Go for the Million!

If you already have a million dollars or more, this blogpost is not for you.

For all others, I’ll cut the bullshit and get to the chase. I am just mighty pissed off.

When you have less than a million dollars –

Please don’t listen to any or all the Gurus who are propagating 16% CAGR, 18% CAGR, 20% CAGR. You know the usual spiel. Say, you have 5 Lakh rupees. Gurus recommend that you should be happy be 18% CAGR or 20% CAGR and over a long period of time (40 years), you would be so rich, that even the rich would be ashamed.

Bullshit.

For all those studies, where you read that if you had invested in quality at any price, and just held on to them for a long period of time (40 years), you would have made enough money to be proud of yourself.

Bullshit.

You really want to know what they DON’T tell you.

By the time you are rich, you will be OLD. You will be very old. Your kids and grand kids, of course, would really appreciate all your journey, effort and all the good things that you have done for them. You will just die as a rich man without all the good things before it. That’s just a tragedy.

Since the readers of this blog are reasonably well versed with numbers, let me illustrate it with numbers.

Let me get the first and the easiest thing out of the way without the numbers. People keep doing these fancy calculations in excel about how much their salary is growing to grow, how health expenses will increase, plug in a sexy inflation number and try to arrive at a figure which they think will be enough for retirement.

Let me solve that for you. You need a million dollars (ex-Mumbai). Unless you want to live the luxurious life of Vijay Mallya ,(well, if you were Mallya, you wouldn’t do all these calculations), a million dollars would let you live and eventually die peacefully.

Ok, now for the numbers bit.

Let’s say you start investing at the age of 27 (well, how better it would be if you could start investing at the age of 15, but try convincing your teenage son or a fresh graduate not to spend on the latest smartphone and you’ll know what I mean). You start with Rs. 5 lakh (You can plug in any arbitary number).

Let’s say you manage to do 18% CAGR over a long period, say 40 years. Do you know how much money you would have by the time you are 67? 37 cr 51 lakh.

Whoa. That’s a lot of amount you say. Definitely it is.

But what would you do with so much amount at 67? You would be old, frail and not really ready to say travel widely or eat whatever you want or whatever shaukh (sic) you have.

Ok. So, how much money would you have by the time you are 57? 7 cr 16 lakh. Did you observe the difference?

Ok. So, how much money would you have by the time you are still fit, healthy and want to do what you want – say at the age of 47? 1 cr 37 lakh.

Did you see the difference? Did you really observe the beauty of compounding? You would not dream to live a reasonably luxurious life, traveling where you want, doing what you want to do with 1 cr 37 lakh.

And that’s my problem with folks preaching ‘my target is 18% cagr because the Gurus said it’, ‘I am ok with 16-20% cagr, but I don’t yet have a million dollars’.

Nobody, or rather, from whatever I have read spells out clearly on this intricate relationship between CAGR and Age. You can be rich, but you are already old.

I would rather die with 10 cr, in the process doing what I want than die with 37 cr to make my children and grand children happy.

And that brings me to my real point.

You should really not be aiming anything less than 35-40% CAGR if you are not already a millionaire. It just sucks not to aim for it.

Why did I say 35-40% at a minimum? That’s because, you can make 100x your money in 15 years with a 36% CAGR. Your 5 lakh will become 5 cr in 15 years (if you start at 27, by the time you are 42 – you are reasonably rich and an almost millionaire). This is not something that I picked up from the now famous 100-to-1 book. That never spoke of age. In fact, he talks very long time frames.

Is this the bull market in me speaking? Definitely. But why not? Look, unless you are outrageously lucky with a stock or timing the depth of a bear market, your BIG returns are going to come only in a bull market. Again, numbers. If a Rs. 20 has to become Rs. 100, you need a 400% return. That same Rs. 100 to come back to Rs. 20 requires just a 80% drop. So, you absolutely need to make killer returns in the bull market to survive the bear market.

