A lot of people buy mutual funds, invest in stocks, gamble in futures and options. But, very few become rich by investing in stock market. There are very few investors we know who became rich due to investing in stocks. Why is that? Why isn’t a common man able to create wealth in 10-15 years from stock market? The reason is simple. Most people do it the WRONG WAY.
Here are 5 steps to do it the Right way-
- Find the right businesses-Indian markets have 5800 listed companies and they are increasing in number every year. However, you will find both wealth destroyers like Unitech and wealth creators like HDFC bank on the stock market.You need to differentiate between a good business vs a bad business. A good management vs corrupt/poor management. Very fair valuations vs expensive valuations. Read this link on how to choose a stock
- Get Asset allocation right- A 70% return on 10% allocation changes your networth only by 7%. If you invest only 10 lakhs in stocks, while your total networth is 1 crore+, you are literally wasting your time. Read more about asset allocation here
- Stop trading in Futures & Options- Nithin Kamath used to trade in Futures and Options, and he is nearly a billionaire today. Not because trading made him money, but because his brokerage firm- Zerodha made him money. Read more about how you can make big from Futures & Options on this link
- Stop Financial Porn- Many Analysts and TV Channels keep tweeting and discussing RBI Rate cut or Budget implications. In last decade, HDFC Bank created wealth but ICICI bank did not- was it because of RBI policy or some Budget implications? A company doesn’t make higher sales and profits because what RBI gov or Finance minister will say tomorrow. Switch off the ANALysts who discuss such news daily. Period!
- Understand basics of accounting & Economics- Learn to differentiate between a secular business e.g. consumer, pvt banks vs cyclical business- e.g. Fertilisers. You can make wealth in both provided you understand it. Understand how economy functions. Many analysts who haven’t read economics ever- became bearish on Indian economy due to Demonetisation. However, WealthPark was the only advisory that was ultra-bullish on the economy due to demonetisation. Read more about what we said here– it is pretty simple stuff
Last but not the least. Keep it simple, silly. Finance & economics is pretty simple basic stuff. You don’t need big excel sheets to understand valuations of a company. Some one using lot of excel sheets is an indicator of his lack of understanding of basics in the first place. Similarly, in economics, you don’t need lot of data to understand the basic fact that demonetisation will help listed businesses both in short and long term.