Thursday, May 20, 2010


Being wealthy is not about how much you earn, or what car you drive, or what size home you live in. Real Wealth is about securing a regular income stream, without you physically working, of more than double your living expenses.

Bringing home a huge salary, or being a very successful entrepreneur, does not make you rich. Although it is easier to become rich if you are earning well, however you do need to fulfill this Wealth Building Potential.

When you start living beneath your means, you are on the road to wealth creation. You need to invest the difference. As an aspirational spender, always wanting the branded clothes, watches, and later on cars, or a larger home, you will never develop real wealth. You need to sacrifice what you want now, for what you will need in the future.

Creating wealth can be started from any income level, but it is easier to become rich if you have a large income. It does not really matter which vehicle you use to create wealth. It can be real estate, shares, fixed deposit, commodities, etc. What is important is making a PLAN to be financially free. You can leverage your results by contacting a Certified Financial Planner – a CFP professional would have studied such diverse topics such as insurance, investments, estate planning, tax planning, retirement planning and would be able to take a more holistic view of the planning process.
Hence do make a plan today, to be wealthy in 10 or 15 years.

Monday, May 10, 2010

When to cash out your share

According to Warren Buffett, the best holding period is forever. That is how he has made his great wealth, by picking the right companies and holding them for long, long period of time.

I have worked out a plan, to make myself financial free. I have a target to invest every month. Whether I invest in equity or debt i.e. my asset allocation depends Price / Equity of the Sensex
- Below 12 times 90% equity and 10% debt
- 12 – 15 times 80% equity and 20% debt
- 15 – 20 times 70% equity and 30% debt
- 20 – 25 times 60% equity and 40% debt
- above 25 times 50% equity and 50% debt

I tend to have a core portfolio – blue chip shares which I will never sell, and the rest of the portfolio – shares which will book out when certain parameters have been met.

With the core blue chip portfolio, every time the Annual Report appears, I study the same, and on the basis of the conditions mentioned in my earlier blog, determine at which price I would add to my stock. If that price is reached, I buy.

Reasons to sell:
1. When a stock that has been historically traded at between 10-25 times earning, begin trading at 40 or more times earnings, for no other reason than that the stock market is going through a period of mass speculation, its time to get out.

2. A good rule of thumb, is to add up the expected per share earnings of a company over the next 10 years and them compare the sum with what you would earn if you sold the stock and placed the proceeds in bonds instead.

3. Other reasons:
(a) A better opportunity presents itself.
(b) The business or environment changes.
(c) When the target price of the security has been met.
i. First target price – sell quarter the stock when the price goes up by 50%
ii. Second target price – sell another quarter of the stock when the price doubles. (the stock is almost free)