Do you want to make money or Create wealth!!!

Every fall in stock market gives an opportunity to introspect to find answer to the eternal question:- Why do I invest? Is it to make money or is it to create wealth???

But one may ask --isn't making money same as creating wealth?? No, there's a fine line separating the two.

Making money is just about bank balance while wealth creation is more about meeting goals of your life. Making money may not always lead to wealth creation, but the vice-versa always holds.

To know what kind of investment strategy do you adopt, analyze your strategy in context of the under noted broad points.

Do you take investment/divestment decisions based on market sentiments for the immediate/medium term outlook??

Stock prices are a function of company profitability which in turn depends on the economy in general. Businesses take fairly long time to become profitable. Infosys and Marutis of the world were not made in a day. So you need conviction—and a lot of it—to invest in shares and reap rewards. At times it pays to ignore the noise emanating from the business channels and pink papers.

Do you have the urge to leverage??

A stock market investor is always tempted to make some quick money in F&O since he has always heard his broker talk about big money waiting to be taken home by trading in the F&O. F&O trades may also result in a big loss is apparent only in hind sight. It has the potential of being one of the biggest wealth destroyer.

Does the index level guide your investment/divestment decision?

During the course of our dealings with our investors, we are usually asked whether this is the right time to buy or sell? Honestly speaking, we do not have and never have had an answer to such question! Imagine an investor who had sold off his holdings in Reliance diversified power sector fund at the NAV of Rs.9/- reached within a year of the scheme opening for ongoing subscription, since the outlook to the fund and/or sector was not very encouraging. The fund thereafter has grown investors wealth eight fold over last 6 years.

Do your emotions play any role in devising buy/sell decisions?

Do you feel sad having to see the market gallop away without your participating in it? Do you feel that the whole world except yourself has become rich? Do you thereafter enter the market guided by your feeling left out and trying to make up with the lost time(and profit).

We seldom realize that it is not our thinking that makes big money, but it is sitting. Even the legendary Warren Buffet has said that he would not be worried if the stock market were to open a decade after he bought shares. Facts like these tell us that trading will not help us create wealth.

Do you believe that trading in stocks will help you in building your portfolio?

Investors usually believe or better still they have been conditioned to believe that by regularly buying and selling shares/MFs, you can make money! The moot question is for whom? If you can make money by trading in shares/MFs, than there are equal chances that you may lose some or all also. Can you afford to lose sight of your goals or face the prospect of not being able to meet one or more of them?

If the answer to your analysis as above is positive, then it is time to change your investment strategy.

Wealth creation is akin to hand holding. We invest in companies or Mutual Fund schemes with a clear focus on our goals and our resolve to meet them. Equity as an asset class will deliver inflation adjusted returns but over long term. This “long term” has to be calibrated to your goals. According to an interesting study done by Fidelity, it was shown that over the last 16 odd years, there have been almost equal number of good bad quarters as far as equity returns are concerned. So theoretically, market (sensex)should be still trading close to 3000 levels. But it is trading at 18000 levels.