How to create a long term asset by Stocks ? – Lesson 2
We can add a wealth of excellence only through Long term Investing in stocks or shares. Generally, Bank Deposits and Postal Savings are referred as Small Savings Schemes. When it comes to Investing, the risk is always there.
If there are fluctuations or volatile, then it is said to be as ‘INVESTING’. Otherwise, it is just a Savings. For example, Bank and Postal Deposits are offering fixed rate of interest. Hence there is low risk or No risk on these savings instruments. These savings cannot afford Inflation and Tax Liability.
Where in the investing, there is a risk between moderate to High. Better returns that can beat inflation and provide Tax Concessions. And it has a volatile – Up – Down – Up – Down. This is what the Gold, Silver, Real Estate and Business are doing regularly. That is the reason we can increase our wealth in the long run. Without volatile, we cannot make huge money or create wealth.
We have to lookout at the same behavior in the Stocks or Shares in the Stock Market.
- 2 Important Factors – Demand & Supply and Lending & Borrowing – Both are inevitable in the Real Economic World. Only if there is a gap between demand and supply, then the value would be realized. When someone is ready to lending, then the another one is willing to borrow. This will create a Fluctuations in the near term, but make a steady wealth.
- Before we investing in Shares, we have to find out how our behavior works in that industry that we are going to invest. Can you understand this Industry or this business ? If you can’t understand, then do you find anyways to learn about it ?
- Once you have an interest and learn about that industry, Analyze the SWOT (Strength.Weakness.Opportunities.Threats) for this particular business. Look out the Companies that run in this business. Filter with the Fundamental Analysis and get a company, you are going to invest.
- Don’t Forget Investing is not just about Numbers (Share Price). By your money (investment), the company need to grow and should grow.
- What are the key factors for a company to perform well and sustain in the long term ? Study about the Basic Fundamentals, not the Technical Analysis. For example, the company should be Debt Free or Low debt, Integrity in the Industry, Good Management and how to effectively use its employees are the basic key factors.
- Will this industry be able to sustain continuous growth in the future ? With the impending Technological change, will success take place ? The Company does not need a rapid growth like 30-40 Percent Growth. 10-15 Percent continuous growth per annum is enough, while this growth should be long term. For example, The Company’s business is expected to grow 10-12 Percent per annum over the next 20 years.
- The Company should not get excited about Frequent news (Market Noises). When it comes to being a trustworthy company, it protects not only the employees but also the interests of Investors (You and I). Lack of Political Intervention is good.
- Profits from the Company’s Business need to be managed Properly. Profits must be used not just as Dividends, but for Subsequent growth in the Business.
- Learn the Company’s Financial Statements. Practice and expanding it deeply (Profit and Loss, Balance Sheet and Cash Flow Statements). Buy the stock at the Right Price (Intrinsic value or Fair Value). Don’t run as most people buy these stocks It’s your business and investment. Investing with aware is essential, you are not here to runaway with a jackpot of Crores in a short term.
- You have to build a very Large Empire (Wealth). So be patient, choose good business, understand it and invest at the Right Price. Always ready to reinvest the profits. Otherwise, use it in a proper way.
- Only when you have the Risk, Volatility, Longevity and Patience will bring the Wealth through Stocks. It is the reason that is said to be a Long term Asset. Otherwise, don’t invest in Stocks, even in the near term.
Let us listen to Wealth !
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