Building an Early Moat: The Key to Peaceful Investing Journey

September 7, 2023 4 min read

Investing in the financial markets can be a rollercoaster ride. The ups and downs can be exhilarating, but they can also be nerve-wracking. One of the biggest concerns for investors is the fear of losing their capital. What is the way out ? 

Building an early moat for your capital.

But what is this moat ?

In a recent tweet (enclosed below), we had highlighted the importance of having a 30-40% gain on your investments to create a sense of security. When your base capital has achieved such a gain, it becomes like a moat that protects your capital from significant drawdowns. Let’s take a closer look at why it is essential for long-term success.

The first step in building a moat for your capital is to allocate your funds gradually. It is crucial not to rush into the market with a large amount of capital all at once. Instead, consider a long-term, drawn-out program that allows you to build your position gradually. This approach is particularly important when the market has already experienced a significant run-up.

For example, suppose you plan to invest 20 lakhs in the market. Instead of investing the entire amount at once, you could gradually invest the money over a couple of years. This allows you to average your entry price and reduce the risk of entering the market at its peak.

The Power of Moat

Once your base capital has achieved a 30-40% gain, it becomes a moat that protects your capital from major drawdowns. This means that even if the market experiences a significant drop, your base capital remains secure. Let’s say you invested 100 and it grew to 131-140. Even if the market drops by 30%, your capital would only decrease to around 90. This creates a sense of satisfaction and confidence that your capital is not eroding.

By gradually building up your capital over time and reaching a point where drawdowns are manageable, you create a solid foundation for future investments. This moat protects your capital and allows you to continue adding to your investments without fear of significant losses.

The Journey to Financial Success is challenging

The journey to financial success is not always smooth sailing. The first few years can be challenging, but they lay the foundation for long-term stability. While some investors may be fortunate to experience a huge rally in their initial years, it is essential to stick to a disciplined investment approach.

By consistently investing in a disciplined manner, you can reach a point within three to five years where you will not look back. The fear of losing capital to the market gradually fades away as your moat of base capital provides a cushion during drawdowns. You can then continue to add to your investments using your monthly savings or additional funds, slowly and incrementally building your portfolio.

The Importance of Patience and Discipline

To successfully build a substantial portfolio, patience and discipline are key. It is essential to maintain a long-term perspective and avoid getting caught up in short-term market fluctuations. By gradually allocating your capital and sticking to your investment strategy, you can navigate through market ups and downs with more confidence.

Avoid allowing greed to drive your investment decisions. The best way to grow your portfolio is through incremental, measured steps. Remember, building a moat for your capital is about creating a sense of stability and security, not about chasing quick gains.

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    Building an Early Moat: The Key to Peaceful Investing Journey