For many Investor and Trader, doubling the money they invested in the market is the goal and for many, getting 2x return on their investment is a milestone to achieve. But not many of you know how to double your money or in some cases how to make the right investment decision. So the question arises – How can I double my money?
There are so many ways (legal; obviously) you can double your money. But in this article, we are going to show you how we doubled our investment value and in how much time – WITH PROOF. So you know that we place our money where our mouth is.
How to predict the growth of your wealth?
First we need to know how can we calculate the growth of our Investment value.
Without being a mathematical genius anyone can predict the growth of their Investment with the simple RULE OF 72.
Author Richard G. Brown, using simple words explained it beautifully –
The “Rule of 72” provides a shortcut for determining the approximate number of years one must wait to double an investment earning interest compounded annually.
The rule states that if the interest rate is r percent, then the investment can be doubled in 72/r years.The Mathematics Teacher – Volume 59: Issue 7
Making it more simple for you to understand – If you know the Interest rate you are getting on your Investment then you can calculate and find out the Time your investment will take to double its value.
Let us understand it with few examples.
The savings account interest rate of State Bank of India at the moment of writing this article is at an annual rate of 2.7%.
While according to Nerdwallet, savings account interest rate of Bank of America is at 0.03% annually.
As we now know the rate of interest, we can calculate how much time it will take to double our money by dividing 72 by the interest rate.
For State Bank of India or SBI, we need to divide 72 by 2.7. Which tells us that it will take 26.6 years to double your money if you left it in the savings account.
And in case of Bank of America or BofA, the time needed for you to double your money in a savings account is –
72 divided by 0.03 = 2400 YEARS
Yes, you read that correctly. It will take TWO THOUSAND FOUR HUNDRED years to double your money using a Bank of America savings account.
Now, if you had paid proper attention in the 6th standard math class then you know you can use the same Rule of 72 to find out the Interest Rate you need on your Investment if you know how much time you can spare for your money to double.
Let us explain it with a bit of math.
72 / Interest Rate = Time needed to double your money.
72 / Time = Interest Rate.
Simply put, if you ask – How can I double my money in 5 years? Then the interest rate you will need to achieve that goal is,
72 / 5 = 14.4% per annum.
And if your time frame is 8 years, then it will take
72 / 8 = 9% per annum to double your money.
Marko from Whiteboard Finance explained this rule in his Youtube Video.
Now armed with this knowledge, you can now calculate the interest rate or the Rate of Growth you need to double your money in your preferred time frame.
If you want to know from where does the number “72” in the Rule of 72 comes from and why this rule works then check out this article explaining why Rule of 72 works.
The way you can Double Your Money.
Using the above-mentioned formula we can say, that to double your money in 1 year you will need 72% Rate of Growth. Though it is pretty aggressive to follow such kind of Growth Rate and even in some cases can cause severe capital erosion, it is not unheard of in the stock market. Many Midcap stocks have given far better ROI or Return on Investment than just 72% in a year. But people should be very careful while chasing such extraordinary returns.
And we will remind you to be careful by posting the cautionary banner we used in our Upstox Review –
And here you are leveraging TIME.
But with proper knowledge, expertise and precautionary measures WE DOUBLED OUR MONEY within a year. And we will show it to you with proof so you know how to double your money!
Let us prove it first!
Before going into the details of how we doubled our money, we thought we should show it to you first and turn the pessimists into optimists.
Before we begin we must remind you that These Are Not Investment Advice. We at Money Premier, DO NOT give our readers any kind of investment advice or stock tips. We always encourage our readers to do their own research and/or take professional advice from a certified financial advisor.
We are here to help you learn and understand Personal Finance and Investment so you can take the correct decision armed with the proper knowledge and have a healthy financial life.
THESE ARE NOT PROFESSIONAL INVESTMENT ADVICE or STOCK TIPS.
Well, that was lengthy disclaimer! 😂
Now, let us actually start.
On 16th of July, 2019 we bought 10 shares of Deepak Nitrite at a price of Rs. 300 per share, so the total investment cost was Rs. 3,000/- which got settled on the 18th of July.
Again on the 23rd of July, 2019 we bought 5 shares at Rs. 285 per share. After this transaction got settled on the 25th of the same month, now we have 15 shares of Deepak Nitrite at a total investment cost of (3,000 + 1,425) = Rs. 4,425/-.
What is a settlement date?
In simple words, the settlement date of a trade is the day the particular share entered in your Demat account and the trade got finalized. In the case of most brokers, it is T + 2 or Trading Day + 2 days.
If you think your brokerage charges are expensive and you are thinking of moving to a discount broker, you might want to consider Upstox. We did an in-depth review of Upstox discussing every minute details of the broker which will definitely help you in making a decision.
