Most of us plan for 15% annual investment returns. But what if the next 10 years give you just 5%?

I don’t want to sound like Cassandra, forever warning about storms that may never come. But what if it could happen again?

A thread to lead you to think that way. Most of us build our financial plans assuming stocks will deliver 12–15% a year. At that rate, ₹1 crore today becomes ₹4 crore in 10 years.

This looks neat and, given the past few years, feels certain.

But WHAT IF the next decade is different?

Had an hour-long discussion with an elderly acquaintance, and here's the gist of it:

We’re told life is a formula:

Study hard = get a good job.
Be kind = get love.
Invest smart = get rich.

But real life isn't always like that. Effort doesn't always equals outcome. Luck plays a bigger role than we admit. Be at the wrong place at the wrong time, and you lose. Be at the right place at the right time, and you win.

This doesn’t mean effort is useless. It means it’s not everything.

1/ #Investing, like many fields, is a blend of skill and luck. Michael Mauboussin, in his brilliant book "The Success Equation," delves deep into this intriguing intersection. 2/ Particularly in investing, as the field becomes increasingly crowded with skilled players, the role of luck intensifies.

First, consider the nature of skill in investing. It's about making informed decisions, understanding market cycles, and managing your risks well.

1/ Charlie Munger once said, "Knowing what you don’t know is more useful than being brilliant."

This profound statement holds a wealth of wisdom, especially in our fast-paced, information-rich world. 2/ It emphasizes the value of intellectual humility.

Recognizing our limitations allows us to stay open to learning and growth, whereas believing we know everything can lead to stagnation.

The one-year period between Feb. 2015 and Feb. 2016 was a particularly bad one for the #stockmarket. The broader market fell around 20% during this period, and there were multitude of stocks that cracked 30-40%. Howard Marks, legendary investor and Chairman of Oaktree Capital Management, described the situation in the stock market in his Feb. 2016 memo to clients thus –

I recently read a story to my son.

A martial arts student who went to an accomplished teacher to seek training under his guidance.

He asked the teacher, “I am devoted to studying your martial system. How long will it take me to master it?”

The teacher replied, “Ten years.” The student was impatient and asked, “But what if I want to master it faster than that? I will work very hard. I will practice every day. How long will it take then?”

The teacher thought for a moment and said, “20 years.”

- - #Life is Short - -

Well, if you were to believe the Roman philosopher #Seneca, life is not short but long if we know how to use it.

He wrote On the Shortness of Life - "It is not that we have a short time to live, but that we waste a lot of it." twitter.com/i/web/status/1… "Life is long enough, and a sufficiently generous amount has been given to us for the highest achievements if it were all well invested. But when it is wasted in heedless luxury and spent on no good activity, we are forced at last by death’s final constraint..."

On the morning of 17th October 2019, I lost the first-ever reader and subscriber to my posts, my greatest motivator and my most vocal critic.

I lost my father. When he passed away, family and friends told me that the grief would subside with time, that time would dull the pain. The pain of realizing that he isn’t there anymore – though in a way he still is – remains as strong.

Walter Schloss was an outlier among outliers, and yet most investors probably never heard of him. Even I didn’t hear about him until a few years back, while I was in the process of discovering about #valueinvesting. Schloss graduated high school in 1934 during the Great Depression and got a job as a “runner” at a small brokerage firm. As a runner, his job was to run and deliver securities and paperwork by hand to various brokers on Wall Street.

Some advice for young adults wanting to start their 'money' journey -

1. First, save money.

An excellent habit to develop early. Start with saving 10% of income. Gradually increase to 20%, 30%, and so on.

Practice this equation: Income – Saving = Spending 2. Create emergency fund.

May be 8-12 times monthly household expense. Keep that in liquid funds or short-term deposits, or under your mattress.

Do not touch this emergency fund to purchase a gadget, pay down-payment for a car, or fund a holiday. This is sacred money.

Know the rule of 72?

If not, you must.

Not just to become a bit more literate in basic #investing math, but also to avoid getting fooled by claims of people promising to double your money quickly.

Here's what this rule is all about. The rule of 72 is a financial concept that is often used to estimate the time it will take for an investment to double in value.

It is based on the assumption that the value of an investment will grow at a fixed rate of return over time.

If you wish to end 2022 on a 'wise' note, I have an offer to make. :-)

Get your copy of #TheSketchbookofWisdom at a special price till 31st Dec. 2022.

Available here - book.safalniveshak.com

If you like(d) the book, please spread the word. Thank you. #TheSketchbookofWisdom

A note/reminder on when and why NOT to sell a great business you own.

Consider this. If you want to multiply your money 100x in 25 years, you want your investment to return 20% every year.

In other words, ₹1 growing at 20% per annum will turn to ₹100 after 25 years. But if you sell this stock after 20 years (instead of holding for 5 more years), you will get just ₹40. The remaining ₹60 would come only between the 21st and 25th years.

'Experienced' investors, with ~20 years of experience (like yours truly), here are a few qualitative things you may want to know before you continue investing your money in stocks.

Grab some green tea. 🍵 Just being in the markets for 15-20 years does not mean you've known and seen everything that is there to see in investing. Markets will continue to prepare some really tough question papers for you. Don't get caught napping.

Young investors, here are a few qualitative things you may want to know before you start investing your money in stocks.

Grab an apple. 🍎 1. Investing is not risky for the reasons (like volatility) it is made out to be the jargon-filled analysts, fund managers, and other market experts.

It's risky if you do not understand what you are getting into and why. In fact, not investing well is a greater risk.

Drowned in the brilliance of Warren Buffett and Charlie Munger, it’s easy to miss the teachings of the most iconic teacher of value investing, Ben Graham.

The reason is not difficult to understand. What Graham taught sounds so simple and commonplace that it seems like a waste of time reading his teachings.

It’s like spending ten years learning spirituality and then having somebody tell you that Ten Commandments were all that counted.

A note on why I don't talk about my stocks publicly...

It was sometime in the middle of 2008 when the realization of a global financial crisis had finally settled on the Indian stock market. I was working on my job as an analyst. One stock I had recommended to our clients at the start of the year had fallen around 30% since my recommendation. Not just the stock price, the business had started to wobble. But I closed my eyes to that because my recommendation was now public...

A note to the "tailenders" in life -

It was a cold day of January 1996. I was 17 and was playing my first cricket match that had more people in the audience than players. I was representing my school cricket team against an under-19 team from South Africa. It was not the official under-19 South African team, but they were young professional cricketers while we were the minnows. I bowled as a leg spinner and batted as a tailender. We had lost all wickets but one for under a score of 200.

A note on fear, #investing, and you -

We poke fun at the ostrich that is known to stick its head in the sand when it encounters danger (which is a myth, by the way).

But imagine it does stick its neck in the sand. An onlooker may consider the ostrich’s act as foolish. But what if this is a great way for the ostrich to pause for a moment, enter a period of extreme darkness and calm, where it is not diverted by any other thought, and so is able to think better how it can deal well with the incoming danger?

Warren Buffett, who wanted to become a millionaire by the time he reached thirty, wrote in his 1989 shareholder letter, “We enjoy the process far more than the proceeds.” One may cast aspersions on this quote of Warren saying that it’s easy for him to consider money (proceeds) less important than his work (process) after becoming wealthy. But if that was the case, he would not have bothered to tap dance to work daily, even at a ripe age of 92.

A note on #investing's false positives -

The field of medicine has a term called “false positive.” It is an erroneous result that indicates that a given condition is present when it is not. An example of a false positive would be if a medical test designed to detect cancer returns a positive result (that the person has cancer) when, in reality, the person does not have cancer.