If you watch Kaun Banega Crorepati (KBC) religiously and have a dream of becoming a millionaire, then there is good news. While you may or may not stand a chance to win in the show, but the dream of becoming a crorepati is possible even without trying your luck at the show.
Equity market can help you realize your dream with some long-term planning and making the right kind of investments.
KBC has been on air for some 20 years. Moneycontrol analysis shows there are about 300 stocks in BSE universe that would have made their investors a crorepati in the same time period.
So, yes, long-term wealth creation is possible – is it simple? Maybe not.
“Winning the highest amount of prize money in the crorepati (read KBC) contest is rare. One has to spend a great amount of time building that knowledge. In market, experience, knowledge, patience and courage - all matter together, and long-term investing tests them all,” Pritam Deuskar, Founder of Wealthyvia.com told Moneycontrol.
Deuskar said some of the factors to be considered for long-term investing are longevity of a business, size of the opportunity, earnings growth sustenance and management pedigree.
Looking at the rearview mirror, over 300 stocks would have turned Rs 10,000 into a crore in 20 years’ time, while some of them would have taken even less.
These include PI Industries, UPL, Symphony, Balkrishna Industries, Shree Cement, Nesco, Atul, Bajaj Finance, Havells India, Kotak Mahindra Bank, Titan Company, Avanti Feeds, and TTK Prestige.
In hindsight, there will be many companies that would have made fortunes for their investors, and many investors must be holding the stocks in their current portfolio as well.
A lot has changed in the last 20 years and the fact that some of the companies have survived more than 2 decades suggests their robust business model, adaptability, as well as core fundamentals which remains to be strong.
One has to also focus on asset allocation. Depending just on stocks in the portfolio might not be the right strategy; hence, right asset allocation is the key and timely review of the portfolio is required to shuffle companies in case the growth model is no longer relevant.
“The long term investment also requires a proper asset allocation by determining the risk level of investors, avoiding the concentration of particular assets/companies, and getting familiar with the probability of downside risk to avoid sudden shock,” Dinesh Rohira - Founder, CEO - 5nance.com told Moneycontrol.
“The businesses go through different stages during the course of its operation with constantly changing dynamics which requires them to stay relevant and cope with facts. In that cycle of the market, the majority of the companies fail to stay afloat or sustain with the performance, and eventually fade away,” he said.
Rohira further added that it is vital for investors to know the trend of their invested company and take timely actions to control damage in the portfolio. One of the key parameters is to determine the ability of management to sail through difficult phases of the market by looking at actions carried out in the past.
Factors to keep in mind while doing portfolio review:
As human beings, we are naturally trained to look at short-term results. Hence, long-term investing does not come naturally to us.
When an investor looks at stock investments, the primary thought is to generate wealth with little money and in a short time.
Many investors who are committed to stock markets can afford to track stocks while for the rest the ideal way is to hold onto the right investments and let it grow.
“New investors tend to back their instincts and try to buy stocks that can turn multi-baggers in no time. While this approach can generate good returns if the investor chooses the right stocks, a short-term horizon carries the risk of being counterproductive,” Harsh Jain, Co-founder and COO, Groww told Moneycontrol.
“It is important to remember that stock markets are volatile and stock prices can fluctuate regularly. However, long-term investors need to ensure that they avoid making impulsive decisions and analyze facts before making them. The focus should be on the long-term performance of the company,” he said.
Jain highlights 5 factors which long term investors should keep in mind when they are reviewing their portfolio:
Fundamentals of the company:
One of the best ways to ensure that a stock survives different market cycles is to invest in stocks of companies with strong fundamentals. This includes the financials of the company, the strength of its management team, competitive advantages, etc.
Investors can also look for stocks of companies that pay and raise their dividends consistently. This displays the financial stability of the company. Take the dividend history of the last 5-20 years into consideration.
Most long-term investors look for stocks that have a low P/E ratio as it represents stocks that are undervalued and can rise in the long-term.
Avoiding Value Traps:
While some stocks might seem lucrative since they are undervalued, it is important to ensure that investors look at other financial factors like the company’s debt ratio, assets to liabilities ratio, etc. to ensure that it is not a value trap.
Economy and Industry Overview:
Long-term investors also need to ensure that they constantly keep themselves abreast of the industry to which the company belongs and the overall economy. This can help them understand any changes that can be expected in the performance of the company due to any changes in the business environment.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.