Good morning my dear investors,

A very busy week comes to an end.

By the way, I recommend you to watch '12th Fail' on Amazon Prime if you have some spare time this weekend.

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The 25 by 10 rule.

Value investing is life.

For me, any company that can grow 25% for a few years and is available at 10x p/e qualifies on a rudimentary level, as a deep value investment.

Ofcourse, the odd company, thesis wise will always go wrong, even if you are Warren Buffett.

Hence, we collect a PORTFOLIO of 20 stocks with under the 25 by 10 rule.

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16-20 stocks are enough for 'real' diversification, any more additions is just cutting the alpha generating capacity of your portfolio.

(Risk is already eliminated by 96% with 16 stocks, mathematically, as per Joel Greenblatt)

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Now unfortunately, while its sexy in theory to buy 25% growth companies at 10x p/e, in reality, these are very difficult to find, especially in Bullish market conditions.

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Hence, investors over the last 50-75 years have gotten creative and figured out Special Situations and Pre-IPO style of investing.

*(Ofcourse, investors should always have registered investment advisors, who can guide them on whats suitable for them after understanding their goals and risk taking abilities).

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Basically, as much as possible, stay away from expensive stocks, this is a lesson I have also learnt the hard way in my own journey as an investor.

In my opinion, any company, where the p/e ratio is more than the expected growth rate, is very badly expensive.

For example, if a stock is at 50x p/e and expected to grow 12-18% p.a, I wouldnt touch it with a 100 foot pole also.

(The heck with promoter quality or pristine nature of the balance sheet.... expensive is expensive).

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Conclusion:

Investing, in my humble opinion, should be Mission 25 by 10.

(25% growth for 10x p/e, 20 stock portfolio, under the guidance of a registered investment advisor if you aren't a full time investor).

And then, be patient in bear markets where even cheap stocks can fall....be very patient, do SIP regularly and wait for the cycle to turn in favour (bullish).

And then ofcourse, buy something nice for your wife, or else, beatings.

For me personally, whatever I earn, first I pay tax to government, then I pay house tax to wife and then with whatever small amount is left, I can think about myself :P

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Key insights from the wealth management industry.

1- 63% of Indian house hold assets are in low but guaranteed return assets.

2- 9% of household wealth is in CASH, earning no returns at all.

3- Mutual Fund penetration around the world is 27% on average with USA at 64% penetration while India is even now just at 5%. (Huge runway for growth).

4- India is expected to see growth in HNIs by a CAGR of 15.7%

5- 14.9% CAGR growth in taxpayers earning 1 Cr / year. (FY18 to FY23).

6- 17.8% CAGR growth in equity mutual investment (Mar 23 to Mar 27E).

Source, Anand Rathi.

While we have discussed the big scope in Wealth Management in India, I continue to find these stats very compelling.

The next decade hopefully should be kind to India and I feel wealth/asset management as a sector will firmly be in the slip stream of India's rise as a nation in the years to come.

Conclusion:

No matter how good a sector's prospects may be, remember the 25 by 10 rule.

No use buying expensive stocks, no matter how good.

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By the way, I have started a new form of exercise called Calisthenics. It is pretty fun and interesting compared to normal gym.

(Its basically body weight exercising).

Do you have any fun exercise suggestions?

(DM me).

Over and out, for now.

See you next Friday,

Neil Bahal

Founder

Negen Capital

Disclaimer: This newsletter is for educational purposes only. While the newsletter discusses just general market insights and past case studies, still, the stock market is a very risky place which can result in losses.

Hence, always check with your financial advisor before acting on any contents of this newsletter

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No representation or warranty, implied or statutory, is made as to the accuracy, completeness or fairness of the contents and opinion contained herein. The information can be no assurance that future results or events will be consistent with this information. Any decision or action taken by the recipient based on this information shall be solely and entirely at the risk of the recipient

Again, investing in equity market has high risk. You must consult your financial advisor before making any stock market related decisions.

Negen Capital is a SEBI registered PMS & AIF.