Middle class hacks - A way for financial freedom!


Money and how it works:

In order to attain financial freedom, one must at least understand how money works.

Just ask yourself what you can buy with Rs.100 ten years before and now. Awestruck right!! You might wonder, what is the reason?

Inflation, that’s the reason. Imagine you have worked hard and deposited Rs.10000 in the year 2009 in your savings account. What is the value of that money today?

Some calculation on that,

Based on the Indian inflation rate from 2009-2019.


So that sums up to Rs.7116 in the year 2020 considering the fact that the bank pays you 4% interest on your savings using compound method which doesn’t happen but that’s a topic for another essay. A whopping loss of 28%. Consider your life savings then. Now the condition is even worse due to the fact that most business activities are stopped and this can spike up the inflation this year. It’s now your choice to lose 10% this year or compensate for it or grow your savings. Who would want to lose their money??

Stocks vs Gold

Although the common mentality in our society is to have our savings in gold. It is quite overprotective to do so. All the traders or people who recommend you to invest gold are either people who are related to selling gold or people who want the economy to fail or the people who are always in a pessimistic view.

The return rate of gold was 116% in the past 10 years and how many companies beat that return rate? A lot of companies emphasize on the word lots. To be honest we can find 100 companies that made 10000% in the past 20 years and 100's of company that made 1000% in the last 10 years. So yeah given a choice what would you do?

Another question that comes to the mind is why this is so? The reason is simple Gold by itself cannot make money like a business would make money out of money. After all gold is just a commodity. So you have to again jump into the introspective mode and ask the question whether you want to work for money or make the money work for you. This doesn’t mean you should throw all your money in the stock market. You can have gold as a percentage of your savings. This is because gold is not going to decrease in value in the next 10 years. So what percentage of saving you can have? You can have savings up to the percentage of your age. For example, if I am 25 years old I may have 25 percent of my savings as gold or bond.

Mindset required and simple rules to follow:

What is a savings mindset? Saving after you spend but it’s quite the opposite Spend after you save. As great investors say you don’t have to have IQ above others to be successful, you just have to be disciplined than the others. Adding to that there are only two rules to follow:


Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1 – Warren Buffett

That’s simple to say but to restrain one to not sell the stock even when the whole market fear is a feat to do. As one of the greatest investor Warren says you shouldn’t buy a stock even for 10 minutes if you don’t have the tenacity to hold it for at least 10 years. A simple trick is to think stock as an asset, would you sell your house when someone offers you a price less than what you paid, a rightly picked stock is also like that and you have to hold on to it through its ups and downs. Once you read a lot about investing you will be convinced to hold the stock forever. Yeah, you read it right forever. There are calculations to prove that but I don’t want to bore you.

The money machine called compound interest. Compound interest is the eighth wonder of the world. He who understands it, earns it.. He who doesn’t.. Pays it. -Albert Einstein Yes, that’s absolutely true, an investment of Rs.10000 with a compound interest of 30% P.A can give about Rs.40 crores after 40 years. However, finding a stock that returns 30 % per annum consistently is a big challenge.

