Do you want to create enormous wealth from your investments? Then stocks are what you should be investing in.
Equity (or stocks in common language) has given the highest returns among all asset classes in long term. Where other assets have given post-tax returns of less than 7-8%, equity has easily delivered 12-15% returns (which are much above prevalent inflation rates). In fact, at times individual stocks have even given thousands of percent of returns in just a few years!
So how to go about investing in stocks? How to ensure that you get it right?
Understand Yourself & Markets
Stock prices don’t move up or down in straight line. So in near term, the returns from the stocks can be volatile. This is the risk inherent in stock investing. But this is the very reason stock investing is so profitable. It gives you opportunity to buy low and sell high later.
If you are ready to accept volatility in near term, then investing in fundamentally sound stocks for long term is for you. You attitude (how much risk you are ready to take) and capacity (how much risk you should take) also are two more key determinants here. But remember that only stocks can give you inflation-beating returns in long term.
Now markets allow people to make money in short term too. But probability of losses is very high in short term. On the contrary, in long term the risks are greatly reduced and probability of earning very high returns greatly increases.
To invest in stocks, you need to identify the right ones. But that is easier said than done. As an investor, you can do all research and analysis yourself. But if you don’t have the time or skill to do so, it’s prudent to take help of competent and trustworthy investment advisors.
One can use various strategies like value investing, growth investing, etc. to select various stocks for one’s portfolio. Best stocks to invest in are of fundamentally sound companies having clear future growth potential and that are available at attractive valuations.
But what once you have bought the stocks?
Stay Invested & Keep Tracking
You can only benefit from a multibagger (which goes 20x) if you stay invested during its full growth journey. Isn’t it? So you need to have a long term approach and not sell out too soon if the fundamentals of the company are intact.
But all stock picks won’t work out equally well. You need to keep monitoring fundamentals to see that the business is still running well and can grow in future. If that is not the case, you need to sell the stock and invest elsewhere.
Investing successfully in stocks is simple but not easy.
You need to identify the right stocks of fundamentally sound businesses, invest higher amounts in high-conviction stocks and have a long term horizon. And once you do that, you are on your way to earn high returns that equity can provide to those investing for long term.