People will try to dissaude you by quoting process will get corrupted, people will indulge in speculative stocks etc. My question is – what’s a corrupt process? Just because there is a wave of high quality, high management integrity bull market this time, everybody is on this bandwagon of the right process etc. It’s almost as if investing was just born in 2009.

And speculation. I don’t think speculation is going to net you 35-40% CAGR for 15 years. I have not met anybody yet doing this.

Is this easy? It’s obviously not meant to be easy. Just because you have some internet forums and whatsapp groups these days doesn’t mean investing is easy. There is a lot of hard work, there is a lot of luck and there is a lot of position sizing science involved before you make that million dollars. As Munger says, ‘It’s not meant to be easy. If you think it is easy, you are stupid’.

And speaking of Munger (which, in these days of the current bull market, seem to encapsulate all other Gurus), here’s what he had to say in Snowball – remember, when he was young –

munger

So, for all those people who keep saying 18-20% CAGR, you are either already a millionaire or you are just bullshitting. Aim higher. Work harder. Enjoy the process of investing. And actually enjoy life at the right age. There is no fun in dying rich. And there is a tragedy in dying really rich without having enjoyed or doing what you really wanted to do.

Go for 35-40% CAGR (atleast). Become a millionaire. Live comfortably.

P.S – Cynical folks may obviously point out that 5 lakh is only a starting capital and people will add as and when they grow in life. You know, if people were so disciplined in investing, we’d have a lot more people active in 10 year and 15 year SIPs.

P.P.S – Other folks might point out CAGR is not important but how much, as a % of your networth, is more important to overall gains. Absolutely agree. Convince your friend in a bear market to put 90% of his networth in equities. % of networth is very important, but even with smaller sums of money (and I do think Rs. 5 lakh is a smaller amount of money these days, with freshers from IIMs earning Rs.20 lakh), CAGR at the right levels covers a lot of ground.

Advertisements

, , ,

  1. #1 by rahul on July 1, 2015 - 5:39 PM

    If you could please tell us how to earn 35-40% CAGR ??
    Do you run any stock advisory services ??
    If any let me know I would definitely subscribe to it ..

  2. #2 by Raj on July 1, 2015 - 5:49 PM

    Awesome Post Kiran. For a moment I thought its me writing 😛

    “So, for all those people who keep saying 18-20% CAGR, you are either already a millionaire or you are just bullshitting.” – A lesson I learn bit late ….not too late I hope.

    The hard part – every 1% increase in return demands many additional hours home work

    • #3 by Aravind on July 1, 2015 - 7:31 PM

      thats a great observation. I second that…………

  3. #4 by Ankit Gupta on July 1, 2015 - 6:20 PM

    I can totally relate with you Kiran. I often come across people telling me that not much of your networth is invested in stocks. But boss I have just started my career, haven’t inherited anything, have less initial capital and yes more than 80% of my networth is in equities but its still small.
    I think it all boils down to hard work and betting big.

  4. #5 by JIGS on July 1, 2015 - 6:29 PM

    Dear Kiran,
    Are you saying target 35-40% cagr? Please let us know how to get that in equity market.

  5. #6 by jagvirsinghfauzdar (@jagvir) on July 1, 2015 - 7:20 PM

    grt article. doing arb with borrowed money is really helpful. i am doing this for many yrs.

  6. #7 by PrAvEeN on July 1, 2015 - 7:25 PM

    “So, for all those people who keep saying 18-20% CAGR, you are either already a millionaire or you are just bullshitting.”

    Or a MF distributor 🙂

  7. #8 by Amitvikram on July 1, 2015 - 7:29 PM

    bahut saare paapad belne padenge 35% keliye!!!

  8. #9 by Aravind on July 1, 2015 - 7:30 PM

    You are dam right. Dam straight and this one I guess is from no book but from the dum in you and your gut narrated it. I had similar feeling some times and I very much agree to the high rate of return that you are advocating and frequently trading to make money if it is visible like Munger did. I respect the opinion and second it, but one flaw for a person working is he needs to give 50-70% of his day, thats effectively all day to keep tracking whats happening around and then filter the noise and be ready. Well guys like me are ready for that too…….. What else is free, totally democratic, totally reservation free and only brain demanding(0% physical labour) in this world than Markets…………?

