By Vikas Singhania, CEO, TradeSmart
It is said that less than 5 per cent of those who come to the stock markets are consistently profitable. In a zero sum game, wealth is accumulated by a handful of investors. What separates these individuals from the rest is not a very high level of intellect but a disciplined and pragmatic approach. And it is these traits that make investing come naturally to female investors.
Female investors have advantages over their male counterparts in the sense that they are good at saving, and can differentiate better between price and value. However, there are some golden rules to build wealth in the stock market that can help women earn riches.
- Entry rules: Having a defined rule for buying will go a long way in picking stocks. Just like purchasing goods, one knows the quality and price at which to buy, the same logic works while picking stocks. They have to be bought at a bargain. This single rule will help them avoid participating in a mad rush.
- Buy Quality: Buy quality stocks means buying companies that have strong management and that have withstood various business cycles.
- Invest in businesses that you can explain to your children: Legendary investor Peter Lynch had this philosophy of explaining the investment rationale in a single piece of paper, something he learned from seventh graders who in an investment game beat the Index. Investing in such companies means that when something goes wrong in the business it is easy to decipher and understand whether it can be rectified. This would help in deciding either on adding more shares when the price falls if the damage is small or exiting if the company will take time to recover.
- Diversify: Invest in more than one stock, that too from different sectors. Given that business cycles are different across various sectors, diversifying will help cushion any fall in one sector.
- Monitor: Investment eggs need to be monitored like a mother hen. Any sign of weakness needs immediate and clinical attention. Monitoring growth path of companies is essential.
Women need to first take the step of starting their journey of wealth creation, follow these strategies with a strong game plan to be successful at wealth creation.
(The author is CEO, TradeSmart. Views expressed are his own)
(Stock market investments are subject to market risks. Please consult your financial advisor before making any investment decision)