Road to Wealth Creation: 5 Effective Strategies to Become a Successful Investor

Road to Wealth Creation: 5 Effective Strategies to Become a Successful Investor – Mail Bonus

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Investors who entered the markets in early 2020 and witnessed an extended bull phase that lasted until January 2022 are trying to make sense of the markets.

Although the Nifty has bounced back from 15,293 on June 17, 2022 to 17,530 on September 16, 2022, one might be wondering about the way ahead.

Mature investors may have seen many cycles and would have formulated investment strategies that work for them. However, investors new to the market would seek clarity.



Here are 5 effective strategies for investors of all fields to succeed:


1) Buy companies, not stocks

Investment decisions are often based on stock prices. However, one doesn’t just buy shares in companies they like; they buy companies that trade stocks on the market.

For example, when Warren Buffett invests, he believes he is buying into a company that would still be successful if the stock market crashes.

He focuses on buying companies with great management teams, brand value and pricing strength. Such companies may not seem exciting, but they are steady sources of cash that will increase shareholder value in any economic climate.

To understand this better, let us consider

. Take a look at the following table:

Between 2006 and 2011, HUL’s share price was bullish. Investors would have witnessed marginal returns during this period. However, HUL was gaining strength and from the second half of 2011, the share price started to rise.

Therefore, an investor who only focused on the stock price and did not look at the underlying business would have sold the stock between 2006 and 2011 and missed the great returns that HUL offered from there.

HUL’s net profit doubled in FY11-17 and again in FY17-22 compared to low growth in FY06-11.

2) Invest for the long term and let compounding work its magic


A common mistake most investors make is trading and timing the market. Timing the market is not possible when investing for the long term.

If one wants to enjoy improving profits, timing the market is more important than timing the market. Check out how spending more time in the market can help you improve your wealth exponentially.

From the table given above, the longer you let your investment grow, the higher the value of the final corpus. Assuming a CAGR of 15%, your investment grows by 4x in ten years, 16x in 20 years and an incredible 66.5x in 30 years.

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As most of us would know,

and returned 34% CAGR (300x) and 24% CAGR (70x) over the last twenty years. They formed the bulk of the portfolio of ace investor Late Shri Rakesh Jhunjhunwala.

He had started buying shares in both Titan and Crisil between 2002 and 2003 respectively. This is a powerful example of wealth creation through long-term investing.

3) Be aware of diversification and asset allocation

Often experts talk about having a concentrated portfolio of 7-10 stocks. However, this may not be everyone’s cup of tea. A retail investor may be better off with a diversified portfolio of 20-25 stocks across industries and market capitalization.

Second, you must not want to allocate more than 8% to one share. An allocation ratio between 3% and 7% per share depending on risk appetite, goals and other factors is more economical.

For example, various new age stocks that entered the market last year have lost between 40-60% in the last year; so an allocation of 10% or more in any such stock would have knocked away 4%-6% at the portfolio level.

Thus, an approach that includes stocks across sectors, market cap, high-mid-low risk, growth and value will withstand stress during peak times and generate healthy alpha and create wealth over the long term.

4) Start with any amount

Most people think that you need a large amount of money to start investing. It is a myth. Whether you have Rs 1,000 or Rs 1,00,000 and more, putting money to work makes perfect sense.

Wealth grows over time, but not overnight. One needs patience and consistency to create wealth. But to create enormous wealth, one must start early.

For example – Ram invested Rs 10,000 when he was 25 and Ramesh invested 10x that of Ram or Rs 1,00,000 when he was 45. Both their investments grew at 15% CAGR. By the time both turned sixty, Ram’s investment had grown to Rs 13,30,000 and Ramesh’s investment had grown to Rs 8,10,000.

5) Seek advice from qualified professionals

Today there is no shortage of information. Regardless of recommendations from family members, friends or colleagues, investors have a hard time distinguishing insight from the noise.

In addition to the experts who appear on news channels, there are financial influencers who take advantage of the Internet to share their opinions. In such a scenario, an investor may wish to seek advice from SEBI registered investment advisers, on a fee basis rather than relying on advice from those with no skin in the game.

Investing is a journey and there are always new milestones to reach and hitherto unknown insights to discover. However, the fundamentals of investment law remain the same and investors should focus on following them.

(The author is Chief Investment Officer (CIO), Research and Rankings. Suggestions, suggestions, views and opinions are his own. These do not represent the views of the Economic Times)

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