Buying Shares? You May Lose All Your Money!Or Not!

I come across a few people who have never ever invested in stocks.They want to, but it is hard for them to fathom the kind of return that can be made when the bets go right.

Let’s be clear. You have to necessarily  be an optimist when you invest directly in a Stock/Share/Equity.If you are a scaredy-cat or you don’t have much funds which you can risk,you may be better off investing in a safe instrument like a bank deposit.

However little it may be,for the capital which can be risked, its important to have a perspective on the potential return which can be generated via equities.

I have noticed that people have an extreme view. Either they will lose all their money and some in stocks

or

they will get so rich that they will be able to buy off Mukesh Ambani with a small stock investment.

Yes,there is a possibility that you can make a killing. The company whose share you bought for Rs.100 a share within two years goes crazy, zooms up and starts trading at Rs.10,000 a share and you become a multi-millionaire overnight.

Or the company may turn out to be a dud, you lose your nerve and never look at the stock market again.

While both of the above scenarios are a possibility,the truth may well lie somewhere in between. Assuming you have been sensible and a bit lucky too.

This blog is to give you a perspective on if the share you picked really works out what kind of return you can make.

Suppose you started to invest 10 years back in 2010. The stock you picked turns out to be a winner. The company does well and the stock price goes up year after year.

Here are some examples of bets which have gone right.

What would happen if the dream does come true and you pick out the right stock.

Well here it is…

Suppose you had invested Rs. 1 lac in 2010 in a company called Bajaj Finance and you  did not sell till date.

Your holding would be worth Rs.1.2 crs.

A CAGR of 62% for 10 years!!

What is CAGR?

Well as you can see from the picture, this is the kind of return which some people have generated in the last 10 years.

Here is a Caveat – that this is an optimistic best-case scenario.

These are the kind of returns that attract people to flock to the stock market and dream of becoming rich.

This post is not to give you a false promise of a high return. But it is to show you the possibility of the good return which would encourage you to invest at least a small portion of your saving into equity.

The difficult part is in picking out the winners.We will cover that later in some blogs.

For the beginner equity investment is better via a mutual fund naturally but should you become a slightly knowledgeable investor then you maybe well rewarded for the risk you take.