Learn2Invest: A Beginner's Blueprint for Long-Term Wealth Creation

Welcome to Learn2Invest. Welcoming you, friends into Learn2Invest. I'm Vivek Bajaj and I'm in the market for a long time. And now I have moved on to teach you Investing. This series is going to be quite interesting. Because I have taught you trading in Learn2Trade. I have taught you what you should understand.

Otherwise, Trading is a never-ending ocean. The more you do the more you learn. But Learn2Invest is a special module because ultimately we do trading and make money. But we create wealth by doing Investing. And this is my journey that I started with Trading

But eventually from the earnings from Trading, put a little percentage of it into investing and creating wealth for myself. So this is one more effort of my motive to make you a good market participant. Hoping that you like it. And you will spread this effort across your family and friends. There is going to be a special talk in Learn2invest

I will cover A, B, C, D's of Investment. We will cover many topics but most importantly the investment journey for myself particularly the equity investment journey. A stock market investment journey can be a very big wealth-creating exercise. One thing that is an important journey for me is to identify themes. So that when we are investing, and if we don't know the right theme. Themes can come from anywhere. Either from top-down or bottom-up.

So I have designed this series considering all this information. So you will like it. It's a unique series. Because not everyone works in the theme identification process and my core for stock market participation is theme identification. So let's start and in this series, as it is going to be an interactive one. You will interact with me. So somewhere or other I need someone who can ask the right questions on your behalf.

So in the previous video Learn2Trade, Annapurna Ji was there and in this series too we have Annapurna Ji. Hello Sir. -Hello. How are you? -All good sir. -Fantastic. A different setup but the same setup. So when I had started this, I had floated an idea that I will do it and I was scouting for someone who could represent you.

So Annapurna Ji came again and said if you are teaching, then teach me only. You have taught me trading but want to learn this theme identification process So welcome to this new series. -Thank you, sir. -So as I said investment is an important part of your long-term wealth creation. So the money that you are earning while trading is a good thing. Continue that and together the earning that is rising

Don't put all your money into Trading. Some money has to be kept for Investment. Suppose your earning is X every month So shall we put the whole X into Trading? No. So from X spend some on lifestyle and enjoy. And from the money saved put some into Trading and some in Investing, If you put in Trading, then some money will be made even.

And from that money, put some into investing such that you eventually build a good corpus as a long-term investor. -Okay. So, let's start the journey. For the first slide, I have made this presentation for you. In this session, as we won't see charts much I am making presentations on each video and I will share this presentation too such that if you want to take anything from it you can take it.

Focus here. Whatever questions come, you ask. In the first session, know where to start and how to start. I have classified this whole presentation. Firstly, why are we doing it? Knowing it is important. What are the types of assets we can invest in? How do you do asset allocation? Value in the company. Because this will be mostly around the stock market as it is my core.

So we will discuss how to value companies. Risk appetite, Trading has its own role but we will discuss Investing also. Types of investment strategies and sector breakdown. We will break each sector and what are the industries in it. And we are going to deep dive so much into each sector and industry that you will enjoy it a lot.

Why Learn2Invest? Because when we start investment journey then somewhere or other we have capital. And on that capital, we want to generate more return. So in this Learn2Invest series, as I said, you will be given a path to identify the right themes. And on that themes, you can do investment and interesting topic is that you can do trading as well. -Like sector rotation? -Yes.

Like in Learn2Trade I had asked you in which stock do you want to trade? Then we discussed that on the stock you understand which is within your circle of competence. So how to build this circle of competence more? Because it is not so we Invest only in consumption-oriented companies. Like I have to put in HUL, Dabur, not possible. You will eventually have to increase your circle of competence and this series is meant for that only.

It is going to be interesting. Let's discuss asset classes. So, in today's video, we will introduce the concepts. And as our video series will go, we will deep dive more. Asset classes? What it is? What is an Asset? Anything that holds value. -And? And which has the potential to give you a future return.

Like cars. Car is an asset or what? -Yes .-No. -Why? -It is a consumption! It is an asset from the counting point of view. But practically we see that the car is on the roads. Then its 50% has been already depreciated. If you go to sell second-hand, you won't get the same price. So already there is a depreciation cost. Plus every day the car is losing value. So for me, the car is a consumption item.

It is not an asset, say me some other example. Home? It is an asset. You eventually stay there so the house's wear and tear You have internal wear & tears. Not of the buildings and structures standing. So it's an asset. But the technical definition of an asset is that has the potential to give you future returns. Does the car have that potential? -No.

