10 Lakhs to 100 Crore: Proven Investment Strategy For Aspiring Wealth Builders

Converting 10 Lakhs to 100 Crore can be a dream for a prospective wealth builder. It can be like a dream come true, a milestone to die for. This journey, while seemingly daunting, is within reach if approached with the right strategies and mindset. Our stock market offers immense opportunities that can make this idea a reality. But to get there one will require the right knowledge, discipline, and a strategic plan.Let’s discuss a few insights and actionable steps that can help us grow our wealth exponentially over time. We’ll look into the mindset necessary for successful investing. We’ll take clues from how great investors think and act. We’ll also try to understand the psychological aspects of investing that can provide a solid foundation for future wealth building. A deep understanding of investment psychology triggers prudent actions on the part of the investors.Long-term wealth building is all about identifying and seizing opportunities. Keeping our thoughts in the right place and always being ready to take action helps us as an investor. Our market is full of potential, but recognizing the right investments at the right time is crucial.For instance, even fantastic businesses like banks, consumer durables, health, technology stocks, etc can trade at reasonable price levels. In the last full decade, real estate stock’s performance were only lackluster. But see their PEs now, all quality names are trading above PE40 levels.Stock investing is all about identifying quality stocks trading at a discount to their future values. Investor’s mindset plays a crucial role in zero-down such companies. The trick is to stay informed and focus completely on the process of picking stocks.Once a quality stock has been picked, step two of investing starts. This step is even more reliant on our mindset. Here, our returns start to get built. What will work here in our favor is compounding, diversification, and risk management.In this article, each strategy will be illustrated with real-life examples to highlight its effectiveness.We’ll also talk about a few practical tips and actionable steps using which one can start implementing rules. The bigger idea is to understand and implement the goal of converting 10 lakhs to 100 crore over time.Topics:Point #1: An Investor’s MindsetA particular mindset is crucial to achieving extraordinary financial growth, I call it an investor’s mindset. People who achieve success in long-term investing are people who carry an investor’s mindset. This mindset is akin to the mindset of successful entrepreneurs.To build a massive long-term portfolio, it is essential for us to start thinking like an entrepreneur. We must treat our portfolio as our business. The more profitable assets we’ll built there, the bigger returns we’ll gain from there.It goes beyond technical skills and market knowledge. It involves a blend of discipline, patience, and a keen eye for opportunities.In this section will explore three key aspects of the investor’s mindset.1.1 Entrepreneurial SpiritJust as an entrepreneur judiciously selects assets for their business, investors must carefully choose stocks for their portfolio.An entrepreneur invests in land, buildings, machinery, and people, aiming for optimal growth and efficiency. Similarly, investors should view their portfolio as a business, meticulously selecting stocks that promise long-term value and growth.Consider how an entrepreneur like Dhirubhai Ambani built Reliance Industries. He didn’t just follow market trends; he created them. He identified opportunities where others saw obstacles and took calculated risks to build a business empire. This same entrepreneurial spirit can be applied to stock investing. By researching and selecting fundamentally strong stocks that others are ignoring is goes a long way in creating value in long term.For example, investing in blue-chip companies which are out of favor, is akin to an entrepreneur investing in high-quality machinery or skilled labor. These stocks provide stability and long-term growth, much like reliable assets in a business.Entrepreneurs also continually adapt to market changes, innovating and pivoting when necessary. Investors should also stay informed about market trends, economic shifts, and emerging industries. Adapting to these changes can turn challenges into opportunities.1.2 Learning from the GreatsWarren Buffett is a legendary investor, we all know it right? He prepaid for his college education by investing in stocks as a teenager. His story teaches us the importance of starting early and thinking long-term.Buffett’s success isn’t just about picking the right stocks; it’s also about a disciplined approach and understanding the value of businesses.Buffett focuses on companies with strong fundamentals and holds onto them for the long term, sometimes even for 30-40 years.Buffett’s investment philosophy is rooted in patience and thorough analysis. He avoids speculative investments and prefers steady, reliable growth. This disciplined approach is a cornerstone of his success.Aspiring investors can adopt this mindset by focusing on long-term