How I Found My 2nd Love with SmallCase | Become a Master Invest
You must have heard stories of how ultra-rich investors like Warren Buffett, Paul Tudor Jones, or Stanley Druckenmiller made most of their wealth by investing in good companies. People think they bought some shares of a company and then got rich by accident. When I started investing in 2010, I heard an advisor say, that Rs10000 invested in Infosys was worth 4.8 crores in 2009.
What people do not know is that these investors got rich by a technique called resource allocation and not just by naked investing. They decided the exact percentage of their capital that should be allotted to the stocks that they were selecting and then simply stuck to that plan.
They also had the wisdom to remove the losers and add on to the winners so that their portfolios kept outperforming the benchmarks. A few decades later, their investments multiplied and they became billionaires, all because their winners compounded.
Mother’s are the best resource allocators we all know. If you give them a monthly budget of 20000, they will split that efficiently on grocery bills, utility bills, dining out expenses, and spare change for miscellaneous expenses. If you alter the budget to 22000 or 18000, they will accommodate that beautifully too.
The same thing is possible in Equity Markets as well, you can decide what percentage of your investments should go to stock ABC, XYZ, or QRS. If you get your allocation right, it will make tons of money.
Going back to the earlier example, if you knew Infosys would have turned 10000 to 4,80,00,000 in 16 years, how much worth of shares would you have purchased then? Most of them would have sold their house and purchased all they could.
And coming to “sell the house” to “buy the shares” part, you know 1000s of cases where people went broke. Lost their house, their money, and dignity in society.
So what is the solution then? The answer is resource allocation, commonly known as “weightage”.
You decide how much of your money goes into a stock and stick by that decision. All mutual fund asset management companies (AMCs) use this mantra. They disclose the portfolio allocation weightage and then adhere to that.
HDFC Sensex fund allocates 14.74% of its fund to HDFC Bank, 9.96% to ICICI Bank, 9.51% to RELIANCE, 7.3% to INFOSYS, 4.8% to ITC. This is an example of resource allocation that we are eager to learn today. If you invest Rs1000 in this mutual fund, they will allocate Rs147.4 to HDFC Bank, Rs99.6 to ICICI Bank, Rs95.1 to RELIANCE, Rs73 to INFOSYS, Rs48 to ITC, etc.
You should exactly do the same thing with your direct equity investments. Any capital you allocate should abide by a weightage you set and the best software to do that is SmallCase.
Steps to create a basket with a defined weightage.
Step 1: Visit https://www.smallcase.com/ and create a free account. You can choose to sign in with any of the brokers listed below. Please get in touch with your broker on the pricing and commissions.
Step 2: Visit https://www.smallcase.com/create and you will be shown an option to add stocks. You will also have the option to rename the smallcase.
I have added these 5 stocks with a weightage as mentioned.
Step 3: Click on Invest now. This will prompt you to connect the broker and place the actual orders. You will also get an option to configure a SIP and do incremental monthly investments.
The advantage of investing via resource allocation compared to naked investing is that you are in control of the weightage all the time. In case you wish to remove a stock and add another one with the same weights, you can do that easily via the Manage Orders section. You could do the monthly or quarterly rebalancing activity just like the Mutual Fund AMCs. Rebalancing will help you stick to the winners and get rid of the losers. Keep doing this for a pre-defined period and you will become a master investor.
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I am using Smallcase to manage my personal and family investment accounts and I am pretty impressed with what it is capable of. In case you find a better alternative, feel free to comment below.
PS: I have not received any cash or gifts from Smallcase for this article. This is not a paid article.