What are your first thoughts when you see the image of a Bull fighting a Bear? It’s like an action-packed wrestling match or a no holding back knock out boxing matchup!! Right? Well, is the stock market really like this – my answer is a YES and a NO.
Direct equity investments are risky, but over a substantial period of time, the risk decreases. I have been trading, investing and studying the equity markets for more than 14 years now and if you were to ask that what is biggest learning it would be – its more about understanding the risk and being disciplined rather than the art of making profits (or losses).
Broadly we can categorize investing in stock markets into 2 types of investors :
Traders are the ones who look to gain from short term price movements and pocket the difference. Although it seems easy on paper to buy low and sell higher, it doesn’t necessarily work that way. Intra-day trading/Positional trading/Futures and Options (F&O) are some examples of types of trading carried out by short term traders. Risk is highest in trading, I have worked with close to 1000 investors, they are from all walks of life – first timers to seasoned traders who would have lost money before but were eager to retry with a new idea/strategy. Of all the types of investors that I have seen, most lost money. So, the inference is, straight forward people with the highest risk appetite or with a very disciplined and well researched strategy can get into trading.
Long term investors are the ones who carefully build a portfolio of stocks, realign and rebalance over a period of time to achieve much higher returns when compared to any other asset class. Yes, discipline is important also getting the right advice on who will be the next Reliance or Infosys of the world matters. It about studying and investing in the best sectors and companies. Also, the Initial Public Offers (IPOs) are a good investing options from time to time. Research based buy and hold strategy can be boring, but its the best way to make profits from the stock market. Out of the 1000 clients I spoke about, a maximum of 10 % are long term investors and trust me almost all of them are making a 15 % + CAGR (Compound Annual Growth Rate) return on investment. What’s more is that the taxation on long term capital gains is just 10 %.
Want to create wealth?
Long-term research-based buy and hold strategy is what you need to do. Start with any amount and keep building it as you progress. After all Warren buffet started with $228 and now is worth $8050 crore…
Author: Nirmal Jain | Nirmal Jain is the Co-Founder at HappyWise Financial Services. He has helped over 100 Families over the last 15 years of his services in the Financial Planning Sector. He has been a mentor to several people to help them better understand investments, stocks, mutual funds, financial planning, personal finance and above all his favorite term “The Power Of Compounding!”.