value rather than short-term gains.We must also continually educate ourselves about the businesses we invest in. This statement may sound general and casual, but in stock investing, it is perhaps one of the most essential things. Why? It is because this kind of information about businesses (companies) will allow us to invest more when others are running away from it1.3 Case StudyLet’s talk about Rakesh Jhunjhunwala. He started with just a few thousand rupees like us and turned it into billions through smart investments. Jhunjhunwala’s journey shows that with the right mindset and strategies, incredible growth is possible.He invested in undervalued stocks with strong growth potential and held onto them despite market fluctuations.His success is also attributed to his deep understanding of the market. He used to do thorough research on the market and also about specific companies.Aspiring investors can learn from his journey by adopting a similar approach of building a portfolio of quality stocks that are being held for at least 5-7 years.Point #2. Identifying and Seizing OpportunitiesIdentifying and seizing opportunities is a skill that involves recognizing the market gaps. To do it, one must first understand the principles of value investing, and how to manage investment risks.By honing these skills, we can capitalize on opportunities. For us, these will pose as opportunities because people who do not have the skill might overlook and ignore it.2.1 Market GapsIdentifying market gaps is crucial. Successful investors are always on the lookout for underserved markets where demand exceeds supply. This requires keen observation and a deep understanding of industry trends and consumer behavior.Take the example of Flipkart. Sachin and Binny Bansal identified a significant gap in the e-commerce market in India. At the time, online shopping was in its nascent stage, and there were few reliable options for consumers. Recognizing this opportunity, they started Flipkart from a small apartment in Bengaluru. Their focus was on providing a seamless online shopping experience. Over the years, Flipkart grew into a billion-dollar company, reshaping the retail landscape in India.Bansal’s success story underscores the importance of market analysis and the ability to identify and fill market gaps effectively. Quality companies that emerge to fill the market gap experience exponential growth in their initial phases.Aspiring investors should constantly scan the market for such opportunities and be ready to act swiftly.2.2 Value InvestingValue investing involves buying undervalued stocks and holding them until their value is realized. For companies with a wide economic moat, value realization can even take decades. What does it mean? Buy stocks of such companies and hold on to them for a couple of decades. This is what is value investing.Value investing is a strategy that requires patience, discipline, and a deep understanding of the market and its stocks. Charlie Munger, Warren Buffett’s long-time business partner, is a staunch advocate of value investing. Together they run a company called Berkshire Hathaway.Berkshire’s investment philosophy is centered on acquiring high-quality businesses at a fraction of their intrinsic value and holding onto them for the long haul. This approach minimizes the risks associated with market volatility and capitalizes on the inherent value of solid, well-managed companies.Berkshire Hatahway’s success is an example that if value investing is practiced correctly, it can yield very high returns. Warren Buffett has been investing through his holding company Berkshire Hathaway for many decades. It is believed that his 50 years of investing have yielded a 20% return (CAGR).At this rate, an investment becomes 9100 in 50 years. For example, if a person invested Rs.10 Lakhs, 50 years back in Berkshire, by now his investment would have become Rs.910 Crore. Read more about how to invest large sums of money.Aspiring investors like us can learn from examples how staying invested for the long term (in quality companies) can multiply our wealth.2.3 Risk ManagementEntrepreneurs and successful investors alike understand the importance of risk management. They don’t avoid risks but manage them effectively.Richard Branson’s launch of Virgin Atlantic with minimal resources is a perfect example. Branson entered the highly competitive airline industry with a bold vision but limited capital. To mitigate financial risks, he negotiated favorable terms with Boeing for leasing aircraft, ensuring that he could return the planes without significant penalties if the venture failed.Additionally, he partnered with established travel agencies to secure advance bookings, providing a steady cash flow from day one. Branson’s approach to risk management was strategic and calculated. He didn’t shy away from the inherent risks of the airline business but managed them in a way that minimized potential losses.This strategy allowed Virgin Atlantic to grow and eventually become a major player in the industry. Read more about the company here.Aspiring investors can take a leaf out of Branson’s book by identifying potential risks in their investments and