Why You Won’t Get Rich with Stocks
The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!’, ignore them. Keep waiting for the right opportunity, and when you find it, swing for the fence.
Now, there are many ifs and buts here, the most critical of which is: Do you have the skill to research a stock? If you do not, then investing in stocks directly is not for you. But if you do, then you need to double down on this skill. Let me take two scenarios and crunch some numbers here to drive this home.
Scenario 1: Assume an investible corpus of ₹1 crore, of which you invest 10% or ₹10 lakh in stocks, believe in the invest-in-30-stocks approach, with average allocation of 3% per stock. Here’s the math, for a stock like Tata-elxsi-share-price-nse-bse-S0003158" class="autobacklink-topic" target="_blank" rel = "nofollow" data-name="Tata Elxsi" >Tata Elxsi before its 10x rise. Your allocation to that was, naturally, 3%.
> ₹30,000 allocation to Tata Elxsi became ₹3 lakh. > ₹10 lakh portfolio became ₹12.7 lakh, assuming all else remains the same. How did your overall wealth change? Since you have 10% of your wealth in stocks, a 10x return changed your overall wealth by about 2.7%.
No more, no less. So much excitement. So little impact.
Scenario 2: Now imagine, you invest 40% of your ₹1 crore basket into stocks, which is ₹40 lakh, believe in the 8-10-stocks-approach, and have an allocation of 15% per stock (about ₹6 lakh or a little more). >10x on Tata Elxsi will turn the ₹6 lakh into ₹60 lakh >And the ₹40 lakh portfolio into ₹94 lakh That’s a profit of ₹54 lakh, and an overall gain in wealth by 54%. Impressive, right? I know this is easier said than done.
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