Will You Trust Me If I Say Rs. 100 Can Make You Very Rich?

How do you feel when I say Rs. 100 is actually worth Rs. 1,00,00,000? Are you rolling your eyes and silently calling me foolish? It is actually worth Rs.1,04,35,837 in exact figures. However, this is only possible with a few conditions applied. If your Rs. 100 is invested in a good growth company that is compounding at the rate of 26% per annum, then the figure of Rs. 1,04,35,837 is possible over the span of 50 years of rigorous compounding. Even if this explanation looks confusing and misleading, I can explain a way for you to turn a Rs. 100 into a mere certainty of Rs. 1,00,00,000! Make sure to read this whole article to know what I'm aiming to prove to you.

There are many companies listed in Nepal Stock Exchange (NEPSE). Today, let's focus on one major bluechip company that is familiar to almost every Nepali citizen. As seen from the analysis of the Nepal Investment Bank (NIB) scrip, it is certain that NIB has had a compounding frequency of 26.38% per annum for the last five years. If you had invested Rs. 1,00,000 on the 15th of July 2012, the return that you would get after five years, on the 29th of March 2018, to be exact, is Rs. 3,22,376.11 with 26.38% Compounded Annual Growth Rate (CAGR).

With this philosophy, if your Rs. 100 had a purchasing power of the company that could give you a 26% return per annum, in 50 years of time, your Rs. 100 would hypothetically turn into Rs. 1,04,35,837. However, we openly disrespect the present value of Rs. 100 to the point where we don't feel even the slightest bit of pain when we spend it on the things that we don't need. This is because we don't realize how big a number as small as Rs. 100 can get from the power of compounding.

Let's look at this concept in a bigger picture. From this analysis, let's assume that a hypothetical company is expected to grow in the upcoming 10 years and 30 years respectively and its scrip will compound with the frequency of 26% each year in the secondary market. If you invest Rs. 1,00,000 in a good growth company's shares compounding at the rate of 26% per annum, in 10 years of time, your Rs. 1,00,000 invested is supposed to grow into Rs. 10,00,000, theoretically. Let's extend the span of our investment to 30 years. We can estimate the value of our Rs. 1,00,000 to grow into Rs. 10,00,00,000 in 30 years of time under the same conditions, theoretically.

Usually, we tend to ignore the distinct truth of compounding and go with the rumors spread in the secondary market with the hope of getting rich as soon as possible. But the truth is far from expectation. Speculation is not for everyone. As soon as the market cycle turned Bearish after 2017, many investors who were using margin to book their short term gains are now bankrupt. However, the long-term investors are still wealthy and the value of their money is instead growing even in the bearish market. The long-term vision is the reason why Warren Buffett is the richest man alive while the speculators of the market rarely make any money.

Let's see how many such Rs.100s have fallen out of your pockets to purchase things that you do not need. How many times have you purchased a cup of coffee just because you felt like it? Do you remember the number of times you have bought expensive apparel just to never wear it again? Well known investing legend, Warren Buffett, has said, “If you buy things you do not need, soon you will have to sell things you need.” If you had instead invested the money that went into unnecessary apparel and into many cups of coffee that you didn't need, you'd have had accumulated a substantial amount of wealth which would last over generations to come by the help of compounding. You could build up your own family legacy. However, it is still not too late to start investing.

Now, you need to take a close look at your financial patterns and see how many thousands have you spent on a pair of shoes that you rarely put on or how many times have you eaten out just because you felt like going to a restaurant! You then need to change your spending habits if you are really serious about being wealthy in the long run. Every Rupee coming into your pocket and going out from your pocket should be monitored closely. In a nutshell, you need to be financially aware of your particular situation and be ready to be extremely frugal in order to achieve your financial goals.

Before you throw away your money blindly into something that you do not need, even if it is as small as Rs.100, remember its future worth of Rs.1,00,00,000. Is your present budget for entertainment, supposedly Rs. 100, worth the future value of Rs. 1,00,00,000? Think again and again before you decide to spend your money recklessly.

All you need to do is get started with investing, wait over a long period of time, be disciplined with money, be very patient, and get the juice of sweet compounding on your money. You will be a lot wealthier than you are now if you stay disciplined with your money, pick a few good growth companies, and invest regularly. However, you should avoid focusing on the aspects like whether the market is bullish or bearish, and when is the right time to invest. Just trust the market and stay invested.

Maybe the growth of 26% per annum is far from reality over the course of 50 years, but you get the point. The long-term vision in the stock market and the power of compounding can turn your whole life around financially. If you respect the worth of money as little as Rs. 100, that Rs. 100 can turn your life around in a good growth scenario. This is how Rs. 100 can make you very rich. Good luck, investors!

Disclaimer: Investing can be risky and it can turn out to be hazardous as we grab a wrong notion of investing. So, do not take this article as financial guidance. Instead, take a moment to realize the power of compounding over a long period of time and try transforming your investing philosophy. Always consult a licensed CFO or portfolio manager for your particular investment plans and financial goals.

Suraj Marahatta

suraj.wonder.8596@gmail.com