Stock markets have historically been associated with creating immense wealth or destroying it. That is because they are directly linked to businesses which have rising, stagnating or declining values. Investing in stocks is not full proof as disruptions can reduce the value of a business. A great example is the entry of Jio into the telecom space. Existing customers began to switch to Jio leading to decline in share prices of other telecom companies. Such a move could not have been anticipated in 2010, 2012 or 2013. If one had invested in VI in 2013, today their wealth would have declined by 80%. Hence, market forces would have led to a destruction of wealth.
SUCCESS STORY
Many people interested in money matters or stocks would know about Rakesh Jhunjhunwala. He sadly passed away at the age of 62 in 2022, which is quite young nowadays. When he died, he left behind a huge pile of money “ more than USD 5 billion! A big chunk of this came from his investment in Titan, a company owned by Tata.
Back in 2003, he started buying shares in Titan when they were priced at Rs 40 each. He kept on buying more until he owned over 5% of the company. Even after he died, his wife held onto these shares.
Imagine how Rakesh must have felt when his investment crossed the USD 1 billion mark. Maybe he thought about selling it or putting the money somewhere else. We can’t be sure. What we do know is that he kept believing in Titan until the end. Even if he had sold when it reached USD 2 billion, it would still be more money than he could ever spend in his life. That shows how important it is to keep believing in your investments “ it’s a key trait for successful investors.
HOLDING PERIOD
These days, it’s pretty easy to buy and sell stocks. But the tricky part is holding onto them for a while. Big investors like Warren Buffet and Charlie Munger reckon it’s smart to pick companies that will last a long time. One way to do that is by looking at what sets a company apart from its rivals “ its “moat”. The bigger the moat, the longer the company will probably stick around.
But if a company loses its advantage and the bosses can’t fix it, it’s probably best to sell your shares. Holding on could just make things worse. Take Future Retail Ltd, for instance, the company behind Big Bazaar. It grew fast and borrowed a lot of money, but then ran into trouble. The bosses couldn’t sort it out or get more cash. Now, the company’s worth has crashed by over 98%! If you don’t sell when it’s clear the business can’t survive, you’ll lose a lot of money.
BELIEVE THE STORY
Investing in stocks without understanding the company isn’t a smart move for the future. People invest for different reasons, like trusting the company’s leader or liking its products. Whatever the reason, it’s crucial to be clear about why you’re investing, or you might regret it later. Many invest in companies like Reliance Industries or Adani firms because of their owners’ track records in creating wealth.
Mukesh Ambani is admired for his laser focus. He’s known for shaking up industries by playing the long game and staying focused. On the other hand, Gautam Adani takes a broader approach, believing in diversification. Both are seen as having a magic touch in business, but their success often comes with sacrifices, which wise investors understand.
Think back to 2015 when Tata Motors’ stocks were at their highest. After that, it was a tough ride until 2020, especially with the COVID-19 pandemic. But then, the stock soared from under INR 100 to nearly INR 1,000. If you panicked and sold during the tough times without understanding the company, you’d miss out on big profits when things turned around.
IN A NUTSHELL
In a nutshell, the key isn’t just buying and selling, but knowing when to hold on. Sometimes, investors get too attached to a company emotionally, making it hard to judge objectively. It’s crucial not to let feelings guide investment decisions. A small mistake can lead to big losses. Remember, not every investment will pay off as expected. If you’re not ready for the risks, it might be best to stay away from the stock market.
[The writer possesses a fascination with the world of business and the intricacies of stock markets]
