How Easy Is It to Get Rich By Investing In The Stocks?

How Easy Is It to Get Rich By Investing In The Stocks?

Is it easy to get rich by investing in stocks?

My father always said: “The stock market is very risky and I have lost a lot of money in the stock market”.

The research also said that about 90% of people lose their money in the stock market.

But, Warren Buffett has made billions by investing in stocks alone.

If Warren Buffett can make money in the stock market then why can’t we?

In fact, it is much easier to get rich by investing in stocks. But we making it very complicated.

How?

One day, my friend asked me “Give me a stock idea that will become a multi-beggar in the future”.

I replied: “Asian Paints”.

He said: “Hey, I also know about Asian paint but I want the next Asian paint”.

I replied: “But, the next Asian paint is Asian Paint itself”.

Conclusion

Most people want something new in the stock market. They don’t like to invest in consistently performing stocks whose fundamentals are rock solid and have a lot of growth ahead. They want adventure in life. They want to show someone Hey, I can even find multi-beggars stock myself.

Follow some basic rules in the stock market if you want to get rich with minimal risk.

These Rules are :

  • Invest in high-quality consistent compounder stocks.
  • Invest when the market crashes.
  • Stay invested for too long.
Warren Buffett quote on investing

Rule-1: Invest in high-quality consistent compounder stocks.

How do you get high quality consistent compounder stock?

  • Look around you and find the products and services you like.
  • Then check, are these products well known?
  • Does everyone use it?

Some of the consistent compounders are :

  • Asian Paints
  • HDFC Bank
  • Kotak Mahindra Bank
  • Titan Company
  • Nestle India
  • HUL
  • Pidilite Industries

And many more…..

All stocks are market leaders in their field.


Rule-2: Invest when the market crash.

Why should we invest in a market crash?

  • Because at the time, most investors were scared and there was blood on the street.
  • All high-quality businesses are down more than 50%.

The market has declined by more than 50% in these years.

  • 2000–2001
  • 2008–2009
  • 2019-2020

Someone will argue: “No one knows the bottom of the market”.

Yes, he is right 100%.

For that, you can divide your money into 5 parts and you can invest each of your parts as the market goes down.


Rule-3: Stay invested for too long.

  • The stock market is very volatile and very risky in the short term. In the short term, market movements are based on greed and fears of investors, micro and macro factors, changes in interest rates, government policy, budgets, and many global events.
  • But in the long run, the share price movement is based solely on the company’s reported earnings growth.

Example: Asian Paints

(All data is taken from site www.screener.in)

Let us apply our three steps.

#1: Invest in high-quality stocks.

  • Asian Paint is a very high-quality business. It has been in business for over 50 years and is the No. 1 paint company in India.

#2: Invest when market crash.

Asian Paint Share Price
  • Shares of Asian Paints fell from Rs 120 to Rs 71 in 2008-2009 market crash.
  • You get Asian paint 40% cheaper.

#3: Remain Invested for a very long time.

Here is the stock performance of Asian Paints since 2009.

Asian Paints share price between 2009-2020
Easy to get rich by investing in asian paints
  • If you had invested Rs. 1,00,000 in the year 2009, this tiny amount becomes around 23,00,000 just applying these three rules.

You get 33.88% CAGR return in 11 years.It is outstanding.


Other Benefit of Investing in the Market crash

Consider two scenario :

  1. Invest Rs 1,00,000 before market crash.
  2. Invest Rs 1,00,000 after market crash.

Rs 1,00,000 becomes

  • 13,49,167 today, if invested before market crash.
  • 22,88,282 today, if invested after market crash.

you can see the difference in return (almost double in value)

Conclusion :

You get maximum returns just by investing in a market crash.


Now, most retail investors argue that Asian Paint always trades at a very high P / E.

How can we make money by investing in such high P / E stocks?

But, past data shows that all blue-chip stocks with the following characteristics always trade at high P / E.

  1. High Ethical and capable management.
  2. Monopolistic Business.
  3. Market Leader in their industry.
  4. High ROCE
  5. High ROE.
  6. Consistent dividend payout.
  7. Predictable Earnings Growth.

Shares with the above characteristics traded at higher P / E in the past and will continue to trade at higher P / E in the future. (You can check yourself).

So don’t worry about stock valuation when the market crashes.


Investing in the 2000-2001 market crash?

Let us examine what return these stocks have given if we had invested in these stocks when the market crashed in 2000-2001.

If you had invested Rs.1,00,000 per share in the market crash, its value today:

East to get rich just by investing in the high quality business

You can clearly see that all the stocks outperform the Sensex with huge margins with negligible risks.

One thing I would like to share with you is that HUL traded at a very high PE of over 200 in the year 2000, yet it returned more than 11% return without dividends.


Final Thought

  • Indeed, investing in stocks is very easy.
  • We get a compounding effect only in high-quality business.
  • If you want to get rich easily in the stock market, buy a very high-quality business when the market goes down. And will stay invested for a very long time.

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