Dude, which stock should I invest in next?
#Episode 4 - Money Playbook - A 'Reflection Shorts' Series by Gourav Khanijoe
Starting today, we’ll discuss and learn about the Investment Mountain, aka Stocks 📈, Index & Mutual Funds and the like.
You may have heard the term - “His investment portfolio is beating the market” 🤔.
Let’s break this down.
“Beating the market” often refers to beating the performance traditional indexes like S&P500, Dow Jones, or BSE/NSE in India 🌍. These indexes, simply put, are average of top ‘X’ number of funds included in their tracking umbrella.
So, the dreamers dream about investing in right set of handpicked stocks such that that portfolio beats the standard indexes.
You may be surprised to learn that 75% of all the smartest money managers in the world, working 20-hour days, with huge research staffs 👩💻👨💻, powered by the most advanced computers 🖥️ and tools 🛠️, have NOT been able to consistently beat the market. Of the remaining 25%, most were just able to keep pace with the market.
Only a handful of the rest, like Warren Buffett or someone possessed with uncommon common sense like Peter Lynch, have been able to do that.
In short, you can’t consistently beat the market.❌📊
That's why, for long-term investing, index and mutual funds are best. Unless, of course, you enjoy gambling. Or, you have skills to book profits every time.
The difference between two? Mutual funds are actively managed by humans. Index funds are cheaper, as they are passively managed.
So, next time someone asks you: “Which stocks should I buy?” 🤷♂️
Drum roll 🥁… please…
You can answer: “All of them…or at least most of them…by investing in Index Funds.”
Investing regularly in index funds using dollar-cost averaging is key to long-term gains. Start early and hold your investments for the long haul.
Gentle Reminder: There is NO financial advice offered here. Gourav is neither a financial expert nor an advisor or promotor of anything. He’s sharing his own learnings and experiences.
But…there’s always a but…Your friend became a multi-millionaire by investing in the right stock or by staying put in the company’s RSUs and not by investing consistently in Index Funds 📊.
The thing about long-term index fund investing is that it should be like watching the grass grow. It’s boring and takes a long time for compounding to work. For a fast wealth generation path, you need to be ready to take some risks ⚠️ and invest in aggressive strategies and growth stocks 🔥..
Wait a minute, in the start, I told you that it is almost impossible to beat the market . Yes, it’s almost impossible - over a long period of time.
But a large number of people have done it on a short-term basis, and some people are doing it every second. I will cover this in the next set of articles. Stay tuned! 🎉
That’s it for today 🙏. If you are wondering, “What’s a Reflection Short?” read here. Access the full series here.
References
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👋 Hey there, I am Gourav. I write about Engineering, Productivity, Thought Leadership, and the Mysteries of the mind!
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