Comfort Zone For An Investor.

We are always urged that we must not live too much in the comfort zone.

What is comfort zone for an Investor?

For me, excess liquidity is a comfort zone. I have lived most of my life carrying big debts, taken for borrowing big ticket asset acquisition – that always created the excitement, the Mojo in my life. In some way, that also created the zeal to keep working in the profession instead of taking voluntary retirement at 40!

So as Investors, our goal should be to always have some debt that has been taken for buying some asset. As an Investor, you always have to leverage your future savings today. That is living out of comfort zone for an Investor.

So, excess liquidity creates comfort, which leads to discomfort. This discomfort has to be tempered with patience & preparation. Otherwise one takes hasty decisions which lead to regret & losses.

Investment is not just a financial science. Human Psychology plays a very big role in your financial success. Hence I urge you to read more about Human Psychology & Behavioral Economics if you want to be a successful Investor.

How I leveraged my Ai!

When I started my career,  I made an agreement with money- Till the age of 40, I will work for you; after 40, you will work for me. Even today I work; the difference is that today, unless an assignment excites me and I feel that I can make an “impact”, I don’t accept the assignment. I charge for my work; but I don’t work for money. There is a big difference.

Being from a business family, “naukri” (employment) was just not in my system. I wanted to be my own boss. For me ‘naukri, sounded like ‘no curry’! When I started, I was self-employed. I was spending a major portion (my prime time) coaching CA students for their exams. That gave me a lot of satisfaction and improved my understanding of the subject immensely. However, I soon realized that this was an extreme form of Ai. The only reason I should continue doing this was if I wanted to start my own coaching class (I dream of this even today). However, I realized that the entire coaching class “business” was star driven. Certain professors have the magnetism of pulling in the students. So either you become the star (Ai model) or depend on other stars, who can be lured away by others and bring your business crashing down. Most importantly, in those days, the top professors in the stream did not have an inspiring story. They were slaves working from 6 am to 10 pm. The top 3 stars in the coaching industry had gone through a divorce. I love my wife (even today!) and did not want this life. So within 2 years, I stopped coaching.

I was engaged in a retainership assignment with a large CA firm. One day I bumped into my first mentor, who believed that if we could do it for others, we could do it for ourselves too. He had the belief that we will attract good clients because we do good work. I always credit him for having such high self-belief.

We started our practise by employing over 30 people. So now we would be earning on our own time as well as on the time spent by others. Great idea! However, the only problem was that 99% of the capital was borrowed capital that we had to service by way of interest and repayment of principle. Secondly, we also had to find work for feeding this team of 30. In the initial days, we were actually borrowing to even fund our withdrawals for home expenses! We soon realized that we needed some ground speed before we can take off. So we shed some excess load by downsizing the team and then we were able to take off.

We also realized that most of the clients were coming for our advice. We were becoming the “stars” in our practice. We wanted some activity that did not depend purely on the “star” power. We needed some service activity that was process driven, rather than star driven. Fortunately, we found an opportunity in selling and servicing financial accounting software which was a sunrise sector. We were adventurous and took a path that was off-beat. The risks paid off. I realized the power off Human Resource development that was the foundation of making others work for me – using other people’s time.

Do you have such stories of leveraging your Ai? Write them to me at aipichai@gmail.com

Why I love real estate?

One of the most traditional and time test avenues of investment has always been real estate. In the bygone era , a person’s status was judged by the real estate that he owned.

I am a conservative investor who wants steady returns. But I am patient, and wait for the investment to mature and start yielding fruit. I started by investing in an office to set up my CA practice. We were 3 partners having total savings of Rs 15,000 in 1989. At that time we bought an office worth Rs 15 Lakhs. 1% was our own contribution (Equity) and balance 99% was loan (debt).  We almost made an IPO to raise debt! Today the same office will be worth almost Rs 2.5 Crores.

The chances of going wrong with real estate in a growing economy like India are very low. In the long run it always pays off. In case of shares, certain shares lose 100% of their value over time. I still own a few shares which are not worth the paper on which the share certificates are printed. This is one major feature of real estate that suits my temperament as a conservative investor.

