First Principles of Investing: How I Lost ₹7 Lakhs and Rebuilt My Portfolio

Introduction: The Moment Everything Fell Apart

On a quiet Tuesday morning, I opened my brokerage account and felt my stomach drop. ₹10 lakhs of my life savings had evaporated to ₹3.3 lakhs—a 67% loss in just three months.

I had broken every fundamental rule of investing.

This is the story of how I failed, how I recovered, and the first principles I now use to invest wisely.

Part 1: Breaking Down My Mistake (First Principles Thinking)

1. What Really Happened?

● I invested 100% of my capital across multiple small-cap stocks based on a friend’s tips and "can't-miss" opportunities.

● I had no clear criteria for selection—just hype and gut feeling.

● I ignored position sizing (put equal money into all picks without research).

2. First Principles Analysis: Why Did I Fail?

Instead of blaming "the market" or bad luck, I dissected the problem to its core:

Assumption

Reality (First Principle)

"This stock will double because my friend said so."

Stock prices depend on business fundamentals, not tips.

"I don’t need to diversify—this one will make me rich."

Concentration = higher risk. Markets are unpredictable.

"I can time the market."

No one consistently predicts short-term price movements.

Conclusion: I wasn’t investing—I was gambling.

Part 2: Rebuilding from the Ground Up

First Principle #1: Invest in Businesses, Not Tickers

● Old mindset: "Find the next hot stock!"

● New rule: "If I don’t understand how the company makes money, I don’t invest."

Action: Switched to fundamentally strong companies with:

● Low debt

● Consistent profits

● Trustworthy management

First Principle #2: Risk Management > Returns

● Old mindset: "Go big or go home!"

● New rule: "Never risk more than 5% of my portfolio on a single idea."

Action:

● Diversified across large-caps (50%), index funds (30%), and debt (20%)

● Set automatic stop-losses for every stock

First Principle #3: Time Trumps Timing

● Old mindset: "I’ll sell at the peak!"

● New rule: "Let compounding work. Consistency beats genius."

Action: Started a ₹25,000/month SIP in Nifty 50 and ignored daily noise.

Part 3: The Results (5 Years Later)

Strategy

Portfolio Value

Pre-Crash (2018)

₹10,00,000 → ₹3,30,000 (67% loss)

Post-Recovery (2023)

₹18,60,000 (+463%)

Key driver: Systematic investing + patience outperformed my earlier "get rich quick" approach.

The 3 First Principles I Live By Now

1. Business > Stock Price

○ "Would I buy the entire company if I could?" If no, don’t buy shares.

2. Risk Defines Reality

○ A 50% loss requires a 100% gain just to break even. Protect capital first.

3. Compounding Is the Only Free Lunch

○ ₹10,000/month at 12% CAGR = ₹1.2 crore in 20 years. No shortcuts.

Final Thought: The Investor’s Mindset

The market doesn’t reward intelligence—it rewards discipline, humility, and respect for first principles. My ₹7 lakh mistake was the tuition I paid to learn that.

Your Turn: What’s one investing assumption you’ve questioned lately?