Middle-class burden: One of the middle-class mantra to always remember is “Delayed gratification”. 1. Never give in for EMI until it is absolutely necessary, Even though it’s a zero percent EMI. This is because there no such thing called zero percent EMI. It’s just a concept to make customers opt for the EMI option readily. For ex : If you are offered a smartphone of Rs.50000 with a monthly EMI of Rs.5000 for 10 months that means you are being sold the product with a 10% hike. This is true as the retailer selling you a mobile with EMI option is actually not selling one product but is selling two products EMI and Smartphone and yeah the retailer gets 10 – 26 % for the Smartphone EMI option. So if you practice Delayed gratification, save the amount for the phone little by little you can buy it without EMI option and get the smartphone for Rs.45000 by bargaining for the same. The EMI option is only good for tax write off. 2. Never get a credit card. I hope everyone has heard the word “fire vatti” in your life at least once. Well, the modern implication of that is credit card. They are the people who play with your temptation the most giving you the purchasing power but at a very costly price. On an average it can go up to 30% p.a which is very huge per se. 3. Think at least a million times before you spend on something. Invest consistently on stocks and have it as a habit. 4. Get a health insurance for sure because you cannot have financial setbacks because of this. This could seriously dent your time frame for financial freedom in some cases and can drown you of every thinking the idea of the same. What stock to buy and how you should buy? For starters buy stocks that have consistent earnings per share growth without default for at least 10 years (i.e. no negative earnings or loss per share). The price of buying is also an important factor and always consider the intrinsic value of the company. Never listen to the stock tips given by so-called “stock experts” and test it for yourself by reading the financial statements and gauging the management of the company. Although the prior one can be done with financial ratios the latter is purely qualitative and is harder to find and as the saying goes the alchemist is important for alchemy. Thus the management plays a key role in the company’s growth. A simple rule that could save you is to choose a company that has the promoter's skin deep in it that is choosing a company with greater promoter holding 30 % or more; as a history of great growth companies usually have the founder or promoter leading the company instead of a hired person. Also, note that the company is not doing good if the promoters' holdings are diminished constantly, this implies that the inner circle people or insiders doesn’t believe in the company. No one can predict the future. Always have this in mind and if so this could happen we would have predicted the great depression through out the history. The best we have is the past and present information. It is always best to stick to less information or ample information as too much can confuse you. Therefore always keep it simpler and follow the coffee can portfolio where you put the coffee called stock in your jar and keep it wrapped under your bed till it ripens. Fundamental analysis of ITC ltd. For Ex take the case of ITC Ltd, It is currently trading at Rs.197 as I write this article. Trailing its past growth it can grow up to 20 % per year for 10 years as it is entering FMCG product sector in the near future and also the worrying of decreasing tobacco product consuming does not impact the company as we have seen in American cigar companies; these kinds of companies increase their profit even at a decreasing sales. This company has nearly no debt and it has a cash equivalent of 14000 crores as bond, so you can safely say this a cash cow. The company has been acquiring other FMCG companies for inorganic growth. Even with a safety margin of 50%, we can safely trade up to Rs.240 per share. How cheap it could be trading at Rs.197 and the depression makes it even cheaper. On March 23 rd of 2020, the share was trading at a price of Rs.147. When should you sell and how to maintain your portfolio? The stocks have to be sold when it exceeds your valuation or if the PE ratio of the stock exceeds 50 which means it’s overvalued and this sold stock money can be transferred to bonds. You also have to maintain the ratio of holding stocks and bonds. The ratio as said earlier depends on your age. It can be 75% stock / 25 % bond or bond equivalents such as gold if your age is 25. Regarding the bond, you can buy AAA bond for starters as it is well backed by securities. Optimistic view on economy: History doesn’t repeat itself but it often rhymes -Mark twain. Corona and how it can be helpful to India. I firmly believe in the above quote. Accordingly, one or more countries become superpower after the depression, like how china became a superpower after the 2008 depression and there are many instances in history like this. Therefore if this history rhymes here why India is going to benefit from it. Here are my reasons: 1. Leading companies have learned it the hard way that you should not keep all the eggs in one basket and therefore they are shifting and diversifying their hub from to other potential countries like India. 2. Out of the potential countries, the suitable and similar candidate to china is India. Not only there is a lot of population in India but the population has the median age of 27 compared to china’s median age of 38 which is steadily increasing (due to their stupid inorganic method of controlling population). Adding to that the per capita income is less in India like it was once in china, the processing cost will be cheaper here compared to china. As the per capita income raised in china, the living standards also increased and, as the living standard increased workers demand more wage and it thus becomes a costly process. 3. The only problem is infrastructure and if the government can raise capital and improve infrastructure by means of disinvesting public sector as the government has severe money mismanagement coupled with dry treasury. The government is already planning to privatized public sectors which in itself is both good and bad but it is the need of the hour assuming the implementation to be fruitful. Hoping this benefits you, Bella ciao Koushik Sundaram K

References: 1. The Intelligent Investor by Benjamin Graham 2. Financial interpretation by Warren Buffet 3. 100 Baggers by Christopher Mayer 4. Anand Srinivasan videos from Money Pechu channel

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