Why You Need to Invest in the Stock Market
Most of us earn money through a job or a business, and receiving a steady income allows us to fulfill our basic needs such as food, shelter, gas, internet, medication, education & entertainment. While this earned income is essential for living, it has a significant limitation.
We can’t work forever. As we age, particularly past 55 or 60, our physical & mental health typically decline, making it difficult to maintain the same level of productivity as when we were younger.
Even after retirement, the need to meet our basic needs doesn’t disappear. To retire comfortably without financial stress, we need a source of income that continues to support us in our later years. This is where investments come in. A well-structured investment portfolio can generate passive income, covering our expenses without needing active work.
Among various asset classes, such as real estate & bonds the stock market stands out as one of the most potentially rewarding avenues for investment. Historical data shows that stocks have consistently provided higher returns than other investments over the long term.
The stock market allows individual investors to protect & grow their capital over a long period. Another significant advantage of stock investing is the ability to transfer wealth to future generations.
Unlike a profession, which cannot be handed down, an investment portfolio can be inherited. This means that the wealth created through creating an unshakable stock portfolio can benefit not just the investor but also their children & grandchildren. It provides a lasting legacy & financial security for future generations.
With time passing by someday your future generation will be a wealthier family & they will never work for money. That is why we need to build a stock portfolio as soon as possible.
The Intelligent Investor Mindset
To build an unshakable stock portfolio, adopting the mindset of an intelligent investor is a must. Unlike speculators who see the stock market as a place of gambling, intelligent investors view themselves as business owners. They see stocks as a portion of a business not just symbols on a screen.
One of the core principles of intelligent investing is to buy shares in great businesses at fair prices. This means doing thorough research to understand the intrinsic value of a company & only investing when the market price is below this intrinsic value.
Intelligent investors use compounding to grow their wealth over time. they reinvest the dividends & capital gains they earn from their investments, allowing their capital to grow exponentially.
Intelligent investors always buy stocks to keep long periods. this requires extreme patience & the ability to stay calm during market volatility. They avoid the crowd noise to sell based on short-term fluctuations, focusing instead on the long-term potential of their investments.
The Best Time to Buy & Sell Stocks
As investors, our focus is not on buying at low prices & selling at high prices. Timing the market is the realm of speculators, not investors. We enter the stock market to invest our money & build an unshakable stock portfolio that yields returns over time. our main goal is to purchase great businesses at fair prices.
Day-to-day price fluctuations are irrelevant to investors. We do not panic & sell during market crashes nor do we chase market tops. Instead, we invest consistently every month, regardless of market conditions.
When a market crash occurs & others are pulling their money out in fear, we see an opportunity to invest significantly in high-performing stocks at bargain prices. Our philosophy is simple, invest regularly, ignore short-term market predictions & focus on long-term growth.
How to Select a Good Stock
Selecting a good stock is a long process that requires both qualitative and quantitative analysis. First, you need to understand how the business operates and generates revenue. Investigate the products or services it offers and the nature of its customer base. Assess whether the company has market dominance and evaluate the management team’s track record and integrity. These qualitative factors are crucial.
Next, dive into the quantitative factors: examine the company’s net profit margin, debt-to-equity ratio, and price-to-earnings (P/E) ratio to gauge its financial health and valuation. Analyze the revenue and earnings growth over the past decade, the growth in shareholders’ equity, and whether the company pays dividends, including the dividend yield and payout ratio. Identify the major shareholders and the leadership, including the CEO and board of directors.
This comprehensive analysis is not an overnight task; it requires months of diligent study and reading annual reports to thoroughly understand the business. This rigorous approach is what sets real investors apart.
