Ever wondered why should one invest in Equity? Earlier, people used to believe in saving their money and buy gold out of it. However, over a period of three decades, we can see that Equity is the only Golden Investment!
Let us see how major asset classes such as Fixed Deposit, Silver, Gold, Equity and Real Estate have performed over last three decades:
|Year Of Investment
|Asset value in Different Assets
|Initial value of investment
Analyzing the Table, we can clearly see that Fixed Deposits has multiplied wealth by 20 times, Gold by 38 times, Silver by 24 times, Real Estate by 127 times and Sensex has grown by whopping 333 times! Thus an investment in Equity which was held for 38 years, has given returns worth surviving the next three generations! Real estate would normally give returns better than fixed deposit but lesser than equity. There is no reliable long term data available for real estate. Though in the long run, real estate can be expected to give 2% to 3% more than inflation. If inflation is 6%, we may expect a long term price growth rate of around 9%. By providing 16% for nearly 4 decades, equity has scored well over real estate.
Thus, it might seem that stock markets are the best way to become wealthy. However one should exercise caution and understand the science behind investment. Before aiming at achieving such a goal of Wealth Creation, it is extremely important that one makes a study of at least following 9 points of caution and duly follow them:
- Business of the Company: It is important to know the business of the company and analyzing how lucrative the business is in the long run. While there is no “right” strategy, be sure you understand and agree with the company’s business model. Think about how well the company’s business model might work in recessions or economic booms.
- Financials of the Company: The Financials of a Company include its Balance Sheet, Profit and Loss Account and Cash Flow Statement. An insight into the financials would reflect the various sources of Income of the company, the Asset holding, it’s paid up capital, Net profit, Dividend declared and Dividend Payout ratio. The Financials act as the Mirror of the company’s performance and hence it is critical to intelligently analyze it.
- Details of Promoters, holding of Promoters and Other Key Investors: It is important to know the key promoters and their role, since they are key players behind the Company. Investors should avoid promoters with Dubious track record or who are known not be Investor friendly.
- Research Reports: There are many research companies available in the market which provide quality research. It is extremely important that an investor relies on quality research reports as it is often found that investors do no get access to accurate facts and information which institutional research houses can provide.
- Market Capital of the Company/ Dividend Yield/ Earnings: The Market Capital of the Company is = Total number of shares of the company in the market * price per share. It is important to understand whether the market cap is at a justified value vis-à-vis earnings of the Company. Here one should be able to forecast the future growth of earnings of the Company which will contribute towards increase in the market cap. Sometimes dividend yield also plays an important role as it not only creates income but also stocks with good dividend history are given preferential treatment in the market.
- Industry Peer Comparison: It is important to understand how other companies with similar business, are faring in the stock market, price per share, comparisons of assets deployed vis-à-vis earnings to understand the ROI. This will make the investor aware whether the company chosen by him is performing good or not in terms of business as compared to other similar companies or firms in the Market. It is also critical to analyze whether the company has an advantageous position/ competitive edge vis-à-vis its peers so that it surpasses the average industrial growth and gives investors surplus returns.
- News and Corporate Action: The news and Corporate actions such as Quarterly Results, new acquisitions, Company’s merger, demerger, new venture, Industry News etc. affect the prices of shares to a lot extent. Thus it is critical for the investor to monitor the stocks regularly.
- Trading Position and Movement of Stock: It is important to study the movement of stocks in the share market. Thus an investor should understand the price movement of a particular stock in the last few years as well as the yearly high and low and the price point at which it is entered into. One should always remember that it is better to buy a wonderful company at a fair price rather than buying a Fair company at a wonderful price.
- Time to Monitor: Last but not the least, monitoring the stocks invested on periodic basis i.e. regularly overseeing the performance of the Companies. Investing in stocks is same as investing in business. No one would like to invest in a new business when they do not have the time to monitor the business. The same rule applies for direct investment in Stocks
Apart from following the above mentioned steps, it is extremely important, that the client avoid few steps/ wrong decisions, in order to secure his funds and obtain the best out of his wealth, which we at Richvik always advise our clients to follow, like Should not Leverage his funds, Should not speculate in Futures and Options, Should diversify his investment in Stocks, Should not act on TIPs without proper study and Should not undermine the benefits of diversification.
We at Richvik Wealth provide the following products to advise our equity clients:
|NAME OF THE PRODUCT
|BRIEF DESCRIPTION OF THE PRODUCT
|FREQUENCY OF ADVISE
|SHORT TO MID TERM
|RELIES ON FUNDAMENTAL FACTS AND FIGURES FOR ITS STOCK SELECTION PROCESS TO ENCOURAGE VALUE INVESTING.
|SHORT TO MID TERM
|A SHORT TERM PRODUCT, SEEKS TO ACHIEVE CAPITAL APPRECIATION BY PREDOMINANTLY TRADING IN THE LARGE AND MID- CAP UNIVERSE.
|AS AND WHEN REQUIRED BY CLIENT
|MID TO LONG TERM
|A LONG TERM PRODUCT, AND ARE ONLY RECOMMENDATIONS WITH THE OBJECTIVE OF WEALTH CREATION, BY PREDOMINANTLY INVESTING IN HIGH-GROWTH COMPANIES.
|MID TO LONG TERM
|A LONG TERM PRODUCT, AND ARE ONLY RECOMMENDATIONS WITH THE OBJECTIVE OF WEALTH CREATION.COVERAGE STOCKS PROVIDE A DETAILED OVERVIEW OF THE COMPANY’S BUSINESS MODEL, OPERATIONAL DRIVERS, VALUATIONS, POSSIBLE RISKS ETC.
Let’s say a 30 Year old starts by investing Rs.10,00,000 in Equity, and religiously follows the above mentioned Principles and points of caution, then he can certainly achieve the following results:
|YEAR OF INVESTMENT
Thus it can be seen that consistency and compounding effect can create a lot of wealth in stock markets. There is no other sustainable way to get wealthy. Warren Buffet’s Berkshire Hathaway which is the wealthiest investment firm in the world also has not achieved more than 25% compounded rate of return since inception.
To know more on investment in Equity Funds/ Stocks as well as to start investments, please feel free to contact us. We at Richvik, would be happy to help you gain the best from your Investments.
Our Contacts details are as follows:
Phone: 022-25674106 / 022-25644106
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