Unveiling the Strategies and Potential of Stock Market Investing
Warren Buffet, one of the most proficient stock market investors ever, has rightly said, “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
This simple statement reveals a hidden secret: the secret of efficiently gathering profits by undertaking calculated risks and rightly investing in the stock market against the popular market trends or investment advice. This is just one among the several strategies that investors can utilise to maximise their returns. However, there is no uniform strategy that can be suggested to any investor because of the subjectivity in the form of individual preferences that underlie every investment.
There are two major categories that investors can be clubbed into risk-averse and risk-preferring. The risk-averse individuals are the ones who prefer the safety of investment over increased returns. Most of these individuals do not actively engage with the equity market due to the various risks associated with the channelling of investments. These risks include the bankruptcy of a company, a decrease in the market value of the investment, changes in consumer preferences due to the erratic nature of the business environment, and so on. For example, the market value of the shares of Paytm has recently plunged by over fifty percent, with investors incurring losses of over 17,500 crores. Instead, these investors prefer securing their money in a fixed-deposit bank account, which gives them an assured return.
On the contrary, risk-preferring individuals are those who are willing to undertake risks by actively investing their money in the equity market. Their main objective is wealth-maximisation, and they are ready to incur periodical losses to meet the overarching objective of higher monetary gain. For them, the lows brought about by the Covid-19 pandemic served as a golden opportunity to pool funds. This directly contradicts the attitude of the risk-averse individuals who shied away from the stock market due to the prevalent uncertainties.
However, irrespective of the inherent preferences of an individual, it is non-negotiable and extremely important to have a set strategy in place. Investing randomly based on arbitrary fund allocations are not something that is advisable. Instead, careful study and analysis have to be done before reaching a decision on which company to invest in. Firstly, company fundamentals and industry trends have to be analysed before making the investment. The financial ratios of the company coupled with external changes in the macroeconomic environment such as political factors and regulatory amendments have to be taken into consideration. In addition to meticulous research, strategic planning is crucial. This includes fixing a stop-loss value, position sizing and preparing for unforeseen contingencies.
Moreover, stock market is not just about numbers, it’s about handling emotions as well. A temporary backlash or a quick increase in the market value should not lure investors into taking hasty decisions. Discipline and strategic planning are paramount to accumulating increased monetary wealth. This gradually evolves as a result of continuous financial learning and education.
If strategized correctly, stock market investing has a lot of potential. This is evident from the current market progress with Sensex crossing 72,000 points and Nifty crossing 22,000 points and even individual companies reaching the pinnacle of success. To optimistically conclude, 10,000 Rupees invested in Sensex in 1986 would be equivalent to around 13,10,000 today! This indicates that the best time to plant a tree was forty years ago, the second-best time is now!