The power of Investing | How can you TRULY become WEALTHY?

Once you feel that you have learned the basics of investing and you’re someone who can actually succeed in the stock
market or in terms of investing and generating returns from your assets,that is when the true magic happens.

Let me start today’s this article by sharing a very interesting story with you.

This story has been picked from the book
called As The Psychology of Money.

This is a very interesting read,
so I would urge all of you to read it.

So the story goes something like this,

that Ronald Read was a gas
station attendant and a janitor.

And by the time he left this world
at the age of 92, he ended up saving eight

million dollars, which he donated
to different charities and hospitals.

Now the obvious reaction would be
that he might have won some lottery.

And that is not correct.
He, in fact,

adopted what is called
as powerful investing habits.

So every month he used to save
a certain bit of his salary

and used to invest in blue-chip stocks,
and over the years,

due to this saving and investing habit, he
was able to make eight million dollars.

Now, there are three very specific
and very powerful lessons that I would

like to share with you
about his story.

Now, the first lesson is that anyone can
invest. Now there is a parallel analogy

here, and this analogy comes
from the movie, Ratatouille.

And I’m not sure if you guys
love watching food movies,

but I definitely do. So Ratatouille
was a story about a mouse who could cook.

So it was an animated movie.

Very interesting movie, go and watch it.

It was about chef Linguini’s

philosophy. Chef Linguini
was a Michelin star chef.

And he gave the phrase
that anyone can cook.

Similarly, James Read’s story gives us
the belief that anyone can invest.

Many times I get the query that Hey, Aman,
I don’t have an MBA.

I don’t have a finance background.
Can I still invest?

Answer is yes.
You can. James Read’s story tells us that.

The biggest reason why people feel
that they can’t invest is that they feel

that they don’t have enough knowhow
or expertize in terms of investing.

Therefore they should
not even try investing.

I feel that this is a very incorrect

thought process because there is genuinely
a way for you to simply make basic

observations and succeed
in the stock market.

Now, please don’t take it as

a recommendation to go and jump and throw
all your money in the stock market.

But the idea that I’m trying to plant here is
very simple, that if you make it a goal

that I need to learn about investing,
then you will figure out a way to learn

about investing through
simple observations.

Even the biggest investors in India
who are making billions in the stock

market, they don’t have an MBA
from Harvard, MBA from INSEAD.

So let me give you a few examples as

to how investing can be done
through simple observation.

Now, here is the first example for you.

So let’s pick India’s biggest company,
which is Reliance Industries.

So at pre-pandemic level,

I’m not talking about when the market

tanked in the March 2020,
but before March 2020,

the share price for Reliance was trading
around fifteen hundred and sixty.

Now, currently within a year,
that stock trades at approximately 2000.

Now you tell me that you already know

that Reliance is one of the
biggest companies in India.

You’re someone who is consuming their

product, consuming their services
in one way or the other.

And if you would have made that investment

even pre-pandemic, when the market did
not go down, even pre-pandemic,

then the market went down, the share
prices went down, then they came back up.

So now if you compare that pre pandemic

level price and compare it to today,
there is still a 20-25

percent gain
on that single stock.

Now, could you not have done that?

Do you actually need an MBA
to make such an investment?

The answer is no, you don’t.

All you need to do is that have a basic

assessment of what is
going around in the world.

If you’re reading a newspaper,

you absorb information that Reliance is
getting a lot of investors on board,

its trying to orient its
business towards technology.

If you understand these fundamental points

and basic basic things that you can learn
from everyday observation,

you would have been sitting on a twenty
five percent gain on the Reliance currently.

Now, many of you might comment that
stock market is very risky.

I don’t know if I can do it.

I don’t think I can keep up with all
the news that is happening and therefore

investing directly in the stock
market is not for me.

Then here is a simple solution for you.

Now you can directly go
and invest in index funds.

Now Index funds basically are
a collection of different stocks.

For example, Nifty Fifty is an index fund.

When you buy Nifty 50,

you are buying the best 50 companies
in India with the largest market cap

and you as a bouquet of that is called Nifty
and you’re buying that bouquet of stocks.

Now, again, let’s do the same analysis
that we did for Reliance that if you would

have invested in Nifty 50
pre-pandemic level,

I’m not talking about pandemic
when the market tanked.

So at pre pandemic level

Nifty 50 was trading at twelve
thousand five hundred.

Nifty today is trading at
approximately fifteen

thousand five hundred as
I’m wwriting this article.

