RR Rule of 20
Path to Financial Freedom
Rama’s Rule of 20
Pay Yourself First: Investment Account
Pay yourself first from your pay check and then adjust your living expenses with the remaining amount from your salary.
How Much: ≈ 20% of your salary each month
This 20% of your salary each month should be deposited in to your future investment account.
In terms of stock investment, one needs to know three things: (1). What to buy, (2). When to buy and (3). How Many and How Much to buy:
What Stocks: Identify companies with the following fundamentals:
Sales & Earning Growth: ≥ 20%
Return on Equity (ROE): ≥ 20%
Net Profit Margins (NM): ≥ 20%
P/E + Inflation: ≈ 20
When to buy: When the stock is down by: ≥ 20%
How Many Stocks in a Portfolio: ≤ 20 Stocks
Minimum Holding Period: ≥ 20 Months
If you follow these “Rule of 20” – you are on your way to the Financial Freedom. You may still chose to work for intellectual pursuit – but it would be your choice.