finding ways to mitigate them effectively. This could involve buying only undervalued stocks, keeping the portfolio diversified, and holding stocks for long term.Point #3. Strategies for Exponential GrowthAchieving exponential growth in your investments requires a well-thought-out strategy. It’s not just about finding the right stocks or assets but about adopting a disciplined approach. For long-term investors, the right approach can build substantially more wealth with minimum risk undertaken.The Key strategies, that I’ve learned from the great investors are listed below. Here are a few specific stock investing strategies that can potentially generate exponential returns over a 20-year time horizon:Peter Lynch’s “Invest in What You Know”: Invest in companies with products or services you understand and use, allowing you to make more informed decisions.Warren Buffett’s “Margin of Safety”: Invest in companies with a significant discount between their market price and intrinsic value called margin of safety. It provides a cushion against potential losses.Joel Greenblatt’s “Magic Formula”: Invest in companies with high earnings yields and high return on capital, using a ranking system to identify top candidates. Read more about the Magic Formula.David Dreman’s “Contrarian Investing”: Invest in companies with low price-to-earnings ratios, high dividend yields, and strong financials. This way one can go against the crowd to find undervalued gems.Bill Miller’s “Active Rebalancing”: Regularly rebalance your portfolio to maintain target allocations, buying and selling stocks as needed to stay on track.Ray Dalio’s “All-Weather Portfolio”: Allocate assets across different classes (stocks, bonds, commodities, etc.) to create a diversified portfolio that performs well in various market conditions. Read more about ways to invest money.Robert Shiller’s “CAPE Ratio”: Invest in companies with low cyclically adjusted price-to-earnings (CAPE) ratios, indicating undervaluation compared to historical averages.Warren Buffett’s “Buy-and-Hold Investing”: Buying stocks of high-quality companies and holding them for extended periods. Here the investor should resist the temptation to sell allowing the power of compounding to come into play.Point #4. Practical Tips and Actionable StepsStock investing can seem daunting, but with the right approach and mindset, it can be both rewarding and fulfilling. Let’s look at a few practical tips and actionable steps that can guide you toward a fulfilling stock investment journey.4.1 Starting Small: The Story of Eicher MotorsWe don’t need a lot of capital to start our investment journey. Begin with what you have and invest consistently.A real-life example that illustrates this point is the story of Eicher Motors. In the early 2000s, Eicher Motors was a relatively small company, best known for its struggling Royal Enfield motorcycle division. The company’s stock was affordable and largely overlooked by major investors.An individual investor who recognized the potential in Eicher Motors began investing small amounts regularly. Initially, these investments may have seemed insignificant, but the investor was consistent, buying shares time after time. Over time, the power of compounding began to work its magic.As Eicher Motors revamped its Royal Enfield brand and capitalized on the growing demand for stylish, retro motorcycles, the company’s fortunes changed dramatically. The stock price soared, multiplying many times over. What started as a modest investment in a small-cap stock transformed into substantial wealth.Rupees 10 Lakhs invested in Eicher 25 years back would have become Rs. 400 Crore by now.This story underscores the importance of starting small. Regular, disciplined investments, even in smaller companies with high growth potential, can lead to significant returns.4.2 Continuous Learning: The Journey of Warren BuffettWarren Buffett’s story perfectly illustrates the importance of staying informed and continuously expanding your knowledge. Buffett began his journey by immersing himself in the world of finance and investment from a young age.Buffett read extensively, consuming books by renowned investors like Benjamin Graham. The book called The Intelligent Investor influenced him deeply. This early dedication to learning provided Buffett with a strong foundation in value investing.Buffett didn’t stop at books. He continuously followed market news, analyzed financial statements, and studied economic trends. This habit of staying informed allowed him to make well-informed investment decisions.For example, during the 2008 financial crisis, Buffett’s deep understanding of the market enabled him to identify and invest in undervalued companies like Goldman Sachs and General Electric. These companies later yielded substantial returns.By following Buffett’s example, we common investors can see the value of continuous learning. Regularly reading investment books, and staying updated with financial news are practices that can significantly enhance your investment skills.4.3 Building a Network: The Story of Rakesh JhunjhunwalaNetwork building can be beneficial in gaining insights and seizing opportunities in the