Gautam Baid’s mantras to leverage bull run for wealth creation

While some investors are sitting out on the current bull run, other investors are keen on leveraging it for better wealth creation. Gautam Baid joined Krishnakumar at the Money Masterclass to share his investment mantras and explained the power of compounding.

Gautam Baid, CFA, is the author of the international best-seller The Joys of Compounding and portfolio manager at an SEC-registered investment advisor based in Salt Lake City, Utah.

Edited excerpts:

Q. Do you think Indian investors are finally opening up to the joy of compounding considering the surge in the number of Demat accounts opening and investments?

Baid: It is very important to realize that investing successfully is very challenging and difficult over the long time horizon. The power of compounding is backloaded and the joys of compounding are truly felt only over the long run. Achieving a CAGR of 100 % for a few years on the bull market is commendable. Achieving a CAGR of 20 % for more than 60 years is what makes a Warren Buffet. He played the game for the longest time and became the biggest winner. Investors should enjoy the current good time but they should keep in mind they need to stay the course in future markets.

Q. How can Indians can stay motivated to grow their investments into a large corpus

Baid: The first million is not the hardest as the first dollar. What I am trying to say is that it is always difficult at the beginning, when you have to start your investment. An average Indian can become a billionaire if he/she invests a starting capital of Rs 1 lakh. At 26 % CAGR, Rs 1 lakh becomes Rs 10 lakh in 10 years, Rs 1 crore in 20 years and Rs 10 crores in 30 years, and Rs 100 crore in 40 years. The key to compounding is time.

Q. When it comes to investing in equity and stock markets, tell us what has the west done differently, because there the culture of investing in financial products seems very well seeped in, the picture is not the same in India? What did the west do right?

Baid: The basic fabric of the nation has been very different. America has been a very capitalist economy, whereas India has remained cautious and maintained a capitalistic and socialistic economy. As of April 2021, around 41 % of all US households’ financial assets were in stocks. Although a small bunch is investing in stocks directly a large population of them have some investment in the stock market which is primarily in the form of Tax-efficient retirement of accounts known as 401(k)s. The Indian government can also look at some of these options to boost the interest in equity investing.

Q. Markets at this stage are valued at $3 trillion and are going further up. tell us about the sectors, theme, and products that your bullish on when it comes to advising an Indian retail investor, not HNIs but average Indian stock market investor?

Baid: There is always a bull market going on at all points in time in some sectors of stock markets. Those are the areas we need to focus on to. So, consumer electronics, contract research, and manufacturing services, animal healthcare, complex APIs, cloud computing, home improvement, auto ancillaries, are some of the very promising thematic opportunities available right now. No dearth of opportunities is there. Keep your eyes and ears open and opportunities will come.