The very mention of the term stock market conjures an image of wealth in our minds. That is because time and again we have heard that there is immense wealth in the stock market.
So if it was so easy to create wealth in the stock market, why are most Indians not rich?
The reason behind this is quite simple. Lack of proper understanding of how the stock market works and the right way to create wealth in the stock market.
Most people enter stock markets with half knowledge, often inspired by success stories of wealth creation, which they have heard from others.
But as they say “Half knowledge is dangerous”.
As a result of the incomplete knowledge of stock markets, they invest in any random stock advised by others which include friends, relatives, colleagues or suggestions given by business news channels. While doing so they never think about the rationale behind their investment decision. Forget wealth creation in the stock market, they actually end up making losses.
While the probability of 1 or 2 out of 10 recommendations given by friends, relatives, colleagues or business news channels may actually work, 10-20% success ratio can never create wealth in the stock market. Instead of creating wealth in the stock market, 80% failure ratio often results in wiping out the capital of the investor.
To create wealth from stock markets, one needs to have a deep understanding of the various factors which affect stock markets and the various players in the market.
In today’s world where physical boundaries no longer matter, stock markets in India are affected by what happens in American stock markets and other global markets. Besides this, there are factors like oil prices, fluctuation in value of rupee, economic and political factors.
Apart from the factors mentioned above, there are many players in stock markets such as retail investors, HNI’s, FII’s, mutual funds, insurance companies and pension funds.
Retail investors account for a very small portion of the transactions which take place in the stock markets in India. Small investors are often caught unaware of the factors affecting stock markets and the bulk buying and selling trades executed by the big players.
To summarize, the proven way to create wealth in the stock market is to invest in fundamentally sound stocks and wait patiently for the business to grow and realize its patients. However most investors lack both the expertise to identify fundamentally sound stocks and the patience to remain invested for a long time. That is why is not easy to create wealth in the stock market.
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Read more: How Long-term investing helps create life-changing wealth – TOI.