, Modeling, Analytics || 55K+ Followers || MS Excel (Spreadsheet) Expert || Project Finance || Trainer & Cool Mentor || De-centralization
Well I am going to try to answer the trickiest question asked in human history but in the context of Investing (Sorry if you are disappointed :P)
You must have come across WARREN BUFFET "BHAKTS" on Dalal street. Mind you they are ferocious and more aggressive than our normal Bhakts.
They will try to aggrandize you with the cliché idea of Power of Compounding
Let’s run some numbers, which are true like laws of Physics
Let us assume one saves corpus of 1 crore till the age of 30 through working hard on their jobs. Invests that corpus in Equities for whooping 25 years. That’s really long isn't it?
And generate a CAGR of 15% (why 15%? Coming with 2nd post soon)
At the ripe old age of 55, your net worth shall be 32 crores. Don’t get startled assuming value of money halves every 7 years (thanks to inflation) your actual worth will be like you having 5 Crores today.
With that corpus it’s tough to buy a spacious apartment and luxuries in Metro City like Mumbai, I haven’t considered taxes or other investment expenses.
Now if that same person started with 10 crores his real worth would be 50 crores which is hell lot of money!
- Point is you have to multiply 32x with your size!
So, as we can see the size of Portfolio does MATTER a lot. You cannot be a super-rich person by standalone investing. We never know the true size of anyone :P or celebrity investor unless you blindly trust them like Bhakts. Investing will make you shit load of money when you are a SENIOR CITIZEN or Super senior citizen and money at that age has very less utility.
Am I saying long term investing is farce? Hell no! It’s amazing to have a more than enough retirement corpus. Fixed Deposits will erode wealth in real terms and only way to tackle inflation and make DECENT money is via investing.
The point I am trying to make is no one is SUPER RICH because of investing. You will be rich but with diabetes, arthritis & grey hair. One should have that notion clear in his head, No point in building castles in Air.
To all fans of 8th wonder of the world, I understand and appreciate one can start at 20 and will have an SIP till the age of 60, we can debate it later.
The point I am trying to highlight is that Investing is 4th grade multiplication and the "X" is important which we often ignore.
It’s not easy to increase ones Networth (In Marathi, (translated) we often say, you can create false impression of anything but money) so aggressive marketing done by finance guys find it easy to just talk about compounding and gimmick one into a goody goody futuristic picture.
So finally concluding, Yes Size does matter and matters a lot and we should focus and talk more about it too along with compounding.
- Chinmay Amte
UBS | CFA | Partly Qualified Actuary
3 年I really like what's written. But the writing can be more polished. And a bit more formal. And the explanation should be neater. Will attract more audience. When you put so much effort into bringing something interesting on the table, must also do the polishing for 10x appreciation
Business Finance -M&A | Quest Global | Ex KPMG | Chartered accountant
3 年Yes actually when we see all the three components in time value of money it is clear that all play a very important role along with backed up research.?? A. Capital/investment - even if a stock is multibagger if you have not invested a size able portion in a consistent month on month approach or have a large lumpsum it will not give you that statement telling that stock multiplied my money by a large extent? B. Time - some stocks do no act right away they only are realised its true value in course of time /consumption and product cycle and need for that business product. Which is generally more than 3 years? C. Rate of return is truly realised by I think three things - consumption /need of such business , growth of the industry, inflation . But in conclusion to have that return which looks exemplified would be possible with higher investment . But also to note that if investment size is large and? things go south, the adverse action will also be strong . These were my thoughts, nicely put.?
CFA level 2 candidate | finance enthusiast
3 年Great article! Agreed compounding does wonders, but the size and consistency also matters a lot to it! One should have a proper balance between expenses and corpus they are investing.Specially people can invest a little more in early career stages to reap more benefits!
People don't just buy products; they buy the stories behind them. What's your story?
3 年Great post Chinmaya!
Finance | Brand Partnership & Brand Strategist | Barclays | S&P Global | Personal Finance | Personal Brand Strategist | 400K+ Followers across social media | 3 times top 200 creators by Fevikon
3 年Consistency matters instead of size