Price is what you pay. Value is what you get – Warren Buffett
Choosing high-quality Equity Stocks:
It is very challenging for retail equity investors to recognize quality equity stock for good returns in the stock market. As an investor, we all have one common goal to get good returns from the stock market as we all wish to be wealthy. But, it is quite challenging.
To get good returns from equity investment, one should know about the stocks quality, valuation of the stocks, company management. Moreover, global and Domestic sentiments, basics of Macro and Microeconomics, patience and a little bit of luck too.
No doubt, we all know the stock market nature i.e. ‘high risk and high gain’. So, we should never invest 100% of hard-earned savings in the stock market. Also, Neither we can predict the stock market nor time the stock market. We do not know when to enter into the stock market or exit the stock market. Truly no one knows it. whether the investor is a novice or an expert. Therefore, Good return from the stock market is always challenging.
Do We Know the Company Profile?
It is always been thought-provoking for an investor to pick quality equity stock at a good valuation for better returns. Whether the market is in the Bull or Bear run. So, retail investors require a lot of reading, experts input, ability to analyze the company balance sheet, P&L, etc. before investing.
But, most of the time retail investors don’t work comprehensively before investing in an equity stock to have a good return from the stock market. To be honest, they do not know the details of company management, past performance of the company (at least 12 quarters), company debts and their profits/loss, etc. As an investor one should know these parameters to get a good return from the stock market.
Do We Know The Investment Risk?
An investor must understand that they are putting their hard-earned money into the stock market. Stock market returns come under ‘High Risk-High Return asset class’. So, an investor should be aware that, an equity investment is a serious business and cannot be treated as a ‘lottery’. You must think that why only a handful of equity investors are successful globally.
So, if you don’t know the basic fundamental of equity investing, stay away from the stock market. Therefore, put your money in a/less risky asset class such as FD, Land investment, Gold investments, mutual funds, etc. But, if you are still interested in equity investing take help of proven financial advisor for credible inputs before investing. You also need to ensure that, your financial advisor is qualified and have enough experience in the stock market to have a good return or minimize market risks. Meanwhile, a retail investor can learn through the reading business newspaper, reliable web blogs, watching business TV channels or have respective Apps in your smartphone to have 24 x7 access.
Getting Good Returns from Equity
Sometimes the question comes in retail investors mind: What is considered to be a good return from the stock market? Actually, it should be anywhere between 15-20 percent annually. It means that your principal money should get twice over five years if, stock appreciate @ 20% annually. But, such a return from the stock market is highly challenging. Only high-quality stock is able to generate it if invested at the right valuation. Even, legendary Warren Buffett is able to make a 20% average return on his investment over a long period of time.
Although, there are other large numbers of company parameters to understand it’s quite difficult for all retail investors to understand. So, stick to some key parameters of stocks as mentioned above, stay invested for at least 5 years and review your investments periodically on a quarterly basis as you cannot leave your hard-earned money on sheer luck.
At the end of this topic, my experience in the stock market suggests that equity investors must invest in high-quality stocks only to avoid loss or disappointment from the stock market.