Quick money vs Long Term Wealth

Most new investors enter the stock market thinking of it as a place that can make them rich in quick time. They believe a stock recommendation from a business channel or MoneyControl forum can help them earn easy money. And if one or two of those recommendations work, their get-rich-quick confidence turns into over-confidence, making them invest more money into stocks.

Gradually, with mistakes and failures, usually at the cost of losing a lot of money, most investors either leave the market forever or quickly realise that stock market investing has a steep learning curve. There’s no easy money here, the market is not a place that does charity. It is, infact, a ruthless place where no one cares if you lose all your money. There’s no level playing field here. Experienced and smart investors / traders are fighting it out at the same time, and they are usually the ones who take money from inexperienced traders.

Time, effort and understanding of the market is the key to success in the stock market. The only way to not lose money in the early stages of your investing journey is to change your mindset from making quick money (intraday trading etc) to generating long term wealth.

Some basic rules that can help you in the first 2-3 years of your investing journey:

  • Have a long term mindset. Even if you are lucky to earn quick money initially, be assured that the market will take it away from you sooner rather than later.
  • Invest in quality companies that have done well for the last 10-15 years.
  • Look for companies that have products that you love to use in your daily life.
  • Have realistic expectations; returns of 15-20% per annum is excellent.
  • Try to protect your capital by avoiding lesser known companies (small / mid caps) until you gain experience in the market.
  • Ignore phone calls and emails from those that sell intraday recommendations or those that promise unrealistic returns like doubling your money. Anyone who promises ‘assured’ daily / weekly / monthly income from stock market is trying to cheat you.
  • Stocks will not give you linear returns like Fixed Deposits. Understand that this is a place of volatility. Only by spending time in the market and gaining experience, will you get comfortable with the ups and downs.
  • Bear market teaches you more than a bull market, stay invested when the markets are down. Don’t sell your invested companies unless there’s a serious problem with the company.
  • For the best results, learn both fundamental as well as technical analysis. Learning to read charts can save you from making blunders. It can also give you clear indications on when to buy for long term and it’ll also give you the confidence to hold for long.
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