Investors have many questions about equity investing – what are we investing in? how do we invest? why are we investing? These are all valid questions. However, we tend to pay more attention to ‘what’ and ‘how’. It is easy to see why that happens, the answers are fairly straightforward.
What are we investing in?
Large caps, mid-caps, multi caps, blue chips, technology, consumer stocks, etc.
How do we invest?
We can invest directly in stocks or via mutual funds, Portfolio Management Schemes, etc. We can do lumpsum , yearly or monthly investments.
Most investment managers talk about their investing style, their latest picks, recent performance. They are essentially talking about the ‘what’ and ‘how’ of investing. The ‘what’ and ‘how’ matter for sure.
However, the most important question ‘why do we invest’ gets ignored in all the noise. This is the question we must ask first. So, why do we invest? We invest to create long term wealth. Wealth that will increase manifold over 10, 20, 30 years. If we can agree that wealth creation is the primary objective of investing, we can then move on to the ‘how’ and ‘what’ of achieving that outcome.
By asking ‘why do we invest’, we establish a clear objective, a goal, something to aim for. The ‘why’ has to be answered before ‘how’ and ‘what’. Ok, let’s say we invest so that we can grow our wealth by 20 times over the next 20 years. Now, how do we get there? What gives us the best possible chance to achieve this goal? Let’s try and answer the ‘how’ and ‘what’ again by asking the right questions:
How do I grow my wealth by 20 times in 20 years?
By looking for and investing in companies that are likely to grow earnings for a long period of time, run by an able and honest management team which believes in rational allocation of capital with a long term mindset. We can do this ourselves or look for investment managers who have the mindset to do so.
What can I do to achieve this goal?
Simple - start investing, think long term and stay invested for 20 years!
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