As evident, approaching the stock market with knowledge, patience and discipline can reap rewards and add to your wealth significantly.
Investing and stock markets are two terms that have always perplexed the common populace in the country. While savings remains a well-entrenched idea in the Indian psyche, moving beyond the traditional savings options is either met with disdain or raised eyebrows.
Terms like "make your money work for itself", or "power of compounding is the 8th wonder" have skeptics of their own.
To add to this, scandals such as the Harshad Mehta scam of 1992 or the Ketan Parikh scam of 2001 further dissuade the common people.
Recently, I was informed that the "Scam of 1992", chronicling the events around the Harshad Mehta scam, was to be adapted for a web series, this of course was followed by a comment that " ...not much has changed, investing in stock markets is a gamble even today".
Having been in the market for more than two decades, I am used to such comments but to say that these do not infuriate me would be an understatement.
If you follow the life trajectory of any veteran investor, then you will be aware that earning money by investing through the markets is a disciplined process that requires research, patience, calculated risk-taking ability and deep commitment.
To be precise, earning through investments is something everyone should aim for but the focus should be on the long term. Short-cuts or fast money concepts are never sustainable and are generally fraudulent in the long run.
Hence, for every investor who aims to grow money through the stock market, here are some guiding principles:
• Go long, stay strong
Stock markets have handsomely rewarded those who have had the patience to remain committed to their investments and ride its crests and troughs, without losing sight of the big picture.
On the contrary, those who have seen it as an avenue to make quick bucks and have given knee-jerk reactions to short-term volatility more often than not have ended up booking losses. Unfortunately, the reputation of markets has had to bear the brunt for no fault of theirs.
View the track record of stock market champions and you will find a common thread tying them all. They have approached stock-market investing with a long-term perspective, banking on fundamentally-sound stocks to enhance their riches.
Even when markets tanked, they didn’t fret and exit. Instead, they used the opportunity to add quality stocks at attractive valuations.
By aptly diversifying their investments across asset classes, including equity, debt, commodity, and derivatives, they have successfully mitigated volatility, the bugbear of the stock market investment. Diversification is nothing but asset allocation in a prudent manner that helps in balancing risks and rewards.
• Stick to what you know
When investment sage Warren Buffet said “risk comes from not knowing what you are doing”, he couldn’t have been more accurate. Failures and losses from the stock market have a lot to do with investors not knowing exactly what they are doing.
For instance, while day trading may seem a lucrative bet, it’s a specialised art that warrants in-depth knowledge. Acting on tips and tricks available over the web or from your friends and peers is a recipe for disaster.
Hence, it’s in your best interest to avoid unknown territories. Hone your financial literacy and intelligence to spot trends and offers that are too good to be true to remain cushioned.
• Have faith in the regulator
The Securities and Exchange Board of India (SEBI) has well-defined guidelines to regulate stock markets and protect investors' interest. Time and again, the watchdog has come up with policies to make operations more transparent and investor-friendly.
Having said that, a lot of noise is generated whenever news of market scams make headlines. Such noise not only affects investors’ confidence but also supersedes the action(s) regulators take for damage control.
During such times, it’s vital to keep faith in Sebi and other regulatory authorities and bank on your financial intelligence to keep noise at bay, which can deter you from stock market investing and leverage its potential to the maximum.
Approaching stock market investing with knowledge, patience, and discipline can reap rewards and add to your wealth significantly.
Also, they are operated on fundamentally-sound principles and have time and again bounced back from setbacks. So, keep the faith and stay invested!
(Rahul Jain is Head Edelweiss Wealth Management)
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.