Investing in the stock market is a painful experience for most of the investors. The market like a pendulum can change the fortune either side.
We invest by tips, news reports, friends’ recommendations, expert recommendations, our own analysis, on gut feeling. We invest in turnaround stocks, best performing stock, dark horse and on technical charts. Yet most are struggling to make money, some could change the fortune for better, and many have ruined themselves, many frustrated investors have left the market, rest moved to mutual funds.
The dream of making quick money and huge money has remained a dream.
The key is simple.
Don’t invest in many companies, don’t invest based on tips, don’t invest based on technical, (Unless you are a full-time investor). Invest in best-performing companies and hold the stock for a few years. Period.
This is the only way investors make money, good money.
As per the ET study, here are the biggest wealth creators during 2013-18
The individual investor should act consistently as an investor and not as a speculator.” Ben Graham
The list of consistent wealth creators during 2008-2018.
The list of the fastest wealth creators during 2013-18.
“Wide diversification is only required when investors do not understand what they are doing.” Warren Buffett
Out of the 3 lists, I would prefer companies in the list of consistent wealth creators. You would find 3 common stocks in the list of biggest and consistent wealth creators. These are HDFC Bank, Kotak Bank, and Maruti Suzuki.
The only stock common in the biggest and fastest wealth creators is Bajaj Finance.
These stocks are not in the list of top 10 fastest wealth creators. But over the last 10 years, these companies have given CAGR ranges between 20% to 33%.
Rs. 1,000 becomes Rs. 6,500 in 10 years at 20% CAGR and 17,300 at 33% CAGR.
Though the future is not an extrapolation of the past, yet one can reasonably expect a decent return from these stocks.
Those who are happy with this kind of return shall invest in these stocks. Rest all can venture, explore, lose some money, and try to find a company that could be found in the fastest wealth creators 5 years down the line. But at the end of the day, your 5 to 10 years CAGR on the portfolio matters, not CAGR on a couple of stocks.
Invest 80% on established consistent high CAGR creating companies and for 20% of the fund, explore the new winners. You can have your own percentage of the investible fund but keep the consistent wealth creators in mind while selecting the companies and secondly keep your investment for a longer period.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” Paul Samuelson