The BSE SENSEX has compounded at a rate of roughly 15% over more than three decades. So it is safe to conclude that it is the inherent nature of the stock market to rise continuously in the long run in country where the economy is developing. There are two critical components in this explanation -
It's better than your family business
If you are a businessman or someone in your family is, you realize how much of a grind it is to generate handsome return on invested capital. Even with the best of knowledge, experience, goodwill and 365 days of hard work, time and energy, it is difficult to attain more than 20% return on your investment. Imagine here is a business that you devote your life to, bear liabilities, risks and stress. Sacrifice time with kids, parents and spouse. Suffer harassment from bureaucrats, authorities and the taxmen. You do this year after year for your entire working life in order to generate 20-25% return on your investment. Somehow we want a 100% return on our investment form the stock market without doing any of these. Stock market is either considered as a casino or a fairyland where all your wishes will come true in a magical way.
It's not your ticket to a lottery !
We spend an entire day hunting for a watch or a pair of shoes we want to buy. We go from shop to shop, checking out every minor detail about the product before making a decision to buy a thing that costs between a few thousand bucks. Yet we don't do an iota of research before buying a stock suggested by a friend or an expert appearing on the TV. and invest lakhs on the market with no knowledge of what the company does. If we research as just as much as we do before buying a shirt, i am sure you will be able to avoid 80% of the blunders that you could potentially commit.
Look at the larger Picture
We often fail to examine the stock market objectively. Think of it this way, our entrepreneurial instincts are often hampered by the lack of one of the following factors -
Stock market is an institution that helps in overcoming all such constraints. You are not constrained by capital, since you can even invest a few thousand bucks. Further, experience and expertise is not a problem because you can chose the Tata’s and the Godrej’s of the world to work for you. They will invest their time to work for you while you enjoy life the way you want to. And what’s more…...there are more than 3 thousands businesses to choose from. We give money to our friends and relatives to manage . Shouldn’t we instead, give that money to the the greatest businessmen in the world to manage it in a more efficient way?
This is the power of the stock market.
But don't just believe in the power of the market, believe in the old wise saying
As you sow, so shall you reap.
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