How is wealth created in the stock market? Whatever words you choose, at the bottom of it there are only two ways.
- Buy at X, Sell at Y ( X < Y, if you’re any good)
Now let’s dig a little deeper:
In point number 1, when we say X and Y we mean price.
In point number 2 we have dividends, typically in a decent portfolio the average dividend yield ( on current price ) is ~2-3% P.A, as an enterprising investor, your interest is in the former as is the focus of this post.
All of us have different styles, techniques, strategies we use and deploy to buy and sell prices of different companies, note, there is a difference between what we have learned and the true nature of things, we are not buying / selling the companies but their prices.
As I write this, Ratnamani Metals and Tubes is quoting at Rs. 572 / share, there are 2 participants, one is value investor. and the other is a technical analyst.
Both, buy (X) at the current price, let’s assume after a year price now is Rs. 700 / share, both sell(Y) and pocket the difference as profit.
These guys came from 2 completely different lines of thought, one analysed the company, its fundamentals and other such variables, the other analysed chart patterns, the result is the same, they both created identical quantum of wealth.
Mr. Market is like nature, it brings everyone to an even plane. No matter what your analysis is, you have to buy / sell price.
As an investor all you are really doing is betting on prices of different securities, this is at the heart of stock market investing.
Your sole focus as an investor must be just 1 thing, find a way to make a killing when you’re on the right side of the bet, lose as little as possible when you’re on the wrong, do this consistently for a long time and you can’t help but become rich.
Hope this helped in some way!!