Do house keeps? -Yes. -Possibly yes but as social security that if anything happens to live, then the house is there which is protecting my future contingencies. Say any other asset that gives you the potential for future earning. -Bank accounts? -Yes. What potential does it give? It will give me returns to the cash I deposit. -Yes. So asset is anything that you have that gives you future earning potential. Now you see.

Till now you thought that car is an asset. No. The one who has told you this and sold, then ask him how is this is an asset because this depreciates on daily basis. In 10 years this value will be finished. So it's not an asset for me. -So what about the machines that are used in the factory? -Asset. But it too depreciates. -Yes. But it is giving future earning potential in business. And if you won't apply that machine today then your business won't be built.

And when the business gets built you will buy more machines in future. You will replace this machine. But you could make future business through this machine. If you don't buy a machine, then will that business be made? -No sir. -So that business itself is an asset. So asset is creating an asset. What is business? It's a process that we have established. A brand that we have established.

It will only be possible when the machine or factory is established. We set 1 today, another day we will set 100. But in the case of a car, if you are using it for your own personal use then it's not an asset. But if you are doing the work of renting or dealership of cars then it's an asset. Because we start with 1 and tomorrow it can be 100.

So it's a business and business is always an asset. There are different types of assets - cash, fixed income, equity, real estate, commodities, alternative investments. Alternative investments? -There are various new-gen options/investments that we will discuss and you might see that this too is an asset. But for the case of a car, it's not an asset, it's a consumption asset. -This is only taught in accounts sir. -Yes but practically it's not an asset.

We will go into each category and discuss. Cash. Asset? -Yes. -Biggest asset. Nothing bigger than that. It's the king. People say the one having the cash is the king. Cash can be cash, coins, cheques, in any form but it's a hard liquid instrument available to you that protects you and gives you the opportunity to grab the opportunity. That if you get an opportunity to invest tomorrow, if you have the cash you would do it tomorrow. If you won't have then you would have to liquidate another asset and then come to this.

So cash is the most important asset. The second cash equivalent is savings a/c that the saving money is kept in the bank then, in that case, there is no kind of condition. If you invest tomorrow you can do it tomorrow, and if you want to take it out you can take it out but there is no such condition in fixed assets that you are doing for a year or 6 months. If you withdraw in between then you will have to give a penalty. So cash-cash equivalents mean hard cash and savings account.

If we see for a longer tenure than commercial papers and treasury bills. Commercial papers are the ones that the company issues for the short term. For 20days, 50days. Generally, companies release it for a tenure of less than a year which the retail investors don't subscribe to. Big institutions and funds subscribe to it. -They buy it and get a return out of it. -Exactly. So what is that the company wants the loan for a smaller duration. They want for only 3 months.

So what to do? They release commercial papers and people subscribe to those papers and the virtue of you being a subscriber to that paper you will get returns. So you will get returns for 3 months and you have given the company a loan through that commercial papers. Treasury bills are when the government is borrowing. Commercial papers are the company and treasury bills are the government. How do government borrow? Through RBI. So RBI will release the treasury bill

Will say that the treasury bill is for this much tenure and if you want to subscribe then you can subscribe to it. Generally, retail investors don't do in them. Only banks and big institutions are involved. And a certificate of deposit is when the company wants to borrow for a longer tenure which is said for 1-2-5 years then companies can borrow. They come to the market for a subscription that if you want to give for 5 years you give me. I will give you 5-10% interest. These are kinds of bond portfolios.

Which can be said as cash equivalents and not too because they aren't much liquid. Cash is highly liquid and these are kind of equivalent/ You can liquidate it if you want to. But their liquidity is not much that you can realize instant cash in them. At least this is better than real estate which will take time to be sold. -So they are basically the current assets? -Yes kind of for an individual.

Fixed income meaning I will get fixed returns on this. So, recurring deposits, fixed deposits, debt funds, bonds, and fixed multiple instruments are issued by the government. Like, PPF, VPF, National Saving Schemes, National Savings Certificate, Pradhanmantri Yojana., Sukanya Yojana, there are different yojana's which are part of government schemes. What is the recurring deposit? You have decided that this much money I will put every month then that's fixed recurring which will increase slowly.

Like fixed deposit for which Axis bank is a bank whose FD's rate for 5 years is 5.75% this means that if you are investing in Axis bank's FD then you will get 5.75% interest. What is interest rate inflation right now? -I was just about to ask you the same question. -Inflation is around 5.5-6% which is bookish inflation. And real inflation is when you go to the market you know how much it is. -15-20%? Minimum 10-12% inflation is there that the prices are rising so fast.

