To become a successful stock market investor one should focus on the fundamentals of the business rather than stock market tips. This is very important because a quality stock can withstand any kind of volatility over the long term and outperform with time.
By any chance have you seen the blockbuster movie 3 Idiots starring Amir Khan, R Madhavan and Sharman Joshi in lead roles? Well there is a dialogue which essentially reflects the importance of focusing on quality.
“Success ke peeche mat bhago. Kaabil bano kabil. Kamyaabi saali jhank maar ke peeche ayegi.”
In English it means “Don’t run behind success. Focus on becoming talented by developing your qualities. Success will be forced to come behind you.”
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The same is applicable in stock markets too. Many investors, especially new ones assume that stock markets are an easy way to get rich quickly. In the process, they fail to do their homework to understand how the stock market works and the factors which affect stock prices.
They presume that stock market tips received from others is the best way to make profits, without realizing the fact that the people who provide these stock market tips themselves depend on others for it. Besides this, there are many cartels who act with vested interest while spreading stock market tips to trap innocent investors. They deliberately spread rumors in the market about how the stock is likely to go up due to some other company buying stake or turnaround of the company. When new investors misled by this, enter the stock, the operators dump the stocks in large quantities leading to a free fall in stock prices. As there are no fundamentals in the stock, the chances of prices recovering from the huge fall are zero.
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On the other hand when you invest in quality businesses for long term, you are essentially giving time for the business to grow and realize its true potential. This will ultimately reflect in the rising stock prices too.
That is why it is very important to look for the quality of business while investing for long term rather than stock market tips.
Ignore Stock Market Tips. Look For These Important Factors To Pick Winners:
Check the ability to beat competitors
Fundamental analysis can help an investor to know whether the company will be able to outperform with time and beat its competitor’s because only then it will be able to survive in the long run.
Check the quality of the management
Management pedigree, past performance and its vision and are crucial factors which decide how the company will perform in future.
Check the debt of the company
Any company with a huge debts can neither perform well nor reward its shareholders. So it is highly advisable to avoid it.
Check the financial ratios
It is equally important to check factors such as Price-to-earnings ratio, Price-to-book ratio, and free cash flow ratio of the company.
To conclude, the best way to create wealth is by investing in good quality businesses rather than depending on stock market tips.
Related investing topics
Read more: How Long-term investing helps create life-changing wealth – TOI.