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This article aims towards shedding some light on sound Investment principals to build long term wealth in the stock market. I believe that all of us should be invested in the stock market as every day we end up consuming products made by one of these listed companies.
If you live in a country like India with its immense population and potential growth prospects, investing in blue chip companies with sound fundamentals that pay regular increasing dividends can generate considerable wealth in a period of 10 years.
In the past 10 years, some of these Indian bluechips have returned over 3 times in 10 years. Reinvest your dividends for 10 years and you end up making considerable extra returns.
So my ideal portfolio would be highly diversified and aimed to be built like a Fort. Like a good fort, you require a strong foundation in your portfolio.
A mix of secular and cyclical stocks bought at low prices, keeping the trends in mind. Examining sectors is very important as quite often 50% price movements may depend entirely on the sector.
Most importantly, you need to understand the basics of Investing and Finance.
Diversification is so important because 10 of my 30 stocks in my portfolio have given me massive returns.
Would I have know which ones would grow so much?
Maybe a a few of them, but I could not have guessed all of them well.
The thing to understand in stock market investing is that every information you discover was already public and hence the markets may have already accounted for it. Predicting stock markets can still be done if you have the proper rationale mindset.
Understand Corporate Finance and Financial Statement Analysis.
Everyone comes with some unique investing strategies. Surprisingly my risky investments have given me massive returns with 3 stocks rising more than 100% in a year.
I had my reasons to invest in them. But most importantly, I had the patience to not sell them when they went up 50%.
Maybe these stocks may fall again. But if they are good companies, then they shoulod grow much more in a few years.
This compounding over a long period is important. Building a portfolio that even gives you more positive returns than negative returns is the minimum you need to do.
Those small returns are getting compounded every working day.
My own portfolio was at a 20% loss initially. With time, I entered profits and now have a 10% up portfolio in less than a year. Have not considered the dividends here.
With time even small returns get compounded to snowball into a bigger net portfolio.
In time a 0.5% rise in portfolio will be more significant than it was earlier.
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