To make money in investing you have to be right about what you do. To be right there are at least a few things that have to work out in your favor.
The first is your premise that the stock that you bought or sold is priced differently by the market. That is, the gap between your value and market price is large enough to give you profits.
The second is that your premise has to be correct. That is you are right, and therefore, the market is wrong.
The third is your premise that the market will recognize its mistake and correct itself.
The fourth is that your premise has to be correct. That is your are right, and therefore, the market eventually corrects itself yielding you your profits.
This is a simple model of investing which in short implies that you buy low and sell high, or sell high and buy low. Yet, not many are able to succeed consistently at this game.
Nevertheless, this does not stop people from barking. We get to hear,
10 stocks that will make you rich,
15 stocks that will be multibaggers,
20 stocks that should be in your portfolio,
12 stocks to buy this yearend and hold until the next,
Blah, blah, bark, bark...
Any rational individual (is there one?) would think, if it were so, why these idiots are not doing it themselves?.
As of now, Nifty is quoting at 8691.30, and has these attachments: PE 23.23, PB 3.29, and Dividend 1.27%. Do you want it? Since individual stocks make these numbers, by and large, both the market index and individual stocks carry these strings. Sure it is pricey.
If you buy the index, you are looking at 1.27% in dividends, and whatever else in capital appreciation. If you are playing the short version of the game, you are bound by the hands of luck. You could make money or lose depending upon your stars in the sky during the time. Or may be the fault will not be in your stars, but in yourself because you chose the shorter version. It is a difficult game to play because you are never certain of the outcome. However, if you are playing the longer version of the game, you could score some points. You could collect those dividends each year, and then be somewhat certain that the market is going to march forward during the years ahead. You understand that some years it may fall short or lag behind, but overall, it will be way ahead compared to what it is today. The game is better played continually rather than at a time; this will lower the average cost of buy. There is far little stress and far better result compared to the talking heads. You are more likely to be right than wrong.
If you are willing to make investing your business, there is a much higher probability that you will be able to make more money. This is how it is played: You ignore the outsider's opinion on stocks, business, and on anything. You focus on the annual reports of the individual companies of your interest. You attempt to value the business, and compare the value to its market price. If the gap is large enough (you are not interested in small gaps to allow for your errors), you either buy or sell. Usually you buy and wait for the market to correct its mistake. You would lose money on some, but on average, your collection of stocks would yield you profits when played over a long duration. Again, you are more likely to be right than wrong.
The ideal strategy would be: Set up a program wherein you buy the index on a regular basis irrespective of, and despite, the current news. You buy individual stocks based on value and price analysis as and when you deem fit. And you play the longer version.
Of course, you remain a student of the game all through. The game will teach you important lessons on life: greed, fear, envy, and happiness. Eventually though, if played well, you are more likely to be right than wrong.
The first is your premise that the stock that you bought or sold is priced differently by the market. That is, the gap between your value and market price is large enough to give you profits.
The second is that your premise has to be correct. That is you are right, and therefore, the market is wrong.
The third is your premise that the market will recognize its mistake and correct itself.
The fourth is that your premise has to be correct. That is your are right, and therefore, the market eventually corrects itself yielding you your profits.
This is a simple model of investing which in short implies that you buy low and sell high, or sell high and buy low. Yet, not many are able to succeed consistently at this game.
Nevertheless, this does not stop people from barking. We get to hear,
10 stocks that will make you rich,
15 stocks that will be multibaggers,
20 stocks that should be in your portfolio,
12 stocks to buy this yearend and hold until the next,
Blah, blah, bark, bark...
Any rational individual (is there one?) would think, if it were so, why these idiots are not doing it themselves?.
As of now, Nifty is quoting at 8691.30, and has these attachments: PE 23.23, PB 3.29, and Dividend 1.27%. Do you want it? Since individual stocks make these numbers, by and large, both the market index and individual stocks carry these strings. Sure it is pricey.
If you buy the index, you are looking at 1.27% in dividends, and whatever else in capital appreciation. If you are playing the short version of the game, you are bound by the hands of luck. You could make money or lose depending upon your stars in the sky during the time. Or may be the fault will not be in your stars, but in yourself because you chose the shorter version. It is a difficult game to play because you are never certain of the outcome. However, if you are playing the longer version of the game, you could score some points. You could collect those dividends each year, and then be somewhat certain that the market is going to march forward during the years ahead. You understand that some years it may fall short or lag behind, but overall, it will be way ahead compared to what it is today. The game is better played continually rather than at a time; this will lower the average cost of buy. There is far little stress and far better result compared to the talking heads. You are more likely to be right than wrong.
If you are willing to make investing your business, there is a much higher probability that you will be able to make more money. This is how it is played: You ignore the outsider's opinion on stocks, business, and on anything. You focus on the annual reports of the individual companies of your interest. You attempt to value the business, and compare the value to its market price. If the gap is large enough (you are not interested in small gaps to allow for your errors), you either buy or sell. Usually you buy and wait for the market to correct its mistake. You would lose money on some, but on average, your collection of stocks would yield you profits when played over a long duration. Again, you are more likely to be right than wrong.
The ideal strategy would be: Set up a program wherein you buy the index on a regular basis irrespective of, and despite, the current news. You buy individual stocks based on value and price analysis as and when you deem fit. And you play the longer version.
Of course, you remain a student of the game all through. The game will teach you important lessons on life: greed, fear, envy, and happiness. Eventually though, if played well, you are more likely to be right than wrong.