Real estate is also called ‘immovable property’. Once you have invested money in real estate, it is not easy to give it away and fritter your money.  If you have too much liquidity, there is a chance of frittering away that money. However, once you have locked your money in real estate that risk is reduced significantly.

God stopped manufacturing land a long time ago. This is a favourite quote of investors who love real estate. So the supply of real estate is fixed. With growing population and a growing economy the demand for real estate keeps on growing. This drives the prices higher and higher. Sometimes the prices become unrealistic and then there is a price correction. So it depends on when you enter the market. Bubbles get created and as an investor you should have the patience to wait for a good deal and the courage to walk away from a bad deal.

One of the best features of real estate is that I can buy real estate with my future savings (debt). Bankers love real estate as a security and are willing to lend you money against security of your real estate. Secondly, personally, i can enjoy a peaceful sleep if I have borrowed and invested in real estate that is generating me cash inflow by way of rent which I can utilize to pay off the interest and the principal amount. I would not be able to sleep well if I borrowed and invested in shares.

Real estate also gives me an emotional pleasure of ownership. You do not get the same pleasure on holding the Demat Statement of your shares as you get walking inside your 10,000 sq. ft. office which is leased out to a MNC.

Do you love your chosen avenue of Investment?  Leave your feedback and suggestions below as a comment.

Leverage – Path to Faster Growth

Leverage is a tool that is applied by all Entrepreneurs. Who are entrepreneurs? They are the guys who take a risk, a calculated risk in any venture as opposed to guys who want a fixed guaranteed return. A guy who is working for a fixed salary is not an entrepreneur as he works for a fixed salary. He can add value by getting more skills and more qualifications. However, the person who starts his own venture can multiply value by employing more people and use their time in return for a fixed salary. Let’s take the example of a lawyer’s office. Let’s assume that the average charge-out rate for a junior lawyer is say Rs 2,000/- per hour. So if the total chargeable hours per day is 5, the total revenue collected is Rs.10,000/- on each lawyer. Assuming the average overheads per lawyer is Rs.2,000/- per day; so the net contribution made by each junior lawyer is Rs 8,000/- per day. In 20 working days, his total contribution per month is Rs 1,60,000/- per day. Let’s assume that the salary paid to this junior lawyer is Rs 60,000/- per month. So the employer is earning extra Rs 1,00,000/- per month by using the time of other lawyers that she employs. This contribution is in addition to the amount that she earns on the number of hours that she works for the clients. That is the crux of Entrepreneurship- you earn by working for money, and making other people work for you – using OPT. Is there a risk in their approach? Yes, there is a risk. But Entrepreneurship by definition is a risk-taking venture. There are no guarantees. People take these risks for the thrill and the rewards associated with that risk. However, before applying the multiplication model one has to spend sufficient time in the addition model, where you add skills, add knowledge, add networking. It is like multiplying 2 units, ten times or multiplying 5 units ten times. One has to have the patience to first add 3 units to her value of 2, before multiplying it 10 times. An idea, a concept has to mature through the addition phase before leveraging it. When you are ready with a mature idea, and you do not have money to implement your ideas, you will use other people’s money (OPM) to leverage your ideas. This is what most of the Entrepreneurs do. The will fund their venture, either through debt or through equity. So if you need Rs 10 Lakhs for venture and you have only Rs 4 Lakhs, you have 3 choices

1. You wait till you have the balance Rs 6 Lakhs
2. You borrow Rs 6 Lakhs at a fixed interest cost
3. You take equity of Rs 6Lakhs from an Angel investor.

Option (b) and option (c) involves using other people’s money & hence it is leverage. It can take you higher in faster time. It can also plunge you lower in quick time. That is the Risk! Do you have the temperament to take risk? Do you have the ability to take risk? Both are very important and crucial factors. Some people don’t have the ability to take risks and yet due to their temperament, they take great risks. Some are opposite. You need to understand your situation and your nature very clearly to avoid anxiety and heart breaks in future. Do write in to share your stories.