Gaurav goel

The Overnight Millionaire

 

A greedy, lazy man had difficulties in earning his living. One day while resting under a tree, he had a chance encounter with a sage who was meditating there. On hearing his plight, sage gave him the address of a cave far away where a treasure chest was hidden. He rode the fastest horse, crossed mountains and rivers and to his delight reached his destination in no time. With one swift move he dug out the entire treasure and became the richest man on the planet. Later he married a beautiful princess and lived happily after.

Well, that’s a story!! The real life is not so kind. We all want to get rich overnight but not willing to slog for it.

Nothing comes easy, certainly not money. Ill-gotten money maybe an exception but there is an element of higher risk attached to it. Another exception is hitting a jackpot on the casino floor. The probability of success here is miniscule. Overnight millionaire concept is just a mirage unless you are extremely lucky and can convert stone to gold by a mere touch!!

To make big money in equity markets, one needs to spend significant amount of time in the market. It has to be accompanied with a planned approach and a good understanding of your risk taking ability.

Dreaming for riches is not a bad thing. In fact it is a vital first step in methodically creating right amount of wealth over a period of years. One needs to however eliminate greed that attacks the mindset like a termite. The greed leads to imprudent investment choices, irrational decisions, fear, frustration and ultimately dejection.

I strongly advocate“method in madness” approach to all my investor clients. Equity markets are mad. They can be brutal and shave your wealth mercilessly instead of growing it. Such madness requires careful planning, long term ideology and high emotional intelligence.

Right understanding of risk and asset allocation is the essence of this methodical approach.

A simple way of understating your risk taking ability is to honestly answer questions mentioned in a risk profiler most financial planners usually provide. This is effective, but unfortunately it’s not full proof. There is another behavioral component of risk called “attitude towards risk” that gets truly demonstrated only in real life situation.

Once risk profile is determined, allocate your assets in different asset classes with reasonable diversification. Asset Allocation helps in placing your hard earned money in right baskets of products. Never underestimate the power of diversification.

This is followed by perseverance, discipline, clutter free mind and a clear focus on objectives. The portfolio has to be regularly reviewed with your investment adviser. If your investment adviser is also executing on your behalf (which is not allowed in India) and advocating a lot of churning in your portfolio, you have full right to be suspicious.

Nature is a perfect example of the message in this blog. Everything associated with it blossoms in due course. Unnecessary interference can lead to disastrous results. Investment portfolios are no different. They have to nurtured and taken care of!!

 

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