stock investment world.Jhunjhunwala started his investment journey with a small capital. However, he quickly realized the importance of networking. He built relationships with seasoned investors, market experts, and financial advisors.One key connection was with Radhakishan Damani. Jhunjhunwala used to consider Damani like his Gure. He used to offer invaluable guidance to Jhunjhunwala.We as investors can also participate in investment clubs and seminars. These platforms can allow us to discuss investment ideas, share research, and learn from others’ experiences. There are also online forums and social media groups on stock investing that we can join. Reading discussions on these forums and social media groups can give us new food for thoughts on stocks.4.4 Monitoring and Rebalancing: How I do itMonitoring and adapting your investment portfolio is essential to ensure it aligns with your financial goals and market conditions.I started my stock investing journey in the stock market about 16 years back (in 2008). Since I had this habit of consistently watching my investment in my Excel sheet. Back then, we did not have the luxury of tracking stocks in Google Sheets. I used to do the tracking manually.In the first year or so, it looked like a futile and time-wasting exercise. But over time, the numbers on the Excel sheet began to grow on me. Just seeing how my overall portfolio is performing versus the Sensex, it started giving me an idea about the market trendsI used to meticulously analyze my stocks before buying them. In 2008, my filters were revenue growth, EPS growth, net worth growth, low PE, low debt, and positive cash flow. Based on these parameters, I used to pick my stocks. I still remember that among my first few stocks was DLF.I used to keep track of how my holdings were performing as compared to the time I bought them. If most of the indicators are showing an improving trend, it was a hold signal for me.When I buy my stocks, I buy them with the mindset that I’ll hold them for 20 years at least. But I do sell my holdings. In the past, I have sold DLF (2013), Future Retail, Paytm, etc. I think, except for Future and Paytm, most of my stocks were sold due to over-inflated PE.Growing debt and too high PE are indicators that trigger deeper monitoring and if possible rebalancing.I generally, sell my overvalued stocks and use the proceeds to invest in my current holdings. At least ninety percent of my redeemed funds go into my existing holdings. But if the valuation of my holdings is not cheap, I do not mind holding cash. Generally, my cash holding is less than 10% of my portfolio size. Currently (July 2024), my cash holding is higher at about 18%.Conclusion If one wants to achieve the goal of converting Rupees 10 lakhs to 100 crore in 30 years, his capital must compound at 26% per annum (CAGR).Earning a 26% CAGR for such a long period of time is tough but possible. But it is also a fact that even a brilliant investor like Warren Buffett could generate a return of 20% over a 4-decade-long holding period. But we must not forget that he runs a kind of mutual fund portfolio where he has to deal with the government regulations and investors redemption calls. This is what could have limited the overall growth rate (20% odd) of Berkshire Hathaway.Otherwise, I think, has Warren Buffett had been investing as an individual, his portfolio growth would have been much higher.Assuming this, I strongly believe that a long-term investor in India can earn a 26% CAGR if he/she can accumulate value stocks and hold them a very long periods (like 20 years). I have already discussed the strategies and mindset needed to make this goal a reality.Frequently Asked Questions1. What is the most crucial mindset for turning 10 Lakhs into 100 Crore?The most crucial mindset is long-term thinking and patience. Successful investors focus on sustainable growth and compounding returns over time. Embrace resilience and an entrepreneurial spirit, continuously learning and adapting to market changes.2. How can I start investing with limited capital?Begin with small, regular investments through systematic investment plans (SIPs) in mutual funds or small-cap stocks. Consistent contributions and the power of compounding can significantly grow your wealth over time.3. Why is diversification important in achieving exponential growth?Diversification spreads risk across different sectors and asset classes, ensuring that a downturn in one area doesn’t severely impact your entire portfolio. It provides stability and enhances the potential for consistent returns4. How do successful investors manage risks effectively?Successful investors manage risks through thorough research, calculated decisions, and diversification. They also adapt their strategies based on market conditions and stay informed about economic trends and potential opportunities.5. What role does continuous learning play in investment success?Continuous learning keeps you updated on market trends, investment strategies, and economic changes. It helps you make informed decisions, adapt to new opportunities, and avoid common pitfalls, ultimately enhancing your investment success.Have a happy investing.