So again, there would have been a gain

of approximately 20-25 percent
on this as well.

Now, this did not require you to have
any specialized knowledge in finance.

You could have literally picked up stock

market, even pre pandemic level
and would have made money on it.

Now, I’m not privy to what was the exact

portfolio of James Read was,
but he would have done a similar style

of investing. So the point that I want
to leave you with this,

that if you believe that you can’t invest,
then you would always figure out a reason

not to invest, then you will never
get into the stock market and resultantly

you will never be able to invest and learn

about investing and make
money in the process.

The second key lesson that I want you

to draw from this story is,
is the power of saving.

Now, James Read
had a modest salary throughout

his career, but he made sure that he
saved every single penny that he could.

So many times I get the question that hey

Aman what percentage
of salary should we save?

That, according to me,
is an incorrect question to ask.

You must rather ask what percentage
of salary do I need to spend?

Now, I’m not asking you to become a miser

and start penny pinching and saving
every single rupee out there.

That’s not the goal of this discussion.

The goal of this discussion is

to understand and be wise about things as
to what you’re spending your money versus not.

For example,

these days I see a lot of youngsters
who own multiple credit cards.

The argument is that you know what, credit card
helps us build a credit history.

It helps us save a lot
of in terms of cashbacks, etc.

But if you do a thorough analysis and I’ll

put a different video on that subsequently
going in the future,

but if you do a thorough analysis,
you will understand that actually using

too much credit cards, it gets you into
a bad financial habit of overspending.

I, for example, have never owned a credit

card and I have 0 plans
of owning a credit card.

So your ability to save comes
down to two simple habits.

Number one, it comes down to your
psychology of how you spend.

If you are someone who believes

in the consumeristic culture, let me
go and buy every new item out there.

Then you would end up spending insane
amount of money and having conveniences

like buying on EMI or having a credit
card, having a Google Pay account.

It really does destroy
your financial well-being.

And the second is that you
need to be wise.

You must start with a there is a very

clear difference between
being rich and being wealthy.

So being rich means that you have got
the money and you are spending it.

For example, if there is a person
who has won a lottery, he is rich.

He might not be wealthy.
A wealthy person is

someone who is able to sustain
that wealth. Once they become rich,

they have the mindset that I’m going

to invest this money which will generate
future cash flows and future returns

for me. For example, you might have
heard of people called Rockefeller.

They run Rockefeller Foundation. Their
generations have been wealthy because

of the similar mindset that they need
to invest and keep growing their wealth.

Let me give you a counter example
here and tell you a very funny story.

So I had a friend in Delhi,

he used to run a business and before

the pandemic, his business was booming and
he ended up buying a Ferrari in Delhi.

Now it is madness because you are still
driving on cramped roads and you’re driving

a Ferrari in Delhi, which is pure
madness. Now because of pandemic,

what ended up happening was that he was

running a profitable small venture
which was manufacturing related,

and due to pandemic, his business
somewhat went down massively.

So the loans that he had taken to buy
that Ferrari, he had to give up on that.

He had to take a massive hit
and a lot of bad stuff happened.

So it comes down to your choice of buying

things that you need versus understanding
things in which you need to invest in.

Let me close this section by giving

another example that people
talk a lot about that hey

should I do an MBA?
It costs so much.

Yes, it’s true that it costs so much,

but it’s actually generating
an investment for you.

You’re building an asset. Asset is

something that can give
you future returns.

So when you invest in a course or when you

invest in a degree,
or when you invest in learning something

online, you’re building
an asset for yourself.

If you’re spending money on those type
of things, it can actually give you

exponential returns going
forward in the future.

However, the flip side,
if you buy an iPhone or if you buy

a Ferrari, you’re actually buying
a liability because every year that phone

or that Ferrari is not going
to help you generate returns.

Of course, unless you’re a celebrity
and you are getting endorsements. For most

of us, it would not help
us generate returns.

So please understand the difference

between asset, liabilities,
being wise with your spending.

If you pick up these good sound financial

habits, you and I too can
become like James Read.

Now, the third key lesson that I want

to leave you with this is
the need for investing.

The first lesson that we covered
was that anyone could invest.

The second lesson we covered
was that why you need to save.

And once you build enough savings,
why is it that you need to invest?

So there is something called inflation.

I have spoken about it on my previous
video, so I’ll keep this one short.

So let’s assume that you have a million
dollars sitting in your bank account.

