Long term wealth creation with minimum intervention

[vivektrader]

Starting this short, 'stupid' and serious thread on long term wealth creation. In the last more than 9yrs, one thing I have realized is that if you want to create wealth there are easier ways than trading (as in swing/day trading) provided one is not addicted to 'daily action' of moving numbers and colorful LTF candles that are forming on the chart. Short term elations hardly create long term wealth. The emotional toll this short term, stressful trading comes with has the potential to ruin health, family life, cause depression, anxiety, psychological scarring (and financial loss of course).

 

[vivektrader]

The premise of probability of wealth creation by investing in Indian stock markets are as under:
1. We as a nation (and economy) are destined to grow for next many decades (that is the basic belief, if some people don't believe this to be true then no point reading further).
2. If we consider the public participation in 'stock investing' as an avenue to grow wealth, its still negligible but going up each passing day.
3. In order to have a comfortable life post retirement, one needs to invest to beat inflation which is north of 7%, FDs will never be the answer.
4. Whichever government is in power, one thing will remain common, we middle class are nobody's vote bank, so we have to plan for ourselves. However, successive regimes do increase tax burden in ever newer ways.

 

[vivektrader]

Cutting short and coming to point.......
To create wealth we need:
1. Initial Capital (as per ones goals)
1. Time (most important) one stays invested. (5Yr-10-15Yr (or more) timeline)
2. Timing (to lesser extent) to enter and add to existing investments.
3. Would be best if one has a full time job and does not depend on trading for living.
4. A Vehicle of investments for consistent long term returns that changes its constituents as per market cycle.
5. Lots of patience to sit through drawdowns and volatility, lots of convection
6. We need to live well too and not try too hard at making money...life and family is more important.

 

[vivektrader]

Many a times we traders identify good stocks, and enter at opportune time, which also moves in profit, gives say 20-30-40% overtime, but then in our portfolio there is always a section which is underperforming. Manually churning out losers is difficult for most as we fall in love with names, get attached to them for e.g HDFC bank ...great pedigree company but not doing much for many years inspite of bull market, so there is an opportunity cost involved. A section of your investment is doing nothing and not part of overall compounding.

 

[vivektrader]

Consistent Compounding only will generate wealth over time.

 

[vivektrader]

A consistent 20% CAGR on investment is a number that may sound mediocre but has the potential to double ones wealth in less than 4yrs. Of course the returns will not be linear, will have its share of drawdowns.

 

[vivektrader]

Vehicle of investment : Strategy Index funds/ETFs
Management : Passive
Additions : In market corrections (no SIP)

 

[vivektrader]

I went through a lot of strategy indices and calculated their CAGRs manually of medium and long term. The most consistent strategy theme for longterm convection and wealth creation is momentum. Reasons are:
1. It is only interested in whats moving and moving fast.
2. The index (which I will elucidate about in following posts) is rebalanced at 6monthly interval by NSE itself and the mutual fund based on that index will simply replicate its performance.

 

[vivektrader]

Posting and comparing various strategy indices for their returns.

 

[vivektrader]

Source of data is NSE website. I have manually done calculations from raw start date and end date data.
https://www.niftyindices.com/reports/historical-data