Ask Raamdeo: Power Of Compounding
In a wide ranging interaction with BloombergQuint’s Niraj Shah and investors tuning in from across the world, market expert and veteran investor Raamdeo Agrawal answers queries on his investment philosophy.
I have invested 20 lakhs in mutual funds in 1 year in but unable to invest more in SIPs. What will happen if I leave this for 10yrs
#AskBq Since power of compounding works continuously, does longer duration of Market trading hours mean faster compounding of portfolio(Ramd
Given the fact that many companies are doing buy backs and paying hefty dividends, is it wise to invest this money back into the respective stock or use the capital for diversification?
Power of compounding formula is unidirectional...but in reality the market and portfolios do not go straight up always....
1. So practically how does one target investment returns over longer period of time?
2. How to use these fluctuations to maximise returns over longer periods?
What should you do if a stock is in F&O and you are bullish for a 2 - 3 year view. Buy cash delivery and block capital or buy in F&O and roll over using balance capital to invest somewhere else?
#AskBQ @raamdeo Does the power of compounding only work in growth phase of a company? What should one do in bad results? Hold and pray for the next quarter or exit?
One quarter of earnings is nothing in the history of a company. But it could be a signal for both growth, as well as collapse. But I would say that a quarter could be a blip in the whole story.
Would you prefer a company which doesn't give out dividends but re-invests profits in the business or one which gives regular dividends?
This depends on a lot of factors and there is not specific rule here.
@Raamdeo #ASKBQ How to identify structural changes in sectors so we can hold our holdings to compound?
The whole idea is to find a compounder who is reasonably priced. There are lot of compounders people know, but they are crazily priced. One needs to know about the industry, the management, business, quality of alternatives, and several other factors.
I am a new investor, should I invest through SIPs and expect the returns to compound or invest lump sum amount directly in stocks?
As a new investor, I recommend you to start with SIPs.
#AskBQ @Raamdeo How to apply CAGR (sales or net profit) to a company when management themselves never know how much they can do!!
Most of the managements will not know about this. Their estimates may be wrong. So you need to build an estimate by yourself, better than the market estimate.
Hi Ramdev, please throw some light on two aspects of compounding: compounded returns we get in mutual funds and compounded amount we pay in loans... Preferably with an example for better understanding.
I believe it is the same. It is just that the person on the loan side will make you believe that you are paying very less.
#ASKBQ Raamdeo Although compounding is the 8th wonder. But how should one be patient enough in order to reap its benefits, especially when stock doesn't move for long?
Patience is the first thing of compounding. You have to be clear first whether the company's pace of growth is moving or not. I would put it this way - It is compounding of knowledge, working on compounding of capital, when both works together, the earnings compounds, further, the stock price compounds and one becomes rich.
I am always confused because we are always told to look at our portfolio every year and readjust every three years. When we shift our funds to different schemes how do we get the benefit of compounding?
Benefit of compounding will come from overall allocation. For instance, if equity gives you about 20 percent return and debt gives you about 10 percent, the blended return will be about 15 percent.
Which is the most important variable in the formula of compounding and why?
There are two. One is the rate at which it must compound and the second is the longevity. Both are equally important. One of the thing in compounding is, one does not have to double the rate to double the money. For instance, if you want to double your money in three years, the rate of interest would be 25 percent. But if you want to double the money in one-and-a-half years, the rate of interest would be 150 percent.