A few tips for investing in equity to make money grow

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Brijesh Damodaran: Oct 30 2012, 02:02 IST

Samir had just completed his graduation and was in his first job. At 22, he had heard a lot from his dad, Vijay, about the power of compounding. Samir now wanted to use this power to create wealth. With no financial responsibilities towards the family, he could use a major part of his salary income for wealth creation.

Vijay suggested that Samir meet a few advisors before embarking on his investment journey. He himself met a few relationship managers from banks, an insurance advisor and also a freelance agent. Finally, Samir met Vish, his father's advisor. While discussing various investment options, Samir asked Vish whether investing in stocks was a gamble.

Here was a young executive forming an opinion on one of the effective methods of wealth creation. As Vish said both ‘yes’ and ‘no’, Samir was slightly confused. Vish now proceeded to explain in detail. If you are going to invest based on tips, rumours and hearsay, it is a gamble.

Also, if you are going to invest based on your gut feeling or price movements (without doing an indepth analysis), you are a gambler. Gambling is not about winning or losing.

It is all about taking a bet, a position, without knowing the outcome of the initial action undertaken. You gamble to win, but more often than not, you lose and you lose big.

Investing is a process, be it in direct equity or any other financial products. Investing in direct equity is akin to investing in a business enterprise.

... contd.

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