  9. #10 by ankit Choradia (@ankitchoradia) on July 1, 2015 - 9:12 PM

    you got the whole long term thesis wrong here. Firstly, Investment should give you comfort as a second income while you aim to earn more and more through your business/profession( Actually you should aim high here and not in investment) unless your only income is through investment. second, as Keynes said ”The market can remain irrational longer than you can remain solvent”. dont expect more than gdp+ inflation(%) from equity, you can prove me wrong by getting consistently abnormal returns but the little I know about history no one achieved this feat yet. Further, the millionaire who suggest to aim for 18-20%, not necessary were millionaire when they started(read again). Dont give false hope. if you leave below your means, keep your head straight, exercise & pray daily, I am sure you will achieve the goal sooner than later. be happy, wish you all the best

  10. #11 by Gaurav Sud on July 1, 2015 - 9:56 PM

    way to go man… big call to aspire for the sky… we were supposed to have a call… didnt happen… gaurav

  11. #12 by ajay on July 2, 2015 - 5:10 PM

    It was a nice post to read and enjoy, but not practical. It always interest and attract people when you speak against the crowd and that’s what I see in this post. The only place where you can get 35-40% returns either in your own business, if you are lucky or in equity stocks, if you can identify in the stock market and again only if you are lucky. As everyone knows for every company that made their share holders millionaires there are several other companies that made poorer (actually this category may be more in reality) even in your own business, not all are successful despite putting in hard work, dedication etc.

    Simply to state a fancy number that 35% CAGR and 100X in 15years may sound nice, but in reality where is this kind of returns available for an retail investor. If you are already mallya, you may not even bother about 35% CAGR or 100X, you can easily take loans from PSB’s and default but that option is not available for common man.

    If one start to invest in 27 the millionaire target will be naturally delayed. If one expect that just invest 5Lac and become a millionaire in 15years, it is simply foolish, if you are lucky you may get it but not always and not for everyone.

    That’s why some one who starts his career in 21 should start investing right from 1st salary to give sufficient time. By saving 25K for 30Years @ 18% CAGR, your target of 35.85Crore can be met (by 51Years). It requires simply discipline, hard work and patience.

    Delaying it by 6years and begin investing at 27 and invest same 25K for 24Years @ 18% CAGR will end up with 12.14crore (again by 51Years).

    The difference is 23.71Crores is the cost of delaying it by 6Years.That’s the effect of age.

    Please let us know, if there are investment options that generate the kind of 35% returns for 15years!

    • #13 by Gouri on July 2, 2015 - 7:27 PM

      Dear Ajay,

      Do you know Valuepickr forum and their “Public Portfolio” ? See their performance. If you think it is just because of NAMO boom, please check their performance until end of 2013, before NAMO boom started.

      • #14 by ajay on July 3, 2015 - 12:33 AM

        Dear Gouri,

        Did you invest in them. What was your Cagr returns over las 5 / 10 years. How much you invested in each of those stocks. How many were winners for you and losers for you. If you had invested and made those returns in reality, please do share those success stories.

        If you have not invested but only been watching the folio on screen, please let us know as well. I have been a stock and mf investor for last years. So unless you are in the game and experienced the success and failure, it is futile to talk.

        Please don’t take this as offended. Just curious to know your success. So pls share and respond.

      • #15 by ajay on July 3, 2015 - 12:35 AM

        Dear Gouri,

        Did you invest in them. What was your Cagr returns over las 5 / 10 years. How much you invested in each of those stocks. How many were winners for you and losers for you. If you had invested and made those returns in reality, please do share those success stories.

        If you have not invested but only been watching the folio on screen, please let us know as well. I have been a stock and mf investor for last 10 years. So unless you are in the game and experienced the success and failure, it is futile to talk.

        Please don’t take this as offended. Just curious to know your success. So pls share and respond.

