Showing posts with label warren buffet. Show all posts
Showing posts with label warren buffet. Show all posts

Thursday, November 18, 2021

Magic of Compounding in Stock Market






Meaning

The word compounding means that the initial returns or interest that you earned on investment becomes part of the invested capital or principle. Compounding takes place when the returns or interest generated on the principal amount in the first period is added back to the principal amount in order to calculate the interest for the following periods.

If you invested Rs. 1 lac every year from age 20 to 40 and compounded at 8%, then by 60 you would get Rs. 2.3 Cr. If you started 10 years late, invested from age 30 to 50, you would get Rs 1 Cr from 40 to 60, just Rs. 45 lacs. In all cases, you invested for the same 20 years!

So, what changed? You allowed the compounding to start early! So, with a pretty decent income and with a little self-control on spending you can start investing early. The way compounding works, the more you invest at a young age, the more your money works for you over time and the sooner you'll achieve financial freedom.


How to make Compounding work for you

1. You should start early

There is nothing like starting early to make the most of compounding. If you start investing from the time you start earning, it will make a solid base for you that will enable your wealth to grow further over a period of time.

2. Always follow Discipline

If you wish to create a healthy portfolio, it is very important that you define your financial goals and be regular in your investments. Regardless of how less you earn, knowing what your priority is and understanding how being disciplined now would pay off later, will help you develop the habit to keep money aside for investing.

3. Patience is the Key

A lot of us wish for quick returns and not realize that it is the long-term investments that really powerfully reap from the concept of compounding. You will have to allow your investment to grow at its own pace without meddling with it from time to time. Years of dedicated investment on your part will render a strong and healthy lump sum capital for you at the end.


Compounding in Stock market

Power of compounding looks quite clear from the point of view, debt and the interest being put back. But how will the concept of compounding work in case of equities? The concept is the same but the operation is slightly different. Every company has the choice to pay dividend from earnings. Generally, wealth is created by companies that can reinvest most of their earnings in the company at higher ROE. This drives growth and profit margins and enhances the stock price.


Warren Buffet’s Stock market wealth compounded growth is amazing



On his 59th birthday, Warren Buffett’s net worth was only $3.8 US Billion.

In 6 years, his wealth multiplied 4 times!

In 12 years, his wealth multiplied 9 times!!

In 18 years, his wealth multiplied 15 times!!!

At the age of 91 his net worth is $87.5 billion. So, his wealth has multiplied by 22 times in the last 32 years!!!!

Power of Compounding is practically a Superpower.

But investing early is winning only half the game. The second most important thing is to stay disciplined.


Over the years, stocks are the only investment option that has offered superior returns than any other investment option. Take a look at the below table:

Source: RBI and BSE website


Below given, some of the best performing Indian stock market companies with high compounding over the last 10 years period :




Finally, to ensure the power of compounding in stocks, they must show discipline and reinvest the profits to let the power of compounding do its magic. If the profits are withdrawn, the idea of the power of compounding becomes void as the principal amount will not get anything added to it, decreasing the return potential for the future.

Compound Interest Formula













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Saturday, October 23, 2021

Top 10 Warren Buffett Quotes on Stock Market Investment



Who Is Warren Buffett?

Most people have heard the name Warren Buffett and know him as a famous billionaire investor. However, there’s much more behind the name than someone who squirreled money away in the stock market to build his wealth.

Warren Buffett was born in Omaha in 1930. He developed an interest in the business world and investing at an early age including in the stock market. Buffett started his education at the Wharton School at the University of Pennsylvania before moving back to go to the University of Nebraska, where he received an undergraduate degree in business administration. Buffett later went to the Columbia Business School where he earned his graduate degree in economics.

Buffett had a relatively comfortable upbringing. His father, Howard Buffett, was an investor turned Congressman, and his mother, Leila Buffett, was a homemaker. His career started quite early, with him taking a job as a delivery boy for The Washington Post at 11 years old. Buffett also worked in his family’s grocery store and spent quite a bit of time at his father’s small brokerage, where he would watch what investors were doing and what they said.

If you want to invest like Warren Buffett, you don't need to do anything extraordinary. In fact, many new investors are surprised at just how uncomplicated his investment style is. To sum it up in one sentence, Buffett invests in great businesses trading for less than their intrinsic values, and then he holds on to these investments for as long as they remain great businesses.

Buffett began his career as an investment salesperson in the early 1950s but formed Buffett Associates in 1956. Less than 10 years later, in 1965, he was in control of Berkshire Hathaway. In June 2006, Buffett announced his plans to donate his entire fortune to charity.2 Then, in 2010, Buffett and Bill Gates announced that they formed the Giving Pledge campaign to encourage other wealthy individuals to pursue philanthropy.

Here are top 10 quotes from Warren Buffett, the world's most famous and successful investor :

1.   “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”

2.   “Our favorite holding period is forever.”

3.   “Price is what you pay, value is what you get.”

4.    “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price “

5.    “Risk comes from not knowing what you are doing.”

6.    “Never invest in a business you cannot understand.”

7.    “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for minutes”.

8.    “Someone’s sitting in the shade today because someone planted a tree a long time ago.”

9.    “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

10. “No matter how great the talent or efforts, some things just take time.  You can’t produce  a baby in one month by getting nine women pregnant.”

We can conclude that, Stock market investing is for the long term and when you invest in companies, the key is to have sufficient patience with these investments. Looking at the market movement frequently may provoke you to take wrong decisions that may not work for you. It may also affect your disciplined approach towards investing.

A better approach is to focus more on the companies and funds where you are investing rather than their daily price movement.

It is the nature of the stock markets to move up and down on daily basis, that is where it creates opportunities as well as threats too.


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