Becoming rich by buying right and sitting tight

We keep hearing that if you want to make good money equity is the best. You would have heard many stories of people becoming rich by buying a stock and sitting over it. This sounds too good to be true, because whenever you have invested you have lost money. Does this sound familiar? These days you would have heard, when the market is down buy and when it is up sell, but how do we know if the market is a falling market or a rising market. This is difficult to tell. It is not easy to time the market, you just need to be lucky to have brought a stock at its lowest value. There would be numerous instances of the stock falling soon after you purchased it, the only reason is nobody knows when a stock or market would stop falling.

You just cannot become rich without taking risks. Equity investing is risk taking and you need to have a risk taking appetite, but not all of us want to take risks. Most of the people I talk to say, I do not have money to invest, but at the same time ask for tips. All want to make it rich soon, not ready to put in efforts or understand the risks. The first thing you need to do is think long term. Next treat the investment like your child, keep track of it, and if you find something is going wrong, take corrective action. Now when your child makes a mistake, you first analyse if it was really a mistake and only then take corrective action, same way, find out if what is happening is natural or the management is not taking corrective action and then decide. Do not regret if you made an error of judgement, this happens to all of us. Next check if the company you are investing has been creating value over a long time and is capable of creating value over the next 3 to 5 years. If it is a new company, would it be creating value over the next 3 to 5 years? Because markets change daily, our lives are also changing daily.

Do not go for IPO’s as they give you a very short term view as their intention is to get the IPO through, take a long term view. Understand that what is good today may not be good tomorrow, so try and take a long term view of any investment. Last whole market keeps following the index, which is a good indicator, you also should track, but track which stocks are part of it and which are not. Remember the index stocks are ever changing and usually only the good stocks remain in the index, so if a particular stock you are holding is removed from the index, it is time you too exited from it. If you do not have the ability or time to do all the above, go for the next best option i.e. invest in Mutual Funds, the fund managers are trained to do all the above and that is their full time job. Here you can just buy the units and sit tight.