Sometime ago in October 2008, a close friend of mine had sold an investment property. He had got Rs. 1 crore for it. I remember him speaking to me and asking me in which area should he rush and buy new property. He told me how he wanted to save taxes by investing in a property within six months. It is perfectly logical to save taxes, but we need to understand that investments are not made to save taxes but to create and multiply our wealth. If you can make 100% more by investing, why would you bother saving 10-20% in taxes and blocking your capital?
The stock markets that time were depressed and I shared the philosophy of benefitting from crashes to him. In spite of getting my point, he told me how he didn’t get any time to research companies and was very busy with his medical practice. I have seen how doctors work round the clock and I respect them immensely for that. Most of them don’t do it for the money, but because they are passionate about what they do. My friend, doesn’t really need to answer calls in the middle of the night and attend patients, but he does it because he loves it.
I suggested he keeps 50% i.e. Rs. 50 lakhs of his money in a safe instrument like an FD and he could look at investing the remaining amount in extremely undervalued stocks. I recommended a financial services company that would be able to help him out. Today in less than a year his Rs. 50 lakhs has grown by 200% to Rs. 1.5 cr and his other Rs. 50 lakhs is completely safe in a bank FD. Personally I strongly believe that even if you are taking the services of a professional, you need to have basic understanding of what is going to happen with your money. If your financial service provider is unable to convince you in a simple way what happens to your money and explain the risks involved, I would advise you keep some distance from them. I hate financial salesmen who try to confuse clients by using unnecessary jargon and complicated terms.
Had he used the money to buy real estate, I don’t think his Rs. 1 cr. would have grown by that much. He would have also found it very difficult to sell the real estate in small parts today. He has booked Rs. 50 lakhs of his profits now and made his investment capital free. That means his entire investment has been recovered and what is invested now are just his profits. This once again proves, that making the right decisions based on knowledge do have immense power to change our financial future. All of us work hard for our money; we need to make sure we make our money work much harder than us.
Long term investing doesn’t mean never booking profits. Whenever the prospects of profit are nice and juicy, over 100% in a year according to me, it makes sense to book partial profits.
Those who feel left out and feel they have missed an opportunity, don’t worry. The world of investing is like a vast ocean, there will always be new opportunities irrespective of where the markets are heading. Even now when I look at the balance sheets of companies, there are several companies that bring a big smile on my face.
Gold has started its upward journey as shared earlier by me and as The Chameleon had predicted. There might be minor blips on the way, but it still has a long way to go.
Recently I finished writing a book for children to help them understand money and finance like a Happionaire, it should be available soon. I enjoyed it a lot and became a child myself, while writing it. I hope our young Happionaire friends out there enjoy it too.
Keep smiling and as always may Saraswati bless you with Laxmi!
Share your views on the above post in our comments section here.