After our last post on Mutual Funds and Insurance, I got several e-mails and comments from fellow Happionaires as well as from people in the insurance and mutual fund business. Many agreed and shared their experiences on how they lost out in the past while a few others opposed my views as radical and not practical for people who might not be having the same skills as a professional investor might be having.
All those who read this need to realize that what I am saying is not meant for everybody – but only for those people who have a desire to create immense wealth. If someone is going to be satisfied with just ‘average’ returns than they can go on and do what the masses do. Did Rakesh Jhunjhunwala or Warren Buffet get rich by investing in Mutual Funds?
I never speak from an ‘academic’ or ‘theoretical’ perspective, because I didn’t learn to invest that way. I learnt on the streets and I continue to learn there every single day, I’m not someone who went to IIM, IIT or Harvard. Irrespective of if you went there or didn’t, the streets will always teach you more.
I could have never made the same amount of returns had I invested in a Mutual Fund or parked my money in some complicated insurance linked to investment plan. Wealth is created by making the best use of whatever resources we have. I respect what Mutual Funds and Insurance do for the larger markets as the get liquidity, but on a personal level I will never invest in them.
Insurance is a means of security and the best thing to do is just take a term insurance where you pay a nominal amount every year – if something happens to you, your family gets the money. But better than this is to build up your long term capital – so your family stays protected with hard liquid cash. Try claiming money from insurance – even for a simple thing like medical insurance and you will realize how much difficulty they create for you to get your own money. If you have Rs. 5 crores locked up in an FD, do you think your family will need to worry about things like insurance? That is what you should aim for.
Recently I got an e-mail from a fellow Happionaire and I had a big smile on my face after reading it. He had Rs. 25 lakhs a year ago. He wanted to take an EMI and buy an apartment worth Rs. 50 lakhs, however he decided not to after reading our negative views on real estate and our opposition to becoming an EMI slave.
Instead he decided to invest Rs. 10 lakhs(Earlier typo:Rs. 5 lakhs.) of his capital in Satyam when the stock had crashed to Rs. 11. He did that because he worked in IT and understood the business model and also was willing to lose his entire Rs. 10 lakhs. He knew that if his bet worked – he would create extraordinary returns, and by the grace of God it did. He sold out recently and grew his capital from Rs. 10 lakhs to over Rs. 1 c in less than a year. He used the principles of Cashing The Crash and benefitting from times of crisis. While the entire media and analysts were talking against it, he had the guts to do what very few did.
Could he have had investing in a Mutual Fund or a Unit Linked Insurance Plan? Could he have done the same had he been an EMI slave and taken a loan to buy a property? Would he have had the same freedom in life that he enjoys today?
There are several such opportunities that the markets keep offering us and it is our job to make the most of them. Don’t regret the past – but at the same time make sure you don’t miss out on the future. I can guarantee that anyone who invests today in the right assets will create immense wealth and those who get carried away by hype will end up losing immense wealth. Which side do you want to be on? I think I know which side you really want to be on.