Monday, December 18

Creating Wealth Through Stocks

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We all Work hard to earn money.How how nice it would be if our money also works for us simultaneously. The key to building wealth is to start early in life by saving and investing in stocks which will create wealth in next 5-7 years.

Some Simple strategies to create wealth and a diversified portfolio:

1. Look out for companies which declare bonus or stock splits and have fundamentally good business models.List down such companies and invest in them.Many people argue that bonus or split only creates book-entry in companies’ records, but actually it does create wealth in long term just like blood donation-the body produces the same blood in next few days.When a company gives bonus-splits the value of stock is adjusted but slowly after some months or year the stock price again reaches the same where it was before the bonus.  For example- You invest Rs.20000 in a stock and get 100 shares at Rs.200, after record date of 1:1 bonus , the stock price falls to Rs.100 and your holding rises to 200 shares, however after some months the price starts rising and will reach Rs.200 , thus raising your portfolio value to Rs.40000, in case of good companies.

2.Option of taking Loan and Investing – Though it does not seem wise to borrow and invest.However if the cost of interest is less than the returns expected for sure, borrowing to raise investible capital makes sense.

3.To create wide portfolio with many stocks with nil cost-Invest in a stock 100 shares at say Rs.100 =Rs.10000.After the shares rise to say Rs.110 , sell 91 shares and you will get the Rs.10000 invested amout back.Now 9 shares remain with you with Zero cost. This strategy can be used for dividend paying companies so that there will be capital appreciation and the dividend received will be added advantage.

4.Study certain stocks with their price movements and seasonal patters.For example stocks of cement companies do not do well in monsoons since there is less construction activity and hence they usually touch their 52-week low during this period.Try to grab such opportunities and sell them when they reach thier peak when season changes.Date on 52-week Highs and Lows are easily available on Exchanges sites. Also Fertilizer stocks can be accumulated during monsoons and sold when they reach highs after some months.Stocks of AC manufacturers seem to do good in summers.

5.Looking out for Multibaggers in the market with good Earnings Per share,good promoter holdings and Book-value and investing in such mid-caps for long-term.

However always do your own research and analysis before investing.


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