How to become financially independent through investing

In the recently released Indian financial thriller series – Scam 1992 – the lead character, former Indian stockbroker Harshad Mehta (played by Bollywood actor Pratik Gandhi), goes on to say that the “stock market is such a well that can quench the thirst of an entire nation”.

While this may have been a dramatisation surrounding the Indian Stock Market Scam of 1992, but in the hindsight, the statement does not seem to be wrong after all. Stock markets in India have brought riches for many people in the world’s second most populous country. And it continues to do so.

Take the example of John (name changed), a 35-year-old professional working in Bengaluru, India. He has been investing in stocks through various means since past 10 years now. As on date, he is far more financially secure than his peers – making money at various stages of the market cycle.

To be fair, a prudent investor, who can sniff which way the wind blows, who can dissect the balance sheets of the companies, would keep on making money – whether it a bull or it’s a bear run.

Bad stock markets usually make people question this, but historically there has been no better way to grow your money than through investing. With higher risk come fatter returns from stock markets – following the logic of compound interest, that would increase your wealth exponentially with time. And most probably, the risk part may not translate – after all the managements of the companies do not let it happen (at least in normal cases). This doesn’t mean that every investor would end up being Warren Buffett, as there is only one. However, it does enhance your cash flows.

In normal circumstances, there is no match for value investing. Pick a good stock, put money into it, and hold on to it. The returns that you would get, will make you dizzy. So how do you pick up a good stock? By deploying an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.

Also, patience is the key. The longer a good stock is held for, the better the returns. Let us take the example of Amazon Inc (NASDAQ:AMZN). The company got listed in 1997, with a share price US$18. Had you invested US$10,000 in it back then, you would have been a millionaire by now.

However, that does raise a question: what happens when markets witness a bear run? Well, smarter ones manage to make money even during a bear run. Many investors resort to short-selling – the process of selling borrowed stocks and betting against the company. But that can be done only when you can read the trend in the balance sheet in detail. In India’s biggest banking failure – the collapse and subsequent bailout of YES Bank Ltd – in 2020, some investors who were short on YES Bank made as much as 29x returns on the day, when shares of the company tanked by 85%.

That brings us to our final question: How do we make investing easy for ourselves. The process is very simple: open an online brokerage account that makes it easy for you to learn how to invest, create a manageable portfolio, and make weekly or monthly contributions to it automatically. Happy investing!

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