So actually if we see then inflation is this much and interest rates are this much so basically, you are living in the negative interest rates. So basically my rupee is depreciating? -Yes. So if you are not generating better returns then you are compromising on your lifestyle. So to earn returns cannot be the intent of youngsters like you. This is fine for people after the age of 60-65 who don't want to take risks their money is lying in bank and equity.

But for you have to figure out ways to generate higher than inflation returns and practical inflation is far higher for you than inflation for a 60year old. You do understand this concept. People say inflation is 6% but I say that inflation cannot be a single number for all of us. Your lifestyle, my lifestyle, and a 60year old lifestyle are different. My consumption item's inflation rate would be different then compared to yours. So every one of us should have our own assessment of inflation.

Like my assessment of my inflation is 12-13% You figure out the items that you are consuming and then as your lifestyle grows your higher premium items will increase which has a different inflation rate. So your return expectation should be even with synchronization with your inflation expectation. Have you ever read about this concept in books? -No sir. Every person has his/her own inflation rate. So now you have to Penn down things in an excel sheet what are your broader expenses in life.

And in that brand what are you using? what is your aspiration? where do you want to go to the next level. so as my money grows, I will move from inferior to superior goods. So my inflation will rise accordingly. -And people don't think about these things. But when you are doing investing planning you have to think about these things. Ultimately we all have to the next level of need or consumption in our lifestyle.

Then your inflation even steps up. We always live our lifestyle like this. One step and then we stay there for some time and then next step where we stay for some time and so on. Everyone wants to be a part of those big cars and flamboyant cosmetics. So whenever we do investment planning, it's good to know about these products. But then it's always important to know your lifestyle and your expected lifestyle in the coming 4-5 years.

Equity as you know is the most exciting asset class because it has the potential to give you exciting returns. Why? As there are so many equities, so if you put anyone stock who has a good return then you can generate a far better return than FD or anything. This answer of yours was nice. The logic is fine but let's frame it in a different way. What does equity mean? Businesses. So many like you so said so many equities.

I am saying so many businesses and every business has its own growth part so you have the potential to invest in the business which has a much aggressive growth path. And the stock market will reward you if you invest in businesses with aggressive growth so there are chances of generating high returns because you have invested in aggressive growth businesses. You said because of the stock price as you attended Learn2Trade. Now I'm saying from the point of view of businesses that when you think equity you should not think about the stock price.

And think about the business. And the beauty of equities is not just listed equities. There are 1750 companies listed in NSE and 5000 in BSE. But practically 2000 companies that will have liquidity. Do you know there are 22Lacs MSME in India? Meaning medium and small enterprise. And there are many companies that are unlisted and will be listed soon. So equity investment is not about investing in listed companies.

You can invest in unlisted companies as well. Through mutual funds which have different platforms so you asked alternate investments So investing in unlisted startup companies and other companies comes in the alternate assets. Broadly when we talk about equity we talk about direct equity stocks, mutual funds, ETF's and index funds. Index funds will be explained separately because it's an important component for anyone who is looking to diversify.

Either you make a diversified portfolio or a focused portfolio. Index funds add a lot of value to diversification. Like Index. What is Index? All the stocks and sectors of the measurement are calculated so a basket is made. -Correct. Like NIFTY, Bank Nifty and Sensex is a basket. The index funds usually invest in that proportionate only. So you can invest in them.

In today's video, we are talking more or less about the framework such that when we deep dive we understand this framework very well. The other category is real estate. How do you or your father invest in real estate? -Buy the land. -Yes or book a flat. Till now it has happened this way only. Have you seen any financial assets of real estate? -Till now no. -Why? There are stocks that work in real estate. Buy that stock if you want.

Nowadays, such products have come in financial assets that are a proxy to real estate like REIT, real estate investment trust, INVIT, infrastructure investment trust. So, these are proxy real estates that the company brings who want to work big in real estate. They bring a scheme where you can subscribe. It's not a fixed-income product. Neither is a pure equity product. But it is that you are participating in the real estate developing process.

So real estate development can be residential real estate or commercial or rental for suppose I have bought a rental real asset and I am getting the rent which is my rental income. Any company that is doing that? -Lots of companies. Embassy group, brook field, mind space. There are different REITs that are listed in the exchange. And if you talk informal, then there are many real estate projects that are on rent so investors buy that project against which they get rental.

So if you talk to your father you must find out that he has invested. Informal is like I buy the property. It does not have any financial assets. I have bought that property and I am getting rental on that. Apartments, land, residential area like warehousing was a boom on their own when e-commerce was penetrating deeply So those e-commerce companies want warehouses. Someone makes that and gives on which you can give me rent.

