Characteristics of Investing
Investing has the following characteristics:-
1] Buy & Hold –
While money may be tight, young adults have a time advantage. Investing requires only two things: the reinvestment of earnings and time. The longer money is put to work, the more wealth it can generate in the future. Gradually build wealth over an extended period of time through buying and holding a portfolio of stocks and also mutual funds.
For example, if an investor had bought shares of HDFC Bank Limited stocks at its closing price of Rs. 213.49 per share on 11th July 2008, and held onto the stock until 6th July 2018, then the stock was worth Rs. 2,114.05 per share. The share price has been increased by almost 11 times.
2] Compounding –
Magic of Compounding Explained returns are extremely powerful over the long run, and the earlier you get started the greater your chance is to take advantage of this. Regular investments in an investment portfolio or a retirement account can lead to huge compounding benefits. Investors enhance their profits through compounding.
3] Long Term –
Investments start giving results after a period of time. Holding the investments for the long term is important. Some are in a hurry and sell their investments before it starts giving actual results. Investments made with long term perspective are always beneficial. Investments are held for years or even decades.
4] Focus –
While investing, minor fluctuations are ignored. These fluctuations have no real impact on the investments in the long run. Focusing on long term goals that are set and are to be achieved is important. Short term fluctuations do not deviate investors from their long term goals.
While investing, there are some factors that can be controlled and some that cannot be controlled. An investor should always focus on things that can be controlled. The markets cannot be predicted as there many factors affecting it simultaneously. And therefore, focusing on factors that can be controlled is crucial. While investing an investor should focus on three basic things that can be controlled, which are – what we buy, how much of it buy and at what price we buy.
5] Fundamentals –
Investors don’t give much importance to information which is qualitative and not quantitative. Investing focuses on past as well as future (forecasts), but more importance should be given to future. Investors are more concerned about fundamentals such as PE ratio and management forecasts.
But this is wrong. Fundamental data is given in a standard format, so analysis made by anyone from this data would be the same. Results from standardized data are of use as they don’t reveal anything new or interesting. This means that for successful investing an investor needs to look for data or information which most people don’t see. People think that fundamentals provide a sense of security, which is exact opposite, i.e fundamentals are dangerous.
The image below shows data on where and how much do people in India invest their money.