Most of our educated youth believe that investment in stocks is an easy way to wealth destruction, forget about them being any form of investment at all. They prefer to keep their money stashed in banks rather than investing in good quality stocks for the fear of losing money — that mindset needs to change. Investments also need time to grow and people need to understand that, especially the ones who have been recently inducted into the workforce, how much good this financial literally can do to their future financial well-being.
This misconception about stock markets being a place of wealth destruction needs to go once and for all.
Advice for people who are into their first job or who have started investing recently:
Ideally, a new investor should start his/her stock market journey by investing in good quality IPOs like RBL MGL, Alkem, Dr. Lal Pathlab, Thyrocare, BSE and some other in the recent past, and upcoming NSE IPO. You can leave these untouched for another 25 years and exit only when big funds are needed, such as purchase of property or children’s education. You would see a significant appreciation in your investment over this period. Examples of such are Bajaj Finance, CanFin Homes, and many such stocks which have grown multifold over the past couple of years. Bajaj Finance and CanFin Homes have grown 40x and 23x in last 7 years itself.
* Bajaj Finance — Jan 2010 — Rs 30, High of 1200 in 2016, 40x.
* CanFin Homes — Jan 2010 — Rs 80, High of 1887 in 2016, 23x.
While many would disagree, mutual funds are NOT the right vehicle for investment at least for the educated middle class who can take care of their investments. No one has become rich by investing in mutual funds and no one will, but many have made substantial amount of money by investing in fundamentally good quality stocks. So undoubtedly, it is the best investment class among all asset classes.
Roughly, 40% of the American households have investments in equities while that percentage is less than 12% in India. This is also because of the mindset that we have got from our previous generation as legacy that investment in stocks is a good way to lose money, which is true to a certain extent if one is into mindless investing into poor quality stocks or day trading without having adequate knowledge, and if one does not rebalance his/her portfolio periodically.
People who indulge into such mindless investing often hear a stock name on the street or some news channel, read some articles, and that becomes the basis for their investment. Not much effort is put into reading the financial statements and doing the required background research on actual business of the company or the sector it caters to. Investment into fundamentally low quality stocks stocks without doing proper due diligence is bound to lead to destruction of wealth, and in all such cases the only one to be blamed is the investor himself.
All of us are still learning and would continue to do so.
Following are some suggestions which can help you cultivate good stock picking skills over a period of time:
* Read some good books and articles on fundamental analysis so that you are able to differentiate good businesses from the not so good ones.
* Get yourself familiar with reading financial statements and interpreting financial ratios.
* Identify good sectors to invest in and among that the best players who have potential to grow.
* Read some good investment journals like Dalal Streel Investment Journal and investment dailies like Economic Times and Business Standard.
Follow these diligently and you would also soon inculcate the habit of picking up good quality stocks.
All the best!
By Akhil
An Investor, Trader and Learner.