So you own the asset and you get the regular income as a rental. So you can invest in REITs that are listed or directly invest in real estate and get regular income. Commodities, we have discussed during Learn2Trade that was from a Trading perspective but you can Invest too. There are ETFs of these commodities in which you can invest. Or you can use a derivative contract which is counterproductive as when you don't do derivative then you feel like trading. But if you can invest, you can invest in ETFs.

So base metals, unfortunately, ETFs are not there of base metals, nor of energy So you have to rake future contracts of commodities from exchanges. In precious metals, there are gold ETFs through which you can invest. And silver ETFs have launched now so you can invest there too. How can you invest in agricultural commodities? Pick up delivery or in NCDX exchange you can buy it and the delivery is lying in the exchange warehouse.

And its bought by me. Warehouse charges are used, which is very nominal that you pay to retain that commodity. Alternates, you have heard about cryptocurrencies? It's an alternative investment. I will have to find whether a crypto investment is wise or not. I am studying it, so somewhere or other I will make a video on it. NFT is non-fundable tokens basically it's a digital asset that you own against anything.

It could be a photograph, an asset, essay. It could be anything. You might have heard Amitabh Bachhan making NFT of his signature. And he sold. -Like a piece of art? -Yes. It can be anything that can have a digital presence that can be converted as an NFT. Like ALTcoin which is a proxy of cryptocurrency, then private equities, VCs, hedge funds, startups. These all are alternate investments that have high risk but the potential to generate high returns.

So you should always be open to the idea that we can put little money in all these assets because ultimately your portfolio. It said that biryani is tasty when there are spices. So for the spices, we have to invest in alternates. We will discuss all these things in detail. Today, I am setting a framework with you but we will discuss each thing separately. Asset allocation is an important component whenever you make a portfolio or whenever you want to invest then which type of asset allocation you are doing?

Strategic asset allocation is when I have defined a fixed percentage that I have to put this much percentage in all. And you are maintaining that fixed percentage. And dynamic is depending upon my view that whether I have to invest more in commodities or in equity. Depending upon my view I change the allocation. And whenever you talk investment then asset allocation is very important. It cannot be that you invest wholly in equity or in fixed income.

Depending upon your age and risk appetite you allocate the assets. - I suppose a person like me has a medium risk appetite and a 26year old. How do you think should I allocate? Which strategy should I use? - Typically there is a benchmark that 100 - your age should be allocated to equity. So your 74% of investment should be in equity. Equity can be anything, listed equity, mutual funds, or it can be unlisted equity also like VC funds, etc. Angel networks through which you can invest.

And as your age rises, you will have to decrease the equity allocation. Similarly when you are young then you should do dynamic asset allocation. As you grow, static asset allocation is not a bad idea. What happens is when your capital base is big, then you will have to be more careful because you don't want to lose your capital. With a small capital base, you tend to become more aggressive. So strategic asset allocation is the fixed weightage and dynamic is basically the regular churn.

As young, we have a tendency to become more dynamic in our approach. In Learn2Invest our focus is going to be more on equity. Because as I said that my core is Equity. So how to identify themes? We will take each sector and go deep into it. and we will try to figure out if that sector good enough for our either investing theme or for our trading theme?

It will not go in all assets because there is any content that people have recorded on basic assets. I will record some exclusive videos on cryptocurrencies. But our journey will start with Equity as an asset class. There is a book by Benjamin Graham that is a must-read for people who start Investing. There is a quote by him, But investing isn't about beating others at their game. It's about controlling yourself at your own game.

So first thing first, we have to define our game. We have learned the trading game, we know our range, we know our process. If we start defining a game on Investing, so let's figure out how to do that. -Sure. -Charlie Munger is another great investor. He is a partner of Warren Buffett in Berkshire Hathaway. There is a quote by him, Take a simple idea and take it seriously. So, the idea is very simple we have to do investment and create long-term wealth.

So we have started on that path to work and let's get serious in this. In this process, you have to read many books because you can learn Trading from videos and from the experience of others. But Investing until and unless you do on your own. And to own reading is very important. By watching videos you cannot become an investor. So book summaries by eLearnMarkets is a good way to start. So go to elearnmarkets.com/school Over there are book summaries.

We have made many book summaries Investing oriented. So it's a good way to start. Watch this video, practice, and read books. You will be pretty much sorted. -Okay. So friends this was the first video of Learn2Invest, a basic introductory video just to give you a hang of how and what we are going to do. Annapurna Ji is charged and she even wants to learn Investing so together we will learn investing,

And after learning it, trading + investing, we will be able to make our model after the end of this series. Thank you. Bye-bye. Take care. Meet you soon in the next video. Bye-bye.