        • #16 by Gouri on July 3, 2015 - 1:45 AM

          Dear Ajay,

          I have been investing in the following stocks since 2011.

          1. Ajanta Pharma
          2. Astral Poly
          3. Mayur Uniquoters
          4. Atul Auto
          5. Poly Medicure
          6. Avanti Feeds
          7. GRP
          8. Kaveri Seeds
          9. Shilp Medicare

          Out of these stocks only GRP was a failure. I exited as per their reco.

          My investment amount is 46 lakhs. Current portfolio size is 2.95Cr. I have been investing into these stocks from 2011 until mid 2014. Even if you calculate CAGR assuming 45 Lakhs as initial capital, CAGR is more than 60%. So the real CAGR should be much more than that.

          • #17 by Ajay on July 3, 2015 - 5:06 AM

            Yes, a great success to share. Few questions,

            1. How much was your networth in 2011.
            2. How much was invested in different assets.
            3.What was your plan b if those stocks were dud. In other terms what is your risk control method and risk capability.
            4. Are you a investor who goes just by this valuepickr and invest all your life time savings in it.
            5. Was the folio down any time after your purchase to what extent it was?
            Any way you could be one of the rarest guy to make such large money in market in short time. Congrats for that.

  12. #18 by bala on July 3, 2015 - 12:09 AM

    Excellent article and the best I read so far this year. its very relavant in the days we are in. when you aim for typical 18% cagr you tend to cut on hardwork and be happy with what everybody does. when you aim higher , your investment approach completely changes. for better. you tend to learn more, dig in deep, look for those that others/market doesn’t know them yet, or you develop edge over others. somebody asked how you get 35-40% cagr. don’t go by these numbers. aim higher cagr than your comfort zone would give. could be 30 or 50 or 60%.

    when you move out of your comfort zone and learn and work hard, you are on right path. somebody said your primary income should be from your job/profession. that’s true upto some period. after that your investments would outweigh your savings. you need to work hard in your job/profession anyway. so why not in investments ? you chose to do what you like/enjoy.

  13. #19 by ajay on July 3, 2015 - 1:55 AM

    Dear Gouri,

    Did you invest in them. What was your Cagr returns over las 5 / 10 years. How much you invested in each of those stocks. How many were winners for you and losers for you. If you had invested and made those returns in reality, please do share those success stories.

    If you have not invested but only been watching the folio on screen, please let us know as well. I have been a stock and mf investor for last 10 years. So unless you are in the game and experienced the success and failure, it is futile to talk.

    Please don’t take this as offended. Just curious to know your success. So pls share and respond.

    • #20 by Gouri on July 3, 2015 - 3:08 AM

      Dear Ajay,

      I have been investing in the following stocks since 2011.

      1. Ajanta Pharma
      2. Astral Poly
      3. Mayur Uniquoters
      4. Atul Auto
      5. Poly Medicure
      6. Avanti Feeds
      7. GRP
      8. Kaveri Seeds
      9. Shilp Medicare

      Out of these stocks only GRP was a failure. I exited as per their reco.

      My investment amount is 46 lakhs. Current portfolio size is 2.95Cr. I have been investing into these stocks from 2011 until mid 2014. Even if you calculate CAGR assuming 45 Lakhs as initial capital, CAGR is more than 60%. So the real CAGR should be much more than that

    • #21 by Gouri on July 3, 2015 - 3:14 AM

      Kiran (author of this blog) is a top contributor on Valuepickr forum. I quite sure he should have made better returns than me. Not only me & Kiran, there are atleast hundreds (out of thousands of Valuepickr members) who have made this kind of returns. Valuepickr is not a stock advisor/broker who gives stock tips. It is an online community of investors who is doing in-depth stock research. I am quite sure it is possible to get 35-40% returns going forward if one stick to their recommendations and hold patently.

