Most new investors are scared to invest in the stock market – fearing that the stocks they buy could fall and money could be lost.
But remember this – losses are a part of the stock market. There will always be more under-performing stocks than big winners. But few big stock market winners are ‘enough’ to make you wealthy for life.
Let me prove it to you.
Let’s say you have 2 lakhs to invest in the stock market.
You decide to buy 10 different stocks and invest 20,000 in each company.
Assumption: You buy good quality companies and stay invested for 20 years.
One morning in the year 2040, you check your investments and realise:
- 7 companies have gone to zero
- 1 has done well and given 20% returns
- 1 has performed brilliantly and given 25% returns.
- The last one is a big stock market winner and gives 35% returns.
2 lakh investment. 20 years. Only 3 have survived and done well, 7 have gone to zero.
How much has your 2 lakhs become?
You’ll be surprised by the result.
|Investment||Returns||20 years later|
It’s shocking, isn’t it?
Even though 7 of your investments completely failed, the remaining 3 big winners have more than made up for the blunders.
In fact, if 9 out of 10 investments fail and only 1 company gives 25% – your 2 lakhs would become 17.3 lakhs and the annual returns would be 11.4%.
That’s still more than what you would get from a bank fixed deposit.
If 9 out of 10 companies fail and only 1 gives 30% returns – your 2 lakhs would become 38 lakhs and the annual returns would 15.9%.
Stock Market Winners
While reading the first part of this article, you must be wondering – are there any companies that have given such extraordinary returns? Huge stock market winners, do they exist?
The answer is – there have been many:
|Company||10 Year Returns|
|Avanti Feeds||74.64 %|
|Ajanta Pharma||47.32 %|
|Aarti Drugs||45.35 %|
|Bajaj Finance||45.21 %|
|Granules India||43.94 %|
|P I Industries||43.73 %|
|Navin Fluorine||41.98 %|
|Aarti Industries||41.97 %|
|Vinati Organics||40.99 %|
|Relaxo Footwear||40.65 %|
|Balkrishna Industries||34.29 %|
|Britannia Industries||32.66 %|
|Eicher Motors||32.27 %|
|APL Apollo Tubes||32.26 %|
|Page Industries||31.96 %|
|Natco Pharma||31.41 %|
|Can Fin Homes||31.10 %|
|Berger Paints||30.91 %|
|Abbott India||30.44 %|
|Kajaria Ceramics||29.68 %|
|Honeywell Auto||29.06 %|
|V-Guard Industries||27.95 %|
|Bajaj Finserv||27.34 %|
|Coforge (NIIT Tech)||27.33 %|
|Info Edge (Naukri)||25.82 %|
|Welspun India||25.64 %|
|Tata Elxsi||25.51 %|
|Jubilant Foodworks||25.35 %|
|Torrent Pharma||25.29 %|
|Pidilite Industries||24.79 %|
|Shree Cement||24.78 %|
|J K Cements||24.29 %|
|Divi’s Laboratories||24.17 %|
|Supreme Industries||24.09 %|
|Havells India||22.98 %|
|Bata India||22.68 %|
|HCL Technologies||22.62 %|
|Aurobindo Pharma||21.98 %|
|Asian Paints||21.87 %|
|Whirlpool India||21.61 %|
|P & G Health||21.30 %|
|DCM Shriram||21.23 %|
|Amara Raja Batteries||21.14 %|
|Hindustan Unilever||20.97 %|
|Titan Company||20.93 %|
|Ipca Laboratories||20.88 %|
|Johnson Controls (Hitachi)||20.85 %|
|TTK Prestige||20.51 %|
|Indraprastha Gas||20.05 %|
So many companies and so many big names.
However, do remember, no one in the world can tell you which companies will do well in the next 10-20 years. Even the owners of the business themselves wouldn’t know, as it depends on so many factors.
But the point of the article is – all you need to do is identify 10-15 good companies and build a strong portfolio of stocks.
The number of companies would depend on your capital and comfort level. (Read: How many stocks to have in a portfolio?)
Once you identify a few quality companies, you need to invest enough money in them.
After this begins the tough part – DOING ABSOLUTELY NOTHING.
This is where most people fail. They can hold Gold forever even though its price is volatile. They can hold real estate forever. But most people cannot handle the volatility of stocks.
When a good stock doubles, many will book profit and find another stock to invest in. But when it comes to a stock in loss, they can hold it forever – hoping the stock will rise one day and the loss can be recovered.
In most cases, exactly the opposite happens. The stocks that are rising, continue to rise. And the stock that are falling continue to fall more.
The human mind has not evolved to handle stock market volatility – this is one of the reasons why most have a trading mindset and not a long-term outlook.
Expecting quick results and quick money is out nature, but it rarely works in the stock market.
Identifying good stocks is only a small part of the game. Fine tuning and working on your mind and its behaviour is much more important.
Identify good companies.
Buy enough quantity (minimum of 5%)
Know the story (future potential)
Hold until the story changes
This is how Rakesh Jhunjhunwala created huge wealth. This is how Warren Buffett became super rich.
There is no reason why you can’t.
It won’t be easy, because you will have crashes like 2008 and 2020 in between. There will be panic, there will be euphoria. How you handle this will decide how successful you will be.
Disclaimer: None of the stocks mentioned in the above post are buy or sell recommendations. Do your own research before taking any decision.