One day we will lose it all.
Our friends, our hobbies, our siblings, our thinking, our faculties, our…….and we had acquired this with years of compounding! Our wisdom, health…what have you have all been acquired with lots of compounding. Even the Mountains, the sea, the ridges were all created by compounding…one day it could be lost.
So what does this mean? It just means that you SHOULD compound, with increasing amounts, but be careful that we do not lose it to one or two stupid moves. We do not get up one morning and say “I am going to destroy my wealth today”. However we choose to behave in such a way that we destroy wealth in a slow day to day basis. Think of AIG – it had 20 years of compounding growth at 21% p.a. Bear Sterns took 200 years of compounding to create a big great bank. Satyam, 20 years. Mafatlal group. Birla groups. Years of compounding, destroyed in a short time.
What does it have for you to learn?
Be careful about your behavior! Understand risk. There are no ups and downs in the market – the ups and downs are in industries. Even in 2008 if you had bought Colgate, Hul, PnG, Asian Paints (yes 2008 peak) you would have still made a lot of money till 2017. What crashed in 2008 was LnT, Tata Power, Kotak, Cholamandalam…some of them have not yet hit the 2008 price even after 10 years of market recovery! So it was an infra collapse, not a market collapse. May be the next hit could be BFSI?
The lessons of these examples are that we must diversify sufficiently, always on guard against the various threats that loom in the financial world as well as in our personal lives. Divorce for example, is a huge value destroyer. Remember to invest in relationships. From an investment angle, investors should look for businesses that are stable – a PnG or a Gillette maybe more stable than a Uber or Ola! These should at least be a little less subject to the natural destruct that we see in real life.
Compounding is indeed the most powerful “shastra” at your command as you try to create wealth beyond meeting all your life’s goals, whether it is to run a marathon, or accumulate a million dollars for retirement.
There are no end lines for you to reach. There is no prize for finishing.
Just as difficult as we labor to save and invest so that compounding can do its work, we must also be careful how we behave with our resources, making sure we nurture them accordingly, and manage them well.
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