Chapter 1- Investment in the Stock Market
Investment could be defined as laying out money or capital in an enterprise or medium with the expectation of profit. Another easy way of putting it could be: The use of money for the purpose of making more money, to gain income, increase capital, or both. What is important to remember is that Investments are not like savings in the Bank Account, where your money grows at a certain fixed rate (called Interest Rate) every year. An Investment entails risk of losing the amount invested on the flipside if successful it would give you returns that would far exceed the returns in the form of a Bank (or other) savings.
Why invest? The logic behind investment!
Slowly, all over the world, people are realizing that the only sure way to wealth over time is to make sure that not only does one work hard, but also makes his/her money work hard.
Which means while all of us in employment/business are hard at work, we also need to make sure sure that our money is also hard at work in multiplying itself. To set this in motion, we need to understand and evaluate investment options. This book is about helping you evaluate one of the best options of investment the Stock Market!
The value of your money is judged by its buying power which means the value is judged by the quantity of goods or services you can buy with it. If you keep your money in the form of cash, you would lose on the value of this money because of inflation (increase in the general price level of goods and services). If you keep your money as Savings in the bank, the interest you would earn would barely be a few percentage points above the rate of inflation. Hence to really make your money make more money for you (also called making your money work for you), you need to think of investing your money so that it grows way faster than inflation. That is the only way to grow wealthy over time.
As against trying to run your own business, investment is about letting your money aid the business to grow and hence derive profit from the investment. So as an investor, one does not need to do all the hard work required to run a business, but one does need to figure out which are businesses that have higher probability of doing well, and hence invest accordingly.
What are the normal investment opportunities for individuals?
Each of these has its own set of issues. While it is not non profitable to invest in land, usually it takes 15-20 years to appreciate significantly. Also Real Estate tends to be relatively non-liquid (which means it cannot be sold of immediately at a good rate if you need the money suddenly).
Investment in the Stock Market gives you an opportunity to gain significantly in a time frame of 4-5 years, which is what most of us are looking for. The gains can come faster for those with higher risk appetites. However, the best part about the Stock Market is that it is very liquid, and any additional money can be pumped in for a short period to derive benefit for you. Conversely if an investor in the Stock Market requires money suddenly, he can retrieve it from the market at short notice (almost immediately).
Over the past few decades, the Indian Stock Market has created a lot of wealth for a lot of investors. No wonder that the number of retail investors has increased from approx 1.5 million 20 years ago to more than 55 million today!