Again on the 24th of July, 2019, we bought 5 more shares of Deepak Nitrite at a price of Rs. 277 per share which got settled on the 26th of the same month. After this buying session, the total number of shares we have now is 20 Shares and the total amount invested is ( 4,425 + 1,385) = Rs. 5,810/-.
In this last picture you can see, we bought 5 more shares of Deepak Nitrite at a price of Rs. 270 per share on the 18th of September, 2019 which has cost us Rs. 1,350/-. The transaction got settled on the 20th of September, 2019.
Now let us calculate few easy numbers,
We have a total of 25 Shares of Deepak Nitrite at an average cost of Rs 286.40/- Per Share on a total Investment Cost of (5,810 + 1,350) = Rs. 7,160/-.
So to double our investment value we need the Market value of each share to be at (286.40 x 2) = Rs. 572.80/-.
So let us see what is the market value of a single share after 1 year.
Our Investment on Deepak Nitrite doubled exactly after 365 days. We doubled our money in the stock market by taking the right and informed decision. And here, we have not even considered the dividends we have received.
Here is how our holding looks at the moment –
Not a lot of people will show you their holding in such detail. Anyway, as you can see we have more than doubled our Investment value and we are here to help you learn how to DOUBLE YOUR MONEY!
But was it just a fluke? Did we just got lucky? Did we hit the jackpot just by chance?
Those investment decisions were very thought after and calculated decisions. It took us more than 7 days to decide whether to invest or not. We had to consider multiple factors, out of which many were out of our control. We had to go through multiple years of balance sheets, results, PNL reports and others. And this is not the first time we double our money.
Here we are using Sharekhan as a broker to buy the stocks. The account opening Fee of Sharekhan is ZERO and they also provide Free Demat account.
We took the decision to buy Reliance Industries when the stock of RIL was at Rs. 850/- per share. And we all now know where it went from there.
Now that we have provided the proof of our success. Let us now show you the process of how we did it.
How to double your money in the stock market?
To double your money in the stock market without taking any undue risk you need a deep understanding of how business works, how the numbers should look like in a healthy company and most importantly WHEN to get in and get out.
The MARKET will always reward a good company and penalize an unhealthy one. But sometimes the market fails to see the opportunity, and this is when you need to jump in and take a position. You need to pick those undervalue stock before it comes in the radar of the market.
Let’s start discussing the process of selecting the stock with screening.
There are thousands of companies listed on the NSE or BSE. So to filter out all the stocks that don’t meet our basic fundamental standard we need screening. For screening of stocks, there are multiple websites available but we used the screener of Simply Wallstreet. You can also use the screener of Ticker Tape. *
*All the website used in the vetting of the stocks has been discussed in this article, you should read it first if you want to know how these websites work.
In the ‘Discover’ feature of Simply Wallstreet, you will find many categories upon which the stock are divided. To find those hidden gems, we searched inside the ‘Potentially Undervalued’ section.
If you want to find good stocks that just got hammered in the market without any particular reason then you can look inside the ‘Buy the Dip’ section. But remember, the market rarely penalize a stock without any proper reason. So be careful and do your own research properly.
Back to our process. There were multiple stocks that passed the screening filter of that category. Now we have a manageable list which we can further refine.
Now you need to go through each stock in Simply Wallstreet. They have a well-defined valuation parameters section which should let you know whether the stock is overvalued or undervalued.
We had a few prime parameters which the stock should pass through in order for us to invest in that stock.
Points to Remember While Selecting a Stock.
- The stock should be undervalued according to the DCF or Discounted Cash flow method.
- YoY or Year on Year, the company’s revenue and profit should be growing at a sustainable rate with expenses of the company remaining either same or decreasing in some rare cases. An exception can be there like the COVID year.
- EPS or Earning Per Share should be growing YoY. We are using the annual time frame because we are not going to sell our securities within a year to two unless some serious negative changes are seen in the company.
- Debt to Cashflow and Debt to Equity should be reasonable. So the company can pay off their debt with their daily cash flow and the chance of asset loss due to unforeseen circumstance is low. A company managed by sane professionals will never put on debt which the company’s assets cannot cover. Always remember, if the company you are invested in is taking debt that means at some degree you are also taking on that debt.
Cashflow of a company is like blood on our vein. It carries the important nutrients needed for the company to function properly daily.
- Borrowings should be low compared to the total value of Share Capital and Reserves in the balance sheet. High Reserves means the company can sustain itself for longer if the important cashflow vein gets cuts off due to some reason. But YoY increment of Share Capital also means the company is diluting the shares, which is not a good thing. It is a tricky balance one has to maintain while going through the balance sheet. And we think you already know why high borrowing is bad.
