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.


Investment Methodology:


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.


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