Successful equity investing is about embracing certain resilient rules or principles, says Rahul Jain of Edelweiss.
Investing directly in equity markets, also known as direct equity investing, takes quite a bit of time and energy, and not to mention loads of research and patience. That is not to say that it cannot be mastered. On the contrary, equity investing can be aced – here is how.
Successful equity investing is about embracing certain resilient rules or principles, the golden rules of investing, if you may. I intend to elaborate on the most enduring rules of successful equity investing and thereby creating wealth.
This is the most basic prerequisite for investing in equities. You must have a good understanding of the product/service offered by the company - where the product finds usage, the manufacturing process, the value-addition, and its input costs.
If you find the product/service too complex or too good to be true, it is better to give it a miss even if it appears exciting.
If you feel remorse later, remember Warren Buffet who refused to buy technology stocks in the Dot Com boom in 1999 and lost on some gains initially only to find redemption in the crash that followed.
• Think long, really long
If you are going to need your money in a hurry (within 3-5 years), equity markets may not be the right place for you.
While you are investing for the long-term, you instinctively adopt certain traits like giving the daily noise a miss and looking at companies with a more serious, long-term perspective. You automatically align your point of view with the company’s point of view.
So if the company has set up a plant and expects returns to start reflecting in the stock price three years later, that’s also how long you will wait for the stock price to start moving up.
• It’s not about keeping up with the neighbours
Investing is a painstaking activity about identifying the right companies. It involves understanding the business of the company, the opportunities and threats it’s likely to witness over time.
These analysis does not get simpler because your friend or colleague bought a specific company or because a company is in the benchmark index or because it was recently in the news.
In other words, there is no shortcut to study and analysis. You just cannot expect to identify a good company through the choice of your friends or the benchmark index.
To quote Sir John Templeton - If you want to have a better performance than the crowd, you must do things differently from the crowd.
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