- P/E or Price-to-Earning should be low compared to the industry it belongs in. Low P/E doesn’t always mean the stock is cheap. P/E of a Cement company should never be compared with the P/E of an FMCG company.
- PEG Ratio or P/E-to-Growth Ratio and EV/EBITDA or Enterprise Value- to-EBITDA ratio is far more important than just P/E ratio.
- The company should be maintaining a good profit margin. It is dangerous to invest in a company which is involved in a sector where margins are razor-thin. Single mismanagement can make the company a loss-making one.
- Promoters holding should be significant. Though Securities and Exchange Board of India or SEBI has limited the amount of ownership a company’s promoter can have on the company, a well-intended and shareholder-friendly promoter circle will either maintain their ownership to the prescribed limit or very near to the limit. Low promoter holding can sometimes mean that the promoters themselves are not even confident on the company. Again, exceptions are there like ITC, which has ZERO promoter holding. Your job is to know the reason in case you see low promoter holding. Goverment and Big Institutional holding is a major plus point.
- Lastly, the company should have a healthy dividend history. Numbers on the paper can be made to look fancy using creative accounting, but it is hard to fake using real currency. Again be careful while hunting dividends. If a company is taking debt to pay its shareholders – BIG RED FLAG! 🚩
If the Dividend Payout Ratio is unnaturally high or in other words, if the YoY EPS or Earning Per Share is Rs. 10 and the company is paying its shareholders an annual dividend of Rs. 8 then it should be a point concern. Exceptions are there, like ITC. We have discussed why ITC started paying such high dividend in this article.
Bookmark the Page if You Need to Revisit these Points Later.
These are only a few parameters among many others which too should be researched and analyzed upon if you want to double your money in the stock market.
You should go through the whole report and analysis presented by Simply Wallstreet, as each and every section is equally important. But we should mention that our readers should keep a keen eye on the Valuation, Future Growth and Financial Health section.
At this point, you should have narrowed your list down to either one or at maximum two stocks.
Now we will use the screener to further analyse the financial health of the company. The screener is very good at presenting ratios, and some ratios we use most often are PEG, ROIC, ROCE, EV/EBITDA, Price to Free Cashflow, Debt/Equity and Current Ratio. There are other ratios and numbers which are equally important but these ratios remain our top priority.
Screener also shows us a well-written Pros and Cons section on the top of the page which you should go through!
After that, we take our eyes to the Quarterly Results section. Though it is not super important in our case, going through it so it doesn’t contain any anomaly will do no harm.
A steady increase in Sales, Net Profit and EPS with stable or decreasing Expenses and a good Operating Profit Margin will be one of the signs of a healthy and a well-managed company.
After that comes the PNL statement or the Profit and Loss statement. PNL statement is same as quarterly results just on the yearly time frame (though it is not exactly the same).
You should raise your eyebrows if you see a steady increase in Interest which means a steady increase in debt. Other Income should not be a significant part of the company’s profit. And a healthy Dividend Payout percentage. Giving out 80% of the profits as dividends is not a healthy sign. Again, exceptions are there and you should research the reason why the DP Percentage of a company is high.
Now on to the balance sheet.
There are multiple things to look for in the balance sheet, but in our case, we will mostly focus on Share Capital, Reserves and Borrowings. But if the company is in an R/D intensive sector like Pharma, IT or Med-Tech then we need to take into account sections like Fixed Assets, Capital Work in Progress or CWIP or Investments as they will play a major role of future indicator of the company.
Share Capital – As discussed earlier, Share Capital of a company should not be growing at an uncontrollable rate. Share Capital is the money obtained by a company by issuing shares to the market, which dilutes the value of the shares that are already in the market. So, less Share Capital growth is better for the shareholders.
Reserves – As the name indicate, it is the reserve of the company which it can use during a rainy day. The constant rise of Reserves on YoY basis is a very good sign.
Borrowings – As the name suggests, it is the borrowing of the company. We try to invest in a company which has low Borrowings number compared to the total value of Reserves and Share Capital.
R/D intensive company will report an increment of CWIP and Investments on YoY basis but not always.
After all this comes one of the most overlooked section. The Cashflow.
A Cashflow deprived company will always have an uphill battle to fight against its competitions. Low Cashflow causes a company to take bad debt to run its day to day operation, which in return puts pressure on PBT or Profit Before Tax, which causes the bottom line to shrink and a bad result in the end. The Net Cashflow of a good company will always remain in the positive.
To double your money, you need to invest in a company having good and sufficient Cashflow.
Shareholding Pattern – High Promoters holding, substantial Government and Institutional holding indicate a good company.
Moneycontrol also provides important NEWS and announcements made by the company to the exchanges along with corporate actions Board Meetings, AGMs, Dividends Declaration, Split and Bonus Issues.
