How Can I Become a Millionaire Quickly?

Actual Question:

I am 22. What can I do to become a multi-millionaire in the next 25 years?

I am a realist. So I am very cautious when I buy something. I read annual reports of companies, look at financial statements and calculate my intrinsec value of stocks. I beated the market (no leverage) in 2 years of experience. But getting rich quick is a dream. Should I keep investing in stocks?

Answer:

Dear Friend!

I am extremely glad to know your approach a in investing so far. I am also glad to know that all this you have achieved at such an young age! But you say that getting rich quick had remained a dream. My friend, let me assure you that getting rich quick had remained a pipe dream for a vast number of people in the past and will remain so in the future also.

My guru Warren Buffett says, “Certain things take time in life, and you cannot do anything. You cannot get a child in one month by making nine women pregnant.”

Why is it so?

What actually creates lasting wealth is not the investing acumen - but simply time.

Graph Depicting the Miracle of Compounding

You can see how the line is climbing steeply after 30 years!

In reality, a very long time and the miracle of compounding are the vital ingredients behind immense riches and wealth.

Even Warren Buffett, one of the richest men in the world today could only build his immense wealth only over 35 years. Please see the following table which shows how investing humble sum of Rs.10,000 every month in stocks can produce immense success over a long time.

So my sincere advice to you, my young friend is that from your own words you are on the right track and doing extremely well. Just keep it up for the next 38 years and by 60 you must be an unimaginably rich and wealthy person.

Thank you,

Anand

Power of Compounding - Video

Why My Friends Lost or Earned Only Meger Returns from Investments in Both Stocks and Mutual Funds?

Dear Friend!

You have raised a very pertinent question that has the potential of addressing a similar doubt in the minds of many. Thank you.

I really do not know the background facts, still the a few reasons for poor results is quite evident and they can be listed as follows:

1. Investment Timeframe: For what time were had they remained invested? Share markets can remain depressed for a few years at a stretch and for the last few years they have not progressed very much. What do you think is the right timeframe for meaningful long term wealth creation? It is a bare minimum 20 years and ideally 40 to 50 years. Why such a lengthy spell? Only over such long periods, the ‘Miracle of Compounding’ discovered and propounded by Albert Einstein will get an opportunity to work for the investor.
2. What is the Actual definition of Returns: Most of have been conditioned to believe, in the context of investments at least, that return means increase in the market price of the investment. Of course capital appreciation is a vital ingredient ofreturns but it is in addition to regular and recurring returns: dividends, special dividends and bonus shares. Over 40–50 year interval if you aggregate the regular returns with the capital appreciation at the end, we will be pleasantly shocked at where we stand.
3. The quality and purchase price of stocks: Stocks, I am not talking about mutual funds here, need to be purchased of good companies at a ‘Fair Price’. If one buys a stock that has an intrinsic value of Rs.100 is bought at Rs.200, what upside can we expect from the investment, that too over a short period of time?

Friend, ‘Value Investing’ is a time tested and sure path to long term wealth creation. There is no room for doubt or argument about it. Please buy a copy of ‘The Intelligent Investor’ by Benjamin Graham, TODAY, your life will change!

Thank you,

With Best Regards

Anand

Is there a Special Benefit in Being Invested For a Long Time in a Debt Fund?

A very important and useful question, indeed.

In the case of investment in a debt fund is concerned there is no special advantage in being invested for a very long time because in debt fund the interest is paid out and there is no reinvestment and no scope for capital appreciation. One will get the interest as long as one holds the investment. The quantum of returns depend on the prevailing interest rates in the market.

On the contrary, in the case of an ‘Equity Fund’, the prices of the shares that are constituents of the fund will increase many folds in the long run on the back of two important factors as follows:

1. Natural growth of revenues and profits of the companies in an environment of general prosperity.
2. Operation of the law of ‘Miracle of Compounding’ propounded by Albert Einstein, in favour of the investor and consequent wealth creation in the long term.

To conclude, there is no special benefit in remaining invested in a debt fund for a long time. However, long time is the most essential ingredient of wealth creation in the case of an equity fund.

Note: This is a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.