The only way to get rich off stocks and earn consistently from the stock market is to invest in the high quality stocks and hold them for the appropriate period.
Check the details of any billionaire equity investor across the world. You will find one thing common to them in the way to get rich off stocks. They simply chose high-quality stocks and remained invested over the long time.
Warren Buffett, world’s most successful investor, and one of the world’s richest persons created his fortune from 22% annualized return over more than 50 years from equity investing.
He didn’t jump into intraday or Futures and Options. Just think, 22% annualized return consistently over 50 years to become millionaire and get rich off stock, and these trading tips providers claim 50%+ monthly return!
Best ways to get rich off stocks : Forget about intraday, short term trading, Futures & Options. Remember, there is no shortcut to earning quickly. Every quick money makings tricks are eventually money losing tricks. Investing in high quality stocks and holding them for the correct period is the only way to create wealth.
1. Avoid Intraday Trading
Avoid Intraday To Get Rich Off Stocks : You can’t make money consistently via any form of short term trading. (Intraday, Futures & Options, margin trade, etc.)
Intraday trading is almost a sure-shot way to accumulate losses. Can’t believe it? Well, show me a single person who is consistently making money from intraday trading for at least 1-2 years. Throughout the world show me a single billionaire who made his fortune only from day-trading.
You won’t find a single person. You can make money once, twice or thrice but you are bound to lose after that. Generally, the loss is always larger than the profit. Try it yourself. Take day-trading tips from anywhere, from any analysts.
There are many paid stock tips provider who claims 99% success ratio. Follow their tips and trade in intraday and check the result. It may sound bitter but the reality is that not a single market analyst can help you in creating wealth from intraday trading.
Now you may think; if this is the case then why so many people jump into day trading.
2. Avoid Future & Options and Margin Trading
Avoid Future & Options To Get Rich Off Stocks: Trading in “Futures and Options” is the worst ever decision for any retail investor. You can lose your entire life’s savings. Many analysts or stock tips provider will claim that one can earn up to 100% return within a month from “Future” trading.
My question is why they themselves don’t trade? What’s the necessity of selling “tips” when you can earn 100% monthly return from your own analysis? If you can take a bank loan of 10 lakh and earn 100% monthly return then after repaying bank loan you can become a millionaire within 2-3 years.
Now show me a single person, who turned billionaire through “Futures and Options” trading. You won’t find a single person throughout the world. Next time onwards, if any stock tips provider tempts you for “Futures and Options” (F&O) trading, simply mention them the above statement.
Just conduct a Google search, you will find many stock tips providers claiming such extraordinary return from their trading calls while reality says something different. Don’t be get trapped. Stay away from stock tips provider who claims an extraordinary return. Basically, F&O is meant for institutional investors and hedge fund.
They are the one to get benefited from this option. Big companies or high net worth individuals hedge their position using F&O. Future trading is a great option for hedging. Retail investors, who jump in F&O for extraordinary returns will surely end up with lots of disappointment.
3. Don't Invest in Stocks With Borrowed Money
Don’t invest in stocks with borrowed money. It carries a significant amount of risk.
Investing in stocks from borrowed money is a dangerous practice unless you have enough expertise on the subject. This practice can exponentially increase your gain as well as multiply your loss.
Almost all sophisticated investors leverage their position. They know risk management, they know when and how much to leverage and above all they have an in-depth understanding of the subject.
Figure out whether you have enough expertise or not. For retail investors, it is better to stay away from a loan against share. During bull-run any investor can do well, but what separates the intelligent investors from the rest is the ability to minimize loss during the market meltdown.
Retail investors tend to go for “loan against shares” during bull-run. After 1-2 years of a good return, you start believing that you have mastered the game and the market will teach you a lesson.
Leveraged position can even create a bankrupt situation during the market fall. So it is always better for retail investors to avoid the same.
4. Invest in Only High Quality Stocks
The only way to accumulate wealth and get rich off stocks from the stock market is to invest in the high-quality stock and hold the same for the long run.
Now the main question is come to your mind is “how to pick high quality stocks” from thousands of good stocks ?
Profit Growth: Many investors start with profit growth numbers. You will commit a big mistake if you begin with profit growth and put too much focus on it. A company can easily manipulate profit numbers. Further big profit doesn’t ensure real cash flow. A company may report one crore profit with negative cash flow in books. Moreover, profitable growth might be fueled by external debt. In short profit growth doesn’t ensure the quality of any stock.
Sales Number: The next thing that many investors follow is the sales number. Here is another problem. Sales growth can’t ensure shareholders value creation. You can’t be sure how much sale is translating into cash, whether those sales are adding margin or not. Most importantly, sales numbers can also be manipulated.
Suppose, you own a restaurant business and every day you are getting large customers that translate into massive sales. However, at the end of the day how much cash you retain matter the most. It is possible that your competitor is earning much more money with lower sales by focusing on cost optimization.
Moreover, big accounting firms prepare their balance sheet. This is why it is much harder to interpret numbers of those companies. In case of a small business with the single owner and only source of income, it is much easier to conclude financial health of that business. However, it is entirely different for the companies listed in the stock market.
Due to the reason mentioned above, investors should not put a priority on profit and sales numbers. More or less many large enterprises alter profit numbers as they know amateur investors will first focus on the profit growth.
After releasing the financial result, you will find profit and sales growth numbers are highlighted the most. So, it is obvious that companies will do their best to keep those profit and sales growth at best possible level for avoiding any unnecessary volatility in the stock price.
Steady stock price helps promoters for fundraising. So, promoters never want sudden fluctuation in profit and sales numbers.
Now, here is the big question – if we should put the least priority on profit and sales growth numbers then what will be our priority?
Follow the list given below to pickup genuine high quality stocks from the market :
- Return on Equity (ROE)
- Economic Moat or Competitive Advantage
- Debt ( Debt to Equity Ratio Interest coverage ratio Current Ratio Quick Ratio Debt to owners fund )
Read: How To Pick A High Quality Stock Like A Pro ( Coming soon )
5. Stop Yourself To Become Rich Others By Giving Your Money
Your broker, stock exchange, and government can only become rich from short-term trading. Have you noticed whether you gain or lose, your broker always remains in profit?
You have to pay brokerage for every transaction (buy and sell). Your broker can earn only if you trade. So, it’s obvious that your broker will encourage you to buy and sell frequently.
All of us are concerned to maximize our income. While you are concerned to earn from the stock market, similarly your broker is also concerned about maximizing his income.
Due to this simple fact, maximum broker encourages frequent trading. The more you trade; the chances of suffering loss will widen and at the same time your broker’s income will keep increasing.
6. Don't Get Tempted By Fancy Stories in The Stock Market
Some successful stories in stock market about “how to get rich quickly by stocks trading” can spoil your economic life. Don’t get tempted by fancy stories in the stock market.
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