      • #22 by ajay on July 3, 2015 - 7:59 PM

        Yes, a great success to share. Few questions,

        1. How much was your networth in 2011.
        2. How much was invested in different assets.
        3.What was your plan b if those stocks were dud. In other terms what is your risk control method and risk capability.
        4. Are you a investor who goes just by this valuepickr and invest all your life time savings in it.
        5. Was the folio down any time after your purchase to what extent it was?
        Any way you could be one of the rarest guy to make such large money in market in short time. Congrats for that.

  14. #23 by kdaaku on July 3, 2015 - 1:34 PM

    @All – Thanks all for your comments. Very different perspectives. My goal was not to advocate that 35-40% CAGR was the ONLY way or 18% CAGR was the ONLY way. My goal esentially was to say that ‘becoming a millionaire at the right age’ is more important – and any strategy that can get you there with a high probability – you should work with that. Maybe its more investment, maybe its more CAGR, maybe you are working 3 different jobs – in the markets or in life, there is no one way to success.

    Of course, I don’t want to get into the philosophical discussion of what is success and different people have different yardsticks for success and all that. From a financial standpoint, I think becoming a millionaire at the right age is success. That’s my criteria.

    If that requires hard work, if that requires networking with smart people, if that requires working on a day job along with slogging over weekends, I am willing to do it. Of course, there are no guarantees. There is a lot of luck involved in all this, else everybody who worked hard would have become a millionaire.

    P.S: A millionaire in Mumbai may not mean anything as it wouldn’t get you a 2 BHK in Bandra. I am talking all ex-Mumbai. Mumbai folks can aim for 10 million 🙂

  15. #24 by tradingcues on July 4, 2015 - 2:57 AM

    Reblogged this on tradingcues.

  16. #25 by Harsha Venkatesh on July 4, 2015 - 10:37 PM

    Hello Kiran,

    I completely agree with you on the “benefits” of targeting absolute numbers and consistently relook ing at investment criteria. I have been a investor in Indian markets since 2004 ever since I got out of college. My returns until 2012 was 21% cagr. My initial sum has been insignificant. However since then my investment thesis has changed reading more from people like buffet, Munger, Pabrai, Marks, Greenblatt, Prof Bakshi and likes. After deciding to mimic Pabrai and start a investment checklist and seriously restrict no of stocks to less than 10 – maybe at times top 2-3 contributing 60-70% of portfolio my returns in 2013 was 78%, 2014 at also 70+% and 2015 up 50%. Thanks for echoing my thoughts. Great post. Thanks for writing this.

    -Harsha

  17. #26 by Ashish on July 21, 2015 - 10:07 PM

    Hi Kiran, A good read but has the potential to distract investors. Targeting 35-40% returns (that too CAGR) is a noble goal, but fraught with dangers. There is no sure shot way to gauge upside potential for an investment. You can only approximate by using intrinsic value yardstick. Even if one has gauged the potential correctly, you do not know how long will the market take to realise its potential and correct prices to get your CAGR target. Bull markets are very forgiving, but Bear markets are not. I believe that amount of research required for 18% CAGR is significantly high. Any additional research does not take one closer to a higher CAGR. If one has identified companies with 18% CAGR potential and has the temperament to hold, I think the work is done. Usually, the same companies will overshoot on the higher side and get a higher CAGR for investors.

  18. #27 by melaniemoves on July 30, 2015 - 11:09 PM

    Straight from the heart and financial truths Kiran.Kudos to you

  19. #28 by Pankaj pant on September 22, 2015 - 1:15 AM

    Kiran ..you rock. jindagi jindadili kaa naam hei..murda dil kya khak jiya karte hein.All in all .an interesting perspective

  20. #29 by Anonymous on December 6, 2015 - 2:41 AM

    If you were millionaire , I believe you would not have written this article 🙂

  21. #30 by Unseenvalue on January 7, 2017 - 8:05 AM

    “I don’t think speculation is going to net you 35-40% CAGR for 15 years. I have not met anybody yet doing this.” 👌🏻Only after you understand a business can you get any handle on the stock price which is Nothing but a longer term derivative of the underlying business !

  1. Get busy living, or get busy dying | Portfolio Yoga
  2. Reblog: Go for the Million! | Stock Architect

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: