Become Rich Beyond Your Imagination

Power of compounding is a simple principle which can make you rich beyond your imagination. I personally know one person who used to work in a private company with a handsome salary of 15000 rupees per month in 1995, but today he is a very rich man and he is a good friend of mine. It is very inspiring to know that only two things made him so rich - disciplined investment and power of compounding. He started by investing just 1 lac and had a very simple strategy. Every year he used to wait for markets or specific stocks to correct and after correction was over he used to invest his money. After correction in the stock market, most of the stocks show a very positive rally. His idea was to invest in few selected blue-chip companies and sell all his stocks after 20 % profits. Due to the rally 20% profits were sometimes achieved in just 30-50 days but still he would not hold any shares after getting 20 % returns. The total amount received after the transaction was never touched and was kept ready for re-investment. Next year again he used to save 1 lac from his yearly income and add that into his previous total for re-investment. After correction he used to invest all the amount for another 20 % returns. Sometimes after getting 20% returns from one stock he noticed that another stock had corrected giving him an opportunity to earn another 20%  in the same year. Table below shows how exactly he accumulated so much wealth with this method. Here I consider that stocks corrected only once in a year.

Actually the amount of my friend's wealth is much more than this. It is because over the years his salary has increased and so has his yearly contribution. Now his yearly investment has increased to 3 lacs. If today someone follows this method and invests 3 lacs every year then he would reach an amount of almost 60 lacs in 8 years and almost 2.5 crores rupees after 15 years. Most of the experienced traders in the stock market will tell you that 20 % rise in stock prices after correction is a very common thing. Now the question is that why does everyone not follow this method. The main reason for it is that finding out whether correction is over is not very easy. However, if you carry out regular research on markets and are ready to wait patiently then you can follow the same path.