HOW TO GET RICH

BY INVESTING IN
STOCKS

BALAJI
SUBRAMANIAN
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How to get rich by investing in Stocks

Chapter No Chapter Title Page

1 Stock Market Myths 2

2 The secret of getting rich 6

3 Golden Rules 7

4 Invest for Long Term 8

5 Against the Crowd 10

6 Buy the Best 14

7 Hold Forever 16

8 Diversification 18

9 Conclusion 19

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Chapter 1: Stock Market Myths

Have you ever dreamed of getting rich? I am sure, you had. But how

certain are you to become rich? Very little . Isn’t it? The reason is

dreaming alone wont make you rich, you need to take some action to get

rich. In this book, I am going to share you the secrets of getting rich by

investing in stock market. Let me warn you, I am not going to tell you

any “get rich quick “strategy. Instead, I am going to show you the time

tested investment strategy to create wealth.

Many people do not understand the importance of investing in the stock

market. In India, only less than 3% have investment in the market. This is

pathetically low when compared with over 50% in developed nations.

Stock market offers us the easiest way to get rich but still, many people

are not ready to invest.

It’s quite strange. Isn’t it? Why people hold themselves without investing

in the stock market? Why are not they in the race of getting rich? After

asking this question to numerous people, I figured out the answer. It’s

Stock Market Myths. Even before they came to know about the stock

market, they were aware of its myths. The myth is so deeply penetrated

that they abhor the stock market. Some say that it is too risky. Some say

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that it is unethical. Some say that it is gambling. Some say that it is only

for the rich. Some say it is not for middle class or ordinary people.

These myths are holding them back. None of the above statements are

true.You can make easily money by investing in the stocks ethically.

Is Stock Market Gambling?

No one asks this question to a businessman. Is running a business

gambling? Of course not. These business gets money from the Stock

market.

To be accurate, business gets the fund through IPO and Stock Exchanges

provide liquidity for the share holders. The economy of the nation is

decided by the well-being of the business. The stock market helps the

economy of our nation.

The stock market has some risk. (Later I reveal, how you could eliminate

the risk.) But can you call it gambling as it is risky? Every business has

some risk. According to one report, 75% of the start-ups fail. Business is

risky as well. Investing in stock market is akin to own a business. It is not

gambling.

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Is stock Market for rich?

This is one of the common myths. Poor and middle class people stay

away from stock investing thinking it is for the rich people. Irrespective

of financial condition, one can invest in the market. In fact, poor people

get better lifestyle with investing. Poor remains poor despite working

hard. Poor people are poor because of their money managing habit. Any

one can improve their lifestyle with allotting a minimum of 10% of their

earning for future. Even middle class and poor people can afford 10% of

their earning. A person who earns 10,000 can invest 1000. A person who

earns 50,000 can invest 5000. So you do not need to be rich to invest in

stock market. You just have to invest 10% irrespective of your financial

condition.

Is stock market risky?

Yes, there is some risk in stock market. There is also a risk in cooking

and driving. No one fears it. If you observe all the precautions, there will

be no accidents in driving. But if one chooses to drink and drive at high

speed, he is at great risk. In stock market, you can safely invest without

any risk by observing certain rules. For those who do not follow the rules,

the risk is real. (Later I will show you those rules.)

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But if you choose to follow the rules, the risk in stock market is a myth

for you.

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Chapter 2: The secret of getting rich

You are working very hard for money. You can earn lot of money.

But still you can not get rich. To get rich, your money should work for

you. Your money should grow. Most people put their money in the fixed

deposit. Do you know any rich man who got his rich from the fixed

deposit? Obviously no. But that is what most people do. The secret to get

rich is your money should grow faster than inflation. Inflation eats your

money. It stops you from getting rich. Inflation reduces the value of your

money. If the inflation is 6%, every year, you are losing 6% of your

wealth. You will get poorer. You can not get rich by fixed deposit

because the interest rate is almost equivalent to the inflation rate. Of

course, you also have pay tax on bank interest.

The secret of getting rich is to grow your money faster. Faster than

inflation. If your money grows at 12 %, you beat inflation and you can

lead a comfortable life, If your money grows at 18%, you are rich and

you can live good life style. If you grow your money more than 24%, you

can lead a luxurious life. Warren Buffet grows his money at this pace.

With little education, you can easily make 12 to 16%. If you are

continuously learning and improving, you can make over 18%

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Chapter 3 Golden Rules of Investing

be much return. You have to deal with the risk with business mindset.

The risk must be the calculated one. You have two objectives for

investing in the stock market. One is to minimize the risk and the other is

to maximize the return. To achieve this, you have to follow the rules.

These rules are golden rules. It should be never broken. If you break the

rules, your objectives for investing will not be attained. Your return will

not be adequate. Worse, you may loose your money. Following the rules

strictly is discipline.