Now, what ends up happening is

that the prices of everything,
every year keeps on going up.

This, in economic terms is called
price stickiness. For example,

let me ask you a question here.

So have you ever seen prices
of majority of the goods falling?

For example, if you go and buy an Apple
computer today,

it would cost approximately ninety two,
ninety three thousand rupees.

Now, last year when I was trying to buy

a MacBook Air, it was costing around
sixty thousand sixty five thousand.

They discontinued that model,
moved on to a new model.

Now you’re buying just 30, 40 percent extra.
Take another commodity good

example.
For example, if last year you would have

gone in the market and you would have
tried to buy apples,

it might have hypothetically cost
you hundred rupees per kg.

But this year, if you go and buy,

I can guarantee you that it’s going
to cost you more than hundred rupees.

So that difference is called as inflation.

Inflation is general increase in price.
Even if you make 10 million dollars

and if you have that sitting in your bank
account, your bank account is not going

to pay you the kind of interest rate
that would offset the inflation.

So in real terms of the
inflation is six percent,

your bank is only going to pay
you five and a half, six max.

So you will end up taking
a loss on that money.

And every year, that portfolio of money
sitting in your bank account be it 10

million dollars, 100 million dollars,
it will start coming down.

That is the first part and first
key realization that you should have.

Second is that you must understand
something called as power of compounding.

Now, this is, again,
something that I’ve repeated and I would

continue to repeat on this channel
that there is a rule called 15-15-15.

So this rule simply says that if you
invest fifteen thousand rupees every month

for a period of 15 years,
at the rate of interest of 15 percent

at the end of that 15 year period,
that money will grow to become one crore.

This is good.
This is interesting.

But if you change the timeline. Now,

if you grow that 15 thousand rupees every
month for a period of 30 years at 15

percent returns,
that money becomes 10 crores.

So that is called as power of compounding
that your money, if it is invested well,

it will grow with time. To speak
about my own personal experience,

I make the most amount of money through

investing. So I invest in different
businesses, portfolio of stocks

etc and I make the most amount
of my active earning through investing.

So the point that I’m trying to bring home

here is very simple,
that anyone can invest,

that’s number one.
Number two, anyone can save. If you have

good financial habits, you don’t need
to be a multi-millionaire to save money.

Number three, if you have good financial

habits and good financial acumen,
once you feel that you have learned

the basics of investing and you are
someone who can actually succeed

in the stock market or in terms
of investing and generating returns

from your assets, that is when the true
magic happens. Now true magic means that you

can stop trading your
active time at your job,

you have to pick up a nine to five job,

go to office, come back for a salary
at the end of the month.

You can stop doing that.

You can actually live off of your

investment and that becomes your primary
step towards leading a wealthy life.

Now, I would leave you with three specific

tips as to how you can start your
investing journey and how you can start

learning more about money,
finance and investing.

So here are three
specific tips from my side,

if you are a complete beginner.

Number one,
you should read economics.

Now, I’m not saying that go and do a PhD,

but at least understand concepts
like behavioral economics.

How do people react when
the stock market tanks?

What is price stickiness?

I explained this concept on this video.
Basic things right.

So you must understand both
macroeconomics and macroeconomics

and there are a variety of books that you
can read and you essentially just need

to read two books, one on microeconomics
and one on macroeconomics.

Number two, please read the business
section of the newspaper.

This will make you very aware. You can pick

up an online subscription or you can
just simply read the physical copy.

It’s coronavirus times, so probably that’s not
the right idea, but at least read some

physical copy of a newspaper and read
at least the business section.

Now, again, you don’t need to go line
by line or sentence by sentence,

but at least understand the overview
of what is happening in the business world

on a daily basis,
at least go through the headline.

Now third, and this is where the difference between
learning and implementing comes,

that once you have picked the basic
finance knowledge,

go and invest ten thousand rupees or any
amount that you are comfortable investing,

it could be just like one percent or two
percent of your entire portfolio that you

eventually want to invest in the stock
market. Experiment with a small amount,

that’s my tip to you.

Once you actually start putting
money in the stock market,

that is when you will start diligently
following a company, because every day you

will start seeing your
savings going up or down.

So that can encourage you and make you

takeaway key important lessons.
Even if that ten thousand rupees

hypothetically becomes zero,
which will not happen.

But even if we assume that just consider

it as a learning cost,
because it will teach you so many

important lessons that
anyone else cannot teach you.

So I hope you enjoyed this article.