Can Stocks Make You Rich: The stock markets are booming! Certain stocks gave multibagger returns which made the investors wealthy within a short span of time! These are some of the headlines we have been hearing over the last few years.
This has driven people from different age brackets to enter the market with an expectation to earn high returns. But the pertinent question is, Can stock make you rich? In this article, We will take you through the different ways in which investors make money in the stock markets. Keep reading to find out!
Current Scenario of the Indian Stock market
The Indian markets experienced a Bull run for almost a year in 2021. Bulls are the market participants who are optimistic about the growth of the stocks and expect a rise in returns. Looking at the technicals, the BSE SENSEX rose by approximately 9,660 points and the NIFTY gained around 3100 points last year.
Sector-wise the top performers were Metal, IT Banking, Energy, and Realty who gave the highest returns. It was in January 2022 that the bull run ended and the market went through a long due correction.
Is Investing in Stocks Similar to Gambling?
“Investing in the stock market is just like gambling at a casino.” This is a phrase we all have heard at least once in our life. But how much of it is true? In both, investing and gambling the key goal is to minimize risk and maximize profits. The difference lies in the returns that are generated i.e, it is likely that stocks will give positive returns in the long run which is not the case with gambling.
Investors generally have access to quantifiable information which can be used to make an informed decision before investing. But gamblers do not have that privilege as it is a game of chance. Apart from that, offsetting losses is much easier in the case of investing than gambling. Therefore, it is safe to say Investing and gambling are not similar.
Can Stocks Make You Rich – Styles of Investing
Before entering the financial markets, you must have a clear vision of your financial goals. Some of the most important attributes to be consisted include availability of capital, the time horizon of investment, and risk appetite. Based on these, you can choose the style of investment and learn how to start investing money for the first time. There are mainly two styles, which are:
There are instances where many people have made millions by day trading. Similarly, many investors have lost millions of rupees by making the wrong trades in the markets. Traders are more inclined to use technical analysis as it is easier to spot the trends and place trades based on them.
To become a successful trader and make money from stocks they should follow certain rules, like setting a target, not being emotional about trade, and most importantly not overtrading. To make money by day trading an investor should have a proper trade strategy and have the discipline to follow it.
Long Term Investing
One of the great things about investing is that it takes only one great purchase, held for a long time, to change your future. Investors generally follow the Fundamental analysis approach. Instead of short-term price changes, they look at the financials and prospects of the company.
The long-term investor can choose to go with different styles of investing as well. The growth style of investing is one in which key parameters like high earnings growth rates, high return on equity, high-profit margins, and low dividend yields are analyzed. The next style of investing is value investing wherein the goal is to buy a company with strong financials at a relatively lower price.
Can Stocks Make You Rich – Types of Stocks in the Markets
Another way in which stocks can make you rich is if you choose the correct mix of stocks in your portfolio. While talking about the stock of companies we often hear the term Market capitalization. In simple terms, it is the number of shares of stock a company has outstanding, multiplied by the share price. Based on the market capitalization value, stocks can be categorized as:
When companies with large market capitalization issue shares they are called large-cap or blue-chip stocks. Generally, these companies have a market capitalization of more than Rs 20,000 Crores. A risk-averse investor chooses this type of stock to get stable returns.
These stocks are heavily traded and therefore provide high liquidity to investors. Some of the largest companies in India by market capitalization include Reliance, TCS, HDFC Bank, Infosys to name a few. In FY21, the large-cap stocks gave an average return of 21.26% to the investors.
In the past few years, these stocks have performed better than large-cap stocks. The companies that come under the midcap stock category are in the growing stage. The business has the capacity to take risks and diversify into different verticals. Upon success, these can provide high returns to the investors.
The companies have a market cap between Rs 5000 Crores to Rs 20,000 Crores. Some of the big companies to invest in include Adani Total Gas Ltd., Hindustan Zinc Ltd., Tata power out of many. The returns from midcap stocks in FY21 were 37.02% on average.
For wealth creation, penny stocks are the most lucrative option among investors. There are no such market cap limits for these stocks. In India, people have a notion that any stock which has a market value of less than Rs 10 is a penny stock.
Sometimes, the small-cap stocks are also known as penny stocks. These stocks are not very liquid as they are less frequently traded. The technical indicators may not work best for penny stocks as the price and trading history are not easily available.
These stocks have the potential to give multi-bagger returns over the year. It was evident in 2021 when these stocks gave the highest return of 58.96% across all asset classes. Some extraordinary examples of these shares are:
- Brightcom Group shares gave nearly 7200% return in 3 years from the share price being ₹2.44 in 2019 to nearly ₹178.05 in January 2021.
- Sel Manufacturing Company Ltd is another multibagger penny stock that has given around 28,800% return in the last six months as its prices went up from 0.35 in October 2021 to Rs 101 in January 2022.
Can Stocks Make You Rich – Top Investors in India
Here is the list of the top five Indian investors who had a humble beginning and made millions by investing in the stock market.
Rakesh Jhunjhunwala is also known as “The Big Bull’ of India. He is one of the most renowned and successful stock market investors in India. He has made a great fortune by trading and investing in stocks. He just started with an initial investment of Rs 5000 in the year 1986. Currently, his portfolio has 37 stocks worth over Rs. 34,295.1 Cr.
Ashish Kacholia is known more for his absence from the media cycles, avoiding interviews and journalists. The media calls him the ‘Big Whale” of the markets. Ashish started his career with Prime Securities. Thereafter, he joined Edelweiss in their equity research desk before opening his own broking firm, Lucky Securities in 2003.
That was when he started his own portfolio. He is also co-founded Hungama Digital Media Entertainment with Rakesh Jhunjhunwala. Presently, he holds 34 stocks in his portfolio and has a net worth of over Rs. 1,884.2 Crores.
Vijay Kedia belongs to a stock brokering family and joined his family business at a very young age. He is well known for his unique investing strategy which he calls SMILE. It is an abbreviation for Small in size, Medium in experience, Large in aspiration, and Extra-large in market potential.
As an investor Vijay has picked a number of stocks in his portfolio that gave him multibagger returns such as were Atul Auto and Aegis Logistics. Currently, his portfolio has 14 stocks with a net worth of over Rs. 606.4 Crore.
Dolly Khanna, the name we hear along with Rajiv Khanna, is a successful investing couple based in Chennai. Rajiv is widely known as the brain behind Dolly Khanna’s holdings in the equity market. They are in the stock market since 1996.
They go by the philosophy: “Investors have to move beyond value investing and look at growth stocks if they want to find multi-baggers for their portfolio.” Currently, the ace investor publicly holds 20 stocks with a net worth of over Rs. 394.5 Crores.
One of the most well-known investors in recent times, Porinju Veliyath is a fund manager and runs a portfolio management firm ‘Equity Intelligence‘. He started his career as a floor trader in Kotak securities. Few of his first investments in companies like are Geojit financial services and Shreyas shipping turned out to be multibagger stocks.
He is popular for investing in lesser-known companies that have good fundamentals. He was named a small-cap czar by economic times. He has around 18 stocks in his portfolio worth over Rs. 198.7 Crore.
It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” — George Soros. What most people forget or don’t understand about markets is that outcomes in markets are simply a range of probabilities. Therefore, it is important to analyze them carefully before making a trade. That’s all for the post on Can stocks make you rich. Happy Investing!