Ticker Tape’s basic analysis on the front page of the stock will give you an affirmative view if you have chosen the correct stock. Ticker Tape also shows the percentage of holding pledged by the promoters. Lower the pledged promoter holding, the better. Most of the good companies don’t have any pledged promoter holding.
And Markets Mojo is most used for trend analysis which is useful for short term investment but we are not looking for short term investment. And technical analysis. In-depth technical analysis is not of great importance to us. But Markets Mojo gives a clean and detailed analysis of the numbers which should be focused upon.
These ideas and concepts are a very refined version of value Investing. So if you want to learn from the masters then we will suggest you these 3 books. These books will create a strong base for anyone who is into Stock Market Investing and these books are followed by millions around the world.
After all the numbers, reports and analysis comes the Quality of the business, which cannot be quantified using numbers. This is where the invisible filter strains out the amateurs from the experienced ones.
Two kinds of people come to the market. One with the money and another with knowledge. At the end of the day, the person with the money goes home with knowledge and the person with knowledge goes home with the money.
You cannot quantify the merit of a management group in which multiple people has made or helped a successful company grow from a sapling. You cannot quantify whether the management is ridden with crooks and con artists. You cannot quantify the consumer’s trust in the company (Value of the Goodwill of a company is totally a different thing).
You need to study the Quality of the business and its management. The only help available for that at the moment is Google. You need to know how a business treats its employees. If a company on a constant basis is losing quality human intelligence and assets, then it is not a good sign. How many of the shareholder grievances have been solved to date? Do they pay their suppliers on time? You need to know each and every detail of the company.
After all this research, you have made your mind to invest in a certain stock. But you have still one final step left.
Going through the Annual Report of the company.
The annual report speaks a thousand words, but you need to read between the lines. From the very first page, an annual report will tell you a lot of things. First of all, the annual report is not made to turn the company’s shareholders into potential customers.
The annual report is for the company to convey to its shareholder, how has it performed over the year. It is not the company’s product portfolio.
The CEO or Chairman statement gives a deep insight in to the future prospect of the company.
Though it is boring to read pages of text and numbers, you should read and analyse the report thoroughly.
Now you are done with the Qualitative and Quantitative analysis of the company and you are ready to invest. But when do you get in?
For that, we need a basic understanding of Technical Analysis. We don’t need fancy oscillators and indicators to let us know when is the right time to get in the market. Just simple Support, Resistance and Volume will do the trick.
If the LTP is near the recent support and slowly the volume is spiking up, then it is time to buy. And if the LTP is near the recent high and you are seeing a spike in volume, then it is not the perfect buy time.
Basic Support-Resistance Lesson – Once the price breaks the previous resistance and moves up, the previous resistance is now the new support of the price. And when the price breaks down and falls below the previous support then the previous support now has become the new resistance.
We must mention, it is near to impossible for anyone to time the market and we advise not to do so. But most of us can make an educated guess when to buy and when not to buy.
As you saw in the PROOF above, we bought Deepak Nitrite when the stock was Rs. 300, Rs. 285 and even when it came down to the 275 rupees range. We knew it will retract down once it touches the 300 rupees range but still, we tried not to time the market.
You can use some long term moving averages like 30 Days or 90 Days moving average with a short term one like 7 Days moving average and use the cross-section as an indicator for entry. And always use Exponential Moving Average rather than Simple Moving Average as EMA is more accurate than SMA.
You can also take the help of momentum only oscillators like RSI or you can use ADX to let you know the momentum with direction.
But these are just optional, 0.05% difference in your buy price from the recent low will not be a major factor when you are trying to double your money. And we will suggest not to utilize the total capital allocated for the stock in just one go. As NO ONE CAN PREDICT THE FUTURE, spread the buys in small chunks over a long period of time. And don’t use the total capital at disposal over just one stock.
That is why we didn’t buy all of the 25 Shares of Deepak Nitrite at one go and used just 5% of our available capital on a single company. This is called Spreading The Risk.
If somehow our analysis went wrong and Deepak Nitrite started making losses, we wouldn’t lose more than 5% of our Total Disposable Capital.
Hope you have learned a lot from this article and this will help you in future stock selection and growth of your wealth. And more importantly, we have answered your question – How to double your money?
But in the end, we will again suggest our readers – Do your own research or take professional advice from a certified financial advisor. This article is not professional financial advice and incorrect financial decisions can cause serious irrecoverable capital loss. This article is for helping you understand the concepts and basics and for educational purpose only.
Disclaimer: The views, investment tips, presumptions, and calculations expressed on Moneypremier.net are not of the website or its management. This article is for Educational Purpose only. Moneypremier.net advises users to check with certified experts before making any financial decisions.