People have been fascinated with the stock market for centuries. Stocks are even seen by many as a quick way to get rich and make a lot of money.Very few people see the stock market and stocks in the right perspective.To most people, stocks are just tickers of prices going up and down. If your ticker goes up, you make money. If it goes down, you lose. That’s both the start and the end of the story.A thoughtful investor, however, is more discerning than that. He looks at stocks not just as quotes going up and down, but as real, live businesses in action.He realizes that stocks can be one of the most fabulous asset classes to invest in. He sees it as a vehicle and mechanism that provides some amazing advantages and opportunities that are unparalleled by any other asset class.Let’s start with why you should invest in the stock markets
Below are six reasons why, if you’ve not invested in stocks yet, you will definitely want to do it right away without wasting any time:
- Stake in an existing Business: When you buy a stock, you get to buy a stake in an already existing business with the huge advantage that the business already has all its employees and infrastructure in place, and is already up and running. You straightaway get a claim on the business’s future profits (in your proportion of ownership) without any of the headache or effort involved in running it.
- Liquid Asset: You can instantly buy and sell your stake in the business with a single phone call or a few clicks on your computer.
- Ample Choice: You can buy only if you really like something. You can try to find the most profitable business being sold at the cheapest price. The point is the stock market enables you to make such a choice.
- Low Capital Investment: Even if you plan to start a small grocery store in your neighborhood, you will have to stake a substantial amount of money on the success of just one venture that may or may not take off as planned. Compare this to buying a stake in a business in the stock market. You can get a piece of the action with even just a few hundred rupees, let alone lakhs and crores.
- Fewer Hassles: With stocks, the price is right there for you to see. No hassles of negotiating with the opposite party. The brokerage is usually pretty low too. This helps ensure that a substantial part of your investment is not eaten up by frictional costs.
- Prospect of Higher Returns: One thing at the very core of choosing to run a business instead of investing your money in a bank fixed deposits the expectation of higher returns on your investment. Thus, businesses usually strive to earn returns much higher than your run-of-the-mill investments. The trick is to buy a stock that has shown that it can accomplish this with reasonable certainty and to buy it at a good price.
So those were some of many reasons why you should start considering investing in stock markets.The next questions are…Is the stock market a good place to park your hard-earned money?And is there any way to navigate the investing world successfully?Let us answer these questions…
Is the Stock Market a Good Place to Invest These Days?
The stock market is like a maze. You need a blueprint to navigate it successfully.Without a blueprint in hand, investors must rely on hearsay. Usually, from other uninformed investors.It’s a case of the blind leading the blind!And none of them even recognize they’re lost.This is the worst way to invest in the stock market.There is a better way…You must first find a successful, tried-and-tested blueprint for stock investing. Spend some time understanding this blueprint. Then, and only then, take the plunge.You need to know what to do. You need to know how to do it. You need to know when to do it. Only then can you expect to make money in the market, and keep it too.As long as you keep investing purely with reference to value and cut out all the other noise, there’s no question you will make big money in the stock market.
The Blueprint for Investing in the Stock Market
With the Indian stock market at its volatile best (or worst), these are indeed difficult times for investors.At every rise, market participants take the opportunity to book profits, with sentiment being as yet apprehensive.In such times, what could be the best strategy to use as a long-term investor?We are of the firm belief that if by following a disciplined process of investing, you can accumulate significant wealth over the long-term.Here are some pointers and questions one can answer before entering the stock markets…
- Assessing your time horizon – are you a trader or an investor?
- If you are an investor, do you have the patience and the ability to keep emotions in check?
- Have you done your homework before investing your hard-earned money in stocks?
- Keep on following up…
This is an indicative process to use while going about investing in the stock marketsWe certainly believe it is necessary to invest according to a disciplined process. This is the best way to make money in any market, bull, or bear, across economic and market cycles.
Checklist for Making an Investment Decision
Here are some factors that long-term investors must look at while making an investment decision:
Understanding the Business Model of the company you are investing in
Undoubtedly, the very first thing that any investor must look at is the business/sector that the company operates in.The real intrinsic value of a business could only be found by researching the business model thoroughly.
Management of the Company
The management is another extremely important factor to consider before investing in any company. At the end of the day, it is the management that will be the driving force behind the future direction and success (or failure) of the company.To identify the best stocks, management quality plays a vital role in a company’s success. It’s not just about stocks. It’s just as true for any organisation, however small or large it may be.
Competition in the Industry
The company’s competition is another major factor an investor should look at before deciding to buy (or not to buy) that company’s stock.Look for companies with strong moats.Having a strong moat enables a company to command higher profit margins and superior return on capital.The stronger these advantages are, the more difficult it is for competitors to take the market share away from the company and put pressure on prices.
This, of course, is one of the major factors that most investors already look at. It includes doing a detailed study about the company’s financial position and performance over a reasonably long period of time.Such a study is commonly known as ‘fundamental analysis’.Knowing that the company you are investing in is fundamentally sound is so comforting. You know there aren’t going to be any negative surprises. Even if there are some uncertainties you can be rest assured the company will bounce back sooner or later.
Dividends are a form of income from shares and regular dividend-paying companies do provide some comfort that their profits and cash flows are stable enough for them to keep paying dividends each year.Dividend income is one of the most desirable passive income source. Along with strong corporate governance and good growth prospects, a healthy dividend policy is crucial for investing well.
Valuations of the Company
Finally, the last step in deciding whether or not to buy a stock – the valuation phase. While the business model, management, fundamentals, and market positioning of the company may be the best, if the stock is trading at valuations that are unwarranted, then it is not worth buying the stock. If you’ve studied the company well enough and have a good handle on its valuations, there’s little else you need. At the end of the day, investing in shares is all about conviction. If you are not convinced about the company, then do not stake your hard-earned money.
Follow the Writer : Akshay VasuDevan