

How to become a millionaire: Can nancial

investments put a common man in the rich
club?
Updated: March 24, 2019 8:41 PM

Warren Buffett, Carl Icahn, Ray Dalio, David Tepper, and Rakesh Jhunjhunwala are a few
names who have moved up the value chain starting out from a very humble
beginning.

Going Bald? This Ayurvedic Remedy Can

Help You!
 

How to get rich: Just by going through the past history of the markets, it can easily be said that the stock
market has a tremendous track record to help grow wealth for any investor.

If one looks at the examples of legendary investors globally, it can safely be concluded
that it is entirely possible for a common man to become a millionaire through investing.
Warren Buffett, Carl Icahn, Ray Dalio, David Tepper, and Rakesh Jhunjhunwala are a few
names who have done remarkably well in the stock markets and almost all of them have
moved up the value chain starting out from a very humble beginning. However, it
should also be noted that the general perception about the markets in the masses is
that investment in the equity markets is akin to gambling. To back it up, one can nd
numerous examples of retail investors who have lost their fortunes in the stock markets.
One question that naturally comes to mind is that what separates the likes of a Warren
Buffett and an ordinary investor? After all, both of them have access to the same markets
and the same information. The closest possible answer, therefore, is the lack of nancial
discipline and a strategy to investing is perhaps the biggest difference between a
legendary investor and an average investor.
Ad


Just by going through the past history of the markets, it can easily be said that the stock
markets have a tremendous track record to help grow wealth for an investor. The S&P
Sensex, for instance, has a historical annual growth rate of 15.86 per cent since its
inception and has grown around 14.39% annually over the last 10 years.

The historical returns of a benchmark indices re ects the average performance of a

basket of stocks that in some ways are re ective of the state of the economy of a country
and various sectors that contribute to the economy. In reality over longer term some
sectors would outperform and some sectors would underperform, but on an average

equity returns have outperformed historical returns of any other asset class, be it Gold,
Real Estate, Fixed Income or other alternative assets. Equity is perhaps the only asset
class that has been able to deliver in ation-beating superlative returns on a consistent
basis.

Returns from a benchmark index can appear to be muted to an extent given the fact
that they re ect an average return of a combination of stocks. If one digs deeper and
analyzes returns of individual good quality stocks, he/she would be absolutely convinced
that investing in good quality stocks for a longer term horizon is a sure shot way to
become a millionaire. For example, the following table presents the results of some
bellwether stocks over a period of ten years, Bajaj Finance is one such example. If one
had invested Rs 1 lakh to purchase a block of shares in Bajaj Finance Limited (BFL) 10
years back and holds till now, he’d be sitting on Rs 4.15 crore wealth in the form of BFL
stocks apart from additional cash dividend received over the years. The stock has
returned 82.73% annually and in 10-year time an investor would have had a growth of
41,400% on his investment in Bajaj Finance. Bajaj Finance is just one example. There are
many other similar stocks which have provided stupendous returns to their investors
over a longer term. Eicher Motors, Relaxo Footwears, Maruti Suzuki, Infosys, TCS are a few
names that fall in that category.

In addition to nding good quality stocks in one’s investment portfolio one other critical
component that is often overlooked is the power of compounding. The following table
depicts the growth of a Rs 1 lakh investment over a period of 10 years and 20 years under

different growth rates that are compounded over a period. In twenty years’ time an
investment of Rs 1 lakh turns into Rs 6.7 lakh under a very moderate growth rate of 10%. If
the growth rate, however, is 25%, the initial investment turns into Rs 87 lakh in 20 years.
Therefore, it can safely be deduced that the recipe for long-term sustainable wealth
creation lies in nding good quality growth stocks and to stay invested in them for a
longer duration.

Recipe for Wealth Creation

So far we have established that equity investment serves as the best asset class over its
peers over a longer duration of time. We have also identi ed that staying invested in
good-quality stocks for longer durations is the sure shot way of wealth creation. However,
why isn’t a common man able to create wealth in 10-20 years from the stock market?
The reason is simple: most people do it the WRONG WAY.

By investing in the RIGHT WAY a common man can also become a millionaire. He/she
just needs to focus on the two basic aspects to investing. First is the selection of right
stocks and the second is to follow a few basic rules that make one a disciplined investor.
For a common man, it is better to invest in only those companies that have a simple
business model to understand, have very little debt, have free cash ows or do not have
much capital expenditure. The most important thing is to look out for a business that
has a capable and investor-friendly management. Investors should research thoroughly
about the company and invest only after the growth credentials of the company are
rmly established.

However, having zeroed in with the right set of portfolio alone can’t make one rich. To
grow wealth one also has to follow a right investment approach. One needs to identify
quality stocks and hold them tight for longer periods instead of involving oneself in
short-term trading. A world-class company is built over the years and so is the wealth of
an investor. An investor needs to develop the appetite to digest short-term disruptions.
As Warren Buffett famously said, “The stock market is designed to transfer money from

the impatient to the patient.”

An investor needs to give time to his stocks to compound over the period. One should
never try to time the market because catching the tops and bottoms is a myth. However,
it is important to determine the correct price to enter a particular stock. Price
comparisons should be made between a selected stock and it’s peers to establish the
price attractiveness of your choice. Never let emotions drive one’s investment. Many
investors have lost money in the stock markets due to their inability to control their
emotions during market volatility. In a bull market, the lure of quick wealth is dif cult to
resist and in a bear phase it is dif cult to tackle the loss.

