“An Investment in knowledge pays the best interest”
“An Investment in knowledge pays the best interest”
10 Dec 2020by Pradeep U
Indian stock markets offer immense potential for wealth creation to investors. Unfortunately, very few investors are able to capitalize on the wealth creation potential of Indian stock markets and create sustainable wealth.
One of the primary reasons why most investors fail to create wealth can be attributed to the lack of an investor mindset resulting in the quest for stock market tips for quick gains.
Time and again, we across statements from such investors like:
"Can you give me some best share market tips?"
"Any share market tips for today?"
Investors who ask such questions are forgetting two things here:
Firstly, such best share market tips for quick gains can never help in creating sustainable wealth, and secondly, there is no legitimacy.
Here's a story which perfectly relates to the situation:
There was a poor woodcutter who lived in the outskirts of a jungle. He used to cut wood from trees and burn it to make charcoal. After making the charcoal, he used to sell them to artisans and blacksmiths. It was his daily work which he was doing for several years.
Once a king who was passing through the forest lost his way and found himself surrounded by a pack of wolves. When the king realized that he is in grave danger, he started shouting for help. His cries for help were heard by the woodcutter who came to his rescue and saved him.
The king was pleased and gifted the woodcutter a garden full of sandalwood trees spread over many acres. Several years later, when the king was again passing through the same area, he remembered the woodcutter who had saved his life and thought of meeting him. The king expected the woodcutter to be rich and leading a lavish life.
When the king saw the woodcutter, he was surprised to see that the woodcutter's life had not changed even a bit and he still looked poor as he was wearing torn clothes. The king could not understand why the woodcutter remained poor despite gifting him a garden full of sandalwood trees worth lakhs. The king had lots of questions in his mind.
Now here I would like to ask you - what questions do you think the king had in his mind. And why there was no change in the woodcutter's life?
So, the answer is very simple and would have come in your mind also that the woodcutter failed to understand the value of sandalwood.
Without realizing the value of sandalwood, he cut the sandalwood trees down and burned them to make charcoal and sold them in the market. Without understanding its actual worth, he continued working in the same manner as he was doing before because he had developed such a mindset.
So, you see the Indian stock market is just like the garden of sandalwood trees in the above story. As an investor, it is up to you whether you want to create wealth by investing for the long term in good quality stocks or destroy your chances of creating wealth by indulging in reckless buying and selling based on share market tips provided by generic sources.
Fundamentally sound companies have a well-established business model, sound balance sheet with low debt, consistent growth in earnings, good brand recall value and proactive management. Such companies can easily withstand share market fluctuations in the Indian stock market as well as economic downturns and outperform with time.
Stock markets are highly volatile in the short time and tend to be stable over the long term. So, once you have invested in good stocks, it is essential to remain invested for the long term to allow the business to reach its true potential. Remember, when a company does well, its stock price automatically follows.
During the bullish phase of a market, it is usually the high growth stocks which lead the rally while defensive stocks like those belonging to FMCG sector lag. To reduce the risks and maximize your risk, it is highly advisable to spread your investments across multiple stocks and sectors for optimum diversification.
Instead of depending on others for stock tips, do your own research before investing. Yes, it may take some time and effort to study the balance sheets of companies and their business models, but it is definitely worth the effort.
Never invest borrowed money in stocks. Only invest the money which is not required in the short term for other needs. This is very important as stock markets are highly volatile in the short term, which means one has to be prepared for holding the investments even if there is a significant dip in the value.
It is quite natural to be excited about seeing a 20-30% jump in your portfolio or become anxious in case there is a 20-30% fall in the portfolio. But at the same time, it is crucial to avoid buying or selling based on these emotions by keeping one's long term goal of wealth creation in mind.
Seek expert help if required
If you don't have the time or expertise to understand financial statements or business models of companies, it perfectly makes sense to seek professional expertise.
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The above mentioned best share market tips are all you need for wealth creation from Indian stock markets. But the most important one to start-off is developing an investor mindset rather than a trader.
As rightly said by American writer Steve Maraboli, "Once your mindset changes, everything on the outside will change along with it."
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