Everyone wants to make money, but they want to do it now. The lure of quick cash and high returns makes people invest in the stock markets. Most retail investors enter the markets attracted by the promise of hot tips that assure exponential returns. However, such tips seldom pay off with investors losing their investments, which makes them shun investing in the markets.
On the other hand, few fear investing in the stock markets, believing they will lose half their portfolio value as they have limited experience in the financial markets. It is why investors think that fear and greed drive market sentiments.
The question is whether one should invest based on emotions, suffer losses, and then give up on investing or try to understand the markets and stocks before investing. We believe investing must be Sustainable, Responsible, and Impactful.
Sustainable:
Often investors invest first and then save. For instance, Investor A received his salary on the 1st of the month. He invested in stocks immediately. Later, he used the remaining amount to pay for his expenses and found he fell short of money. However, Investor H, on the other hand, used his salary to pay for expenses first, save a little, and then invest the remaining amount. Investor H followed the right way to invest. It means one must first save and invest later. Sustainable investing is investing an amount that one can afford to lose. The aim of investing must be creating long-term wealth and not speculating. Ensuring one is sustainable is crucial to staying invested for the long term.
Responsible:
Investors invest in the stock markets and expect to become millionaires overnight. Stock markets are not instant gratification ATMs. They are a medium where one has an equal privilege to invest in businesses that seek one’s partnership as an investor. In return, enterprises offer one the chance of capital appreciation through a long-term association as the core products and services command a share of the customers’ wallets based on the company’s relative fundamental strength.
Impactful:
Let us understand with an example. Should investor A buy 1000 units of a 10-rupee stock or 10 units of a 1000-rupee stock? What should investor A consider -the price or the value stock can deliver?
Like they say, quality matters, not quantity. Invest in growth opportunities for the long term. Buying penny stocks will not add to one’s wealth; instead, they could destroy investments. What’s more, don’t consider the stock market like one would an ATM.
Doing one’s due diligence about a stock is the first step to impactful investments. Selecting the right stocks to create a well-diversified portfolio and staying invested for the long term is the way to create substantial wealth. Don’t judge a book by it cover, so can one judge a stock by it price?
(The author, Sanjeev Anand, is Wholetime Director and Head of Business Excellence, Research & Ranking)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