Therefore, it becomes contingent to hold a stock based on its fundamentals instead of

short-term market movements. In a bear phase instead of booking a loss and exiting a
fundamentally good stock altogether, the strategy should be to put more money into
the stock to bring your average cost of acquisition down and increase the probability of
higher returns once the market normalizes. To be successful one should be realistic in
one’s expectations and one needs to monitor one’s portfolio at regular intervals to
ascertain that nothing fundamentally has changed in the stocks in one’s portfolio. If one
nds stocks which have materially deviated from their fundamentals, the investor should
not desist from liquidating those stocks from his portfolio.

Finally, becoming a millionaire by investing in the stock market or somewhere else is not
out of the reach of a common investor. There are enough examples to prove this
hypothesis. The success lies in hard work, careful planning and execution, and above all, a
disciplined approach to investing for sustainable long-term wealth creation. Follow these
things and become a rich person!
(By Rahul Agarwal, Director, Wealth Discovery/EZ Wealth)


Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds,
calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers &
Best Equity Funds. Like us on Facebook and follow us on Twitter.

HOME | MONEY | How To Become A Millionaire: Can Financial Investments Put A Common Man In The Rich Club?

Advertisement

More Power. Less Weight. More Agility. Ride a Harley Now

Harley-Davidson India | Sponsored

Stock Clearance SALE. Flat 80% OFF on Luxury Watches. Offer valid until
stock lasts.

LUXOTICO | Sponsored

These Bluetooth hearing aids are going viral! Try them for free!
hear.com | Sponsored

Your money: Why bank deposits are no longer a favourite with investorsYour money:
Why bank deposits are no longer a favourite with investors
FinancialExpress

Crackdown on fraudulent, misleading companies giving share market tips; SEBI bars
these websitesCrackdown on fraudulent, misleading companies giving share market
tips; SEBI bars these websites
FinancialExpress

Unable to invest? 4 common excuses that prevent you from investing right nowUnable
to invest? 4 common excuses that prevent you from investing right now
FinancialExpress

TNMRB Recruitment 2019: Hurry! Last date of application for 353 posts today – check
how to applyTNMRB Recruitment 2019: Hurry! Last date of application for 353 posts
today – check how to apply
FinancialExpress

The magic of a simpler life with rice

OurBetterWorld.org | Sponsored

Salman Khan’s big statement on Kashmir dispute; read what Bajrangi

Bhaijaan saidSalman Khan’s big statement on Kashmir dispute; read what Bajrangi
Bhaijaan said
FinancialExpress

Indian stocks steady; ONGC, Bharti Infratel top gainersIndian stocks steady; ONGC,
Bharti Infratel top gainers
FinancialExpress

Jobless in India? IT sector created 8.73 lakh jobs in five years: Ravi
Shankar PrasadJobless in India? IT sector created 8.73 lakh jobs in five years: Ravi
Shankar Prasad
FinancialExpress
10 tax saving investment mistakes which may cost you dearly10 tax saving investment
mistakes which may cost you dearly 
FinancialExpress

Bumper Sale - Rado Watches at 80% Discount

Premium Watch | Sponsored

Advertisement

STOCK MARKET

Advertisement
 

FOCAL POINT

INDIA STORY: GLASS HALF FULL VANDE BHARA

Mahindra XUV300 First Drive Review:
Has Modi’s UDAY scheme ful lled its Train 18 tick
'Made In India' and Safest, most feature
destiny? A review of power sector packed! fare chart of
points

Government hasn’t been

2019 Maruti Suzuki
realistic about India’s Train 18 IRCT
WagonR Review: Bigger,
budget; scal de cit may details: Vand
Bolder, Safer and next big
spiral Express to ha
blockbuster!
5-star food; b
from Chaayo
Jobs surge in
2019 Nissan Kicks Review,
manufacturing sector in
Test Drive: Can it
Q3, but exports may Vande Bhara
challenge the mighty
remain weak; here’s what schedule: Fu
Hyundai Creta?
FICCI survey says Train 18 timin
stations on D
route
• • •

Advertisement
 

TRENDING NOW
CPSE ETF: A Perspective on the Further Fund Offer (FFO)

Technology in Investment Management – Friend or Foe?

Digital thrust propels India’s rise to become the most preferred

offshoring location, says report

Over 1 crore enrolments expected by April-end under

government's pension scheme

Rs 3 lakh crore private power plants' investments staring at NPA

status as discoms delay payments

BUDGET 2019
A fair share? Centre's transfers to states decline below half of its
budgeted expenditure

Budget 2019: Tax cuts can help build long-term wealth

Budget 2019: Remarkable initiatives by Modi government to hike

farmers income

Bumper bonanza! Budget 2019 income tax rebate to bene t over

8 lakh Indian Railways employees

Switch to Hindi Edition

STAY CONNECTED
    

MOBILE APPS

 

LATEST NEWS INDUSTRY SECTORS

MARKETS AUTOMOBILE

ECONOMY BANKING & FINANCE

INDIA INSURANCE

SPORTS TECHNOLOGY

COMMODITIES JOBS AND EDUCATION

LIFESTYLE FROM THE PRINT

HEALTH INTERNATIONAL

SCIENCE EDITS & COLUMNS

MONEY FE 360

TRAVEL & TOURISM POLITICS

ASSEMBLY ELECTION 2018 PERSONAL FINANCE

EDITOR'S PICKS FRONT PAGE

FE INSIGHT

MORE

TODAY'S PAPER

EPAPER

GALLERY

HOROSCOPE

VIDEO

ARCHIVE

THE EXPRESS GROUP THE INDIAN EXPRESS LOKSATTA JANSATTA INUTH RAMNATH GOENKA AWARDS IE TAMIL

IE MALAYALAM IE BANGLA

Advertise withus Feedback Sitemap Privacy Policy Contact Us

Copyright ©2019 The Indian Express [P] Ltd. All Rights Reserved