Everyone wants to make money, but they want to do it now. Quick cash and high returns make people invest in stock markets. Many retail investors enter the markets attracted by the promise of hot tips that provide exponential returns. However, such advice rarely pays off with investors losing their investments, forcing them to withdraw from the markets.
On the other hand, few are afraid of investing in the stock market because they believe they will lose half of the value of their portfolio because they have limited experience in financial markets. So investors think that fear and greed drive market sentiment.
The question is whether to invest based on emotions, lose and then withdraw or try to understand the markets and stocks before investing. We believe that investing should be sustainable, responsible and impactful.
Often, investors invest first and then save. For example, investor A received his salary on the 1st of the month. He immediately invested in stocks. Later, he used the remaining amount to cover his own expenses and ran out of money. However, investor H, on the other hand, first used his salary to pay expenses, saved a little, and then invested the remaining amount. Investor H followed the right way of investing. This means you should save first and invest later. A sustainable investment is investing an amount that you can afford to lose. The goal of investing should be long-term wealth creation, not speculation. Ensuring one is sustainable is essential to investing in the long term.
Investors invest in stock markets and expect to become millionaires overnight. Stock markets are not instant gratification ATMs. They are an equal opportunity environment to invest in businesses that you seek to partner with as an investor. Conversely, businesses offer the opportunity for capital appreciation through long-term association, as core products and services make up a share of the customer’s wallet based on the company’s relative fundamental strength.
Let’s understand with an example. Should investor A buy 1000 units of Rs.10 shares or 10 units of Rs.1000 shares? What should an investor consider – can a price or value stock deliver?
As they say, quality matters, not quantity. Invest in growth opportunities for the long term. Buying penny stocks does not increase one’s wealth; on the contrary, they can destroy the investment. Also, don’t treat the stock market like an ATM.
Doing stock due diligence is the first step to effective investing. Building a well-diversified portfolio and choosing the right stocks for long-term investing is the way to build substantial wealth. Don’t judge a book by its cover, so why not judge a stock by its price?
(Author, Sanjeev Anand, Full Director & Head of Business Excellence, Research & Ranking)
(Disclaimer: Suggestions, recommendations, views and opinions of experts are their own. It does not represent the opinion of Economic Times)