Rajeev is a new investor in stock market who invests actively on the basis of stock tips in India. He is excited every time he receives a message on a Whatsapp group titled ‘Best stock tips in India’ of which he is a member. He strongly believes the stock tips sent on this Whatsapp group are the best way to create wealth from stock markets as it has been started by some of his close friends.
Few days back he received a message “Buy Jet Airways @151.275. 100-200% upside expected in a month as UK based NRI group ready to invest 1000 crore’’ on his Whatsapp group.
On the basis of this stock tip, Rajeev picked up 1000 shares of Jet Airways on 10th May 2019. Three months down the line Rajeev is sitting on a huge loss as the share prices have gone below Rs.50 and he is clueless on what he should do.
Rajeev is unaware that the original buy message he received on the group was probably a trap to lure innocent investors as there very few buyers for the stock.
No matter what you do, stock tips in India can never create sustainable long term wealth for you. Stock prices are driven by a wide range of factors including supply and demand and company’s earnings and profitability.
Portfolio creation approach is all about creating a multipronged strategy for wealth creation. On the other hand, investing on the basis of stock tips in India is all about immediate wealth creation.
So when your focus is only on wealth creation through stock tips in India, you are actually missing out on the actual fundamentals which create wealth.
A portfolio creation approach involves creating a robust portfolio of 15-20 fundamentally sound stocks from different sectors. This way one can maximize the returns of portfolio while minimizing the risk because even if some stock or sector does not perform, the performing stocks in your portfolio can average those losses and helping in generating overall profits.
Many investors fail to understand this and consider stock tips in India as the best way to invest. By luck some of their initial trades may generate some profit. This gives them a false confidence, and an encouragement to take up additional trades even on leverage. This often results in huge losses and without understanding the real reason for their losses they blame the stock market.
Portfolio Creation Approach Works Best For Wealth Creation
To create wealth from stock markets, it is very important to ignore stock tips in India. Instead one should opt for a portfolio creation approach for long term investment as it reduces the risks associated with equity investments while maximizing the potential for profits. Historical analysis of stock markets has revealed that they are generally stable in the long term and the best way to create wealth is to remain invested for long term in a portfolio of fundamentally sound stocks.