To get rich, you do not need to be genius. You need not to be hard

working. To get rich, you must be disciplined. Normally you are

discipline in your office or business. Because you are answerable. If you

go late, you need to give explanation. If you do not follow any of the rule,

you will be questioned and you are answerable.

In investment, no one is going to question you. This is the hardest path.

An ultimate freedom. But the only way, you can succeed as an investor is

to be DISCIPLINED.

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Chapter 4 Invest for long term

I told you earlier that I reveal how you can eliminate risk . Here you go.

You can totally reduce the risk by investing for long term. The more the

time you stay invested, the lesser is the risk. Intraday traders stay in the

market for only a few minutes and 90% of them all fail. If you stayed in

the market for long time, the risk is reduced. I have written an article

about the probability of losing money and holding duration. If you hold a

portfolio (Tested with Nifty) for less than a year, the worst you can get is

losing more than 50% of your investment. If you hold it for more than 8

years, even in the worst case, you will not lose any money.

Many people think that the primary objective of investment is to get

maximum return. It’s wrong. Your objective should be to get highest

possible return for the lowest risk. Warren Buffet is the richest investor in

the world. His objective is not to get the highest return. His number one

investment rule is : Never lose money.

When you take care of the risk, the return will take care of its own. Invest

in the stock market only for the long term. If you want to invest for 1 year

or 2 year, the stock market is not for you.

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Of course, you come to the stock market to make money. Here, money is

going to work for you. If you lose money, how can you make your money

work for you? Never lose money. The first emphasis is not losing money.

Ravi came to know in 2017 that his grandfather bought MRF shares in

1990 for Rs 1 lakh. He called in a news channel to enquire whether he

could sell those shares. His call made in to headlines the next day.

Because the total worth of the shares was ₹ 130 crores. From ₹ 1 lakh to

130 crores in 27 years. That is the power of long term investment.

If I had recommended you to invest for 27 years, probably you would not

have taken it seriously. But, why don’t you think much ahead of your life.

Your retirement is 20 or 30 years away and you may live 20-40 years post

retirement. Do not you require such long term vision?

Your daughter marriage may be in 10 years. You need 10 years horizon.

But if your daughter marriage is due in 2 years, do not come to stock

market with that money.

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Chapter 5 Against the crowd

I told you you can make money easily in the stock market. How does it

generate money? The money is not generated. It’s transferred from one

hand to other. Of course, the dividends are from the profit of the company

and your share has a value of assets of the company. Warren Buffet said,

“ The stock market is a device for transferring money from impatient

investors to patient investors”.

Every investor can not make money. Your fellow investor is not your

colleague but he is your competitor. The crowd can not make any profit.

Because the profit is to be generated from the crowd itself. If you

understand this, you will stay away from crowd. You will not act what

crowd do.

Historically, lots of money is lost in following the crowd. Following the

crowd is a herd mentality. When you hear, your friends made money

from a new investment, your relatives made money and your neighbors

made money, it would be extremely difficult not to follow them. You will

get tons of advice, “ why don’t you invest in this scheme”. Your parent

and spouse start pressuring you to consider such investment. Little did

they know, such investment can not be hot forever.

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When every one start buying, the price will keep moving up till there is

no one left. After that, sellers will eagerly hunt for nonexistent buyers.

The price will collapse like a sinking ship.

In 1720, Sir Issac Newton , the world renowned scientist lost his money

in South sea bubble. He said “ I can calculate the movement of stars but

not the method of madness”

South sea Company Stock price

Courtesy: Wikipedia

Probably you know someone who lost money in 2008 great recession. If

you are older, you know someone who lost money in 1992 Harshad

Metha scam. If you had stayed in USA two decades earlier, you know

someone who lost money in 2000 dot com bubble. All these are effects of

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following the crowd. Warren Buffet was actively investing but he never

caught in dot com bubble because he was acting against the crowd.

Now hopefully, you have made a decision not to follow the crowd. But

how to find that. It’s simple. Whenever large number of people buy, stay

away from market. Whenever a large number of people selling in a panic,

get into the stock market. I give you a very simple formula. Nifty PE ratio

is published daily by www.nseindia.com.

https://www.nseindia.com/products/content/equities/indices/historical

_pepb.htm

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From the above Nifty P/E ratio, you can observe that whenever the P/E

ratio goes above 28, the market falls sharply. It happened in 2000, 2008

and 2018-19. No wonder market is witnessing the selling pressure now.

Similarly,Whenever the ratio goes below 12, it rallies sharply. You do not

need to be a genius to understand this.

You got two great opportunities in 2003 and 2008. In my online stock

market wealth creation course, I exactly point out how you can buy closer

to the bottom. Over 11 years passed, you have not got any great

opportunity to invest. If you want to little bit flexible, you can modify the

P/E ratio to 16. You had an opportunity in 2014.

Investing opportunities do not come every day. It comes once in a decade.

I find some opportunity for every five years close to the general election.

