Monday, October 10, 2016

How Value Investors Meet Monthly Expenses?

Actual Question:

How did/does Rakesh Jhunjhunwala generate regular cashflows to meet his monthly bills? What I understand is that as a value investor his money is generally locked up for years at an end in investments. What am I missing here?
Edit: What I mean to say is in the beginning of his investor days, how did he manage it?

I am fully aware that he will be holding cash in his bank account which will be replenished periodically by dividends, and also that all his money is not held in the form of capital market investments.


Dear Friend!
Thanks for the highly valuable and thought provoking question!
I really do not know the affairs of Rakesh Jhunjhunwala so I cannot talk about him but in general I will answer your question.
Every individual generally has two types of income:
  1. Active Income
  2. Passive Income

 A person who makes investments has an active income in the first place, which that person spends for meeting personal expenses and invests the surplus. The only exception is when a person has a huge inheritance at an early age that he or she need not and does not work and have an active income at all.

Secondly, it is not entirely correct that a value investor’s money is completely locked-up for long term. Value investors earn significant amounts of passive incomes by way of dividends and interest every year. Value investors do not like to spend the passive income for their survival and would like to re-invest it for generating further passive income. However, if they do not have a separate active income, naturally they can spend from this passive income.

In light of the above there are two possibilities as follows:
  1. Meets his monthly bills out of the active income he has
  2. Spends a small portion out of the passive income generated from investments.

Thank you,

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