What you need is patience to wait for the right opportunity. You may

expect a huge opportunity in next 1 or 2 years.

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Chapter 6 Pick the best stocks

There are many strategies to invest. In this book, I am talking only about

passive long term investing. For that, you have to pick the best of the best

stocks. You are going to hold it for a very long time. So pick large

companies. Most of the small companies can not survive in next 10 or 20

years. Some of the small companies may perform extraordinarily well.

There are some other strategies to buy small companies. But for holding a

stock for more than 10 or 20 years, the probability of small companies

being successful is very less.

Stick with Large companies. Large companies can survive and thrive in

many business cycles. Many small companies may not be there to see the

next business cycle.

Consistent and growing Profit

The company should make a consistent profit. Let me show you the

profit of a company.

2006 2007 2008 2009 2010 2011 2012 2013

-341 -420 -188 -1,609 -1,647 -1,027 -2,328 -4,301

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Will you buy it? But many people were buying this company. This is

Kingfisher Airlines. In 2010, the stock was selling at ₹ 90 per share when

the company was in loss of ₹ 1647 crore.

Let me show you another company. Tata Motors. It reported a loss of ₹

1800 crores in Sep 2014 quarter. The stock price went highest and

touched 612 in 2015. Now it is selling at ₹141.

2012 2013 2014 2015 2016 2017 2018

1,242 302 335 -4,739 -62 -2,430 -1,035

It is seen that the company is not performing well in 2013 itself. But still,

people were buying it and making it to a high till 2015.

So stick with consistent profit. Also, profit must have grown when

compared with 3 years ago.

Low Debt & High-Profit Margin

A good company should be able to make a good profit by taking too

much debt. When a company takes too much debt, their level of risk is

increased. The company should make a good profit margin.

Buy large companies with consistent and growing profit. It should make a

good profit margin with low debt.

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Chapter 7 Hold it Forever

If you want to get rich, you should think in the long term. Hold the stocks

for the long term. Warren Buffet said,” Our favorite holding period is

forever”. You bought a company because it's the future (10 or 20 years)

the prospect is good. That opinion can not be changed every day. Not

even every month. Just hold the stock as long as you believe in the future

of the company.

I already shared you the story of Ravi. MRF shares gave a profit of ₹140

crore with just ₹ 1 lakh investment. That involves patience waiting of 27

years. Meanwhile, the dividend itself is sufficient to lead a comfortable

life.

Some web portals claim that Fidelity investment conducted an internal

performance review and found that the best investors are either dead or

inactive. What will an investor do if they are dead? Nothing.

If you just do nothing with a stock, you will be rich. Surprising, isn’t it?

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To get rich, you simply have to do nothing with stocks you hold. But

surprisingly, most investors can not do this. They can not control the

tempt of selling a stock when they see a huge profit.

Our intention is not profit. We intend to get rich. So hold the stock. Let it

ride multiple business cycles.

Warren Buffett bought Wells Fargo & Company in 1989 and he is still

holding it. Warren Buffett made most of his money by holding Coca-cola

for more than 40 years.

Buy a stock like you buy a house. Will you think about selling your house

while buying? No. Probably you may want to leave it to your children.

Why can not the same thing be followed for stock investing?

Buy it hold it forever. Let it be inherited. The truth is: If you start

investing early, the dividend itself will be enough to lead a rich life. If

your state late, a dividend may not be sufficient. So you can slowly

withdraw as per your needs.

Sell your stocks when you need the money. You may also sell a company

if it is performing well.

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Chapter 8 Diversify

Not all eggs in one basket. No matter how sure you are about the future of

a company, it may fail. Your portfolio should contain a minimum of 10

stocks. It should from different industries. Too much diversification

reduces the return. It also complicated to manage and follow a large size

portfolio.

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Conclusion:
The stock market is the best tool to get rich. Many Indians are not using

the stock market. They abhor the stock market because of their

misunderstanding about the market. When you treat investing in a

business, you can get rich. To invest in the stock market, you have to allot

a minimum of 10% of your earnings. This should be allotted every month

and can be held in a liquid fund. You may also use RD. You have to wait

for the right opportunity by looking at the Price to Earnings ratio of the

index. When you get the right opportunity, buy the best stocks. Best

stocks are large companies with consistent and growing profit. It operates

with a good profit margin without much debt. Once you bought the stock,

hold it forever. You may sell when you have some financial requirement.

You may also sell when the company is not performing well. You

construct your portfolio with adequate diversification with different

industries.

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In the entire book, I discussed the strategy of Buy and Hold. There are

other strategies as well which can help you to create wealth. I request

your honest feedback about this book. You can mail me

balajisubramanian@artofinvestinginstockmarket.com

( Balaji Subramanian @ art of investing in stock market. Com).

You can also send me your comments on my website

www.artofinvestinginstockmarket.com

[ www. Art of Investing in Stock Market. Com]

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