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30 Nov 2020 by Pradeep U
Intraday Trading Is Risky. Be Patient and Invest for Long Term in Equity - Research & Ranking

"There is no such thing as a success shortcut. Be willing to take the long road, or you will hit a dead end" - John Di Lemme

There are countless investors who have burnt their fingers in their attempt to master intraday trading as a shortcut to wealth creation.

I met one such investor recently at an outing who continuously kept asking me for short term tips and recommendations.

I tried explaining to him about the importance of patience in investing and why long-term investing in equity is the only way to create wealth.

But he refused to understand. Hence, I asked him a question - "Can you name one person who has created wealth by trading in the stock markets."  

He was speechless.

To make him understand the importance of patience in investing, I shared a small but powerful story with him about Buddha and his disciple.

Here’s what I told him:

During a long journey, Buddha and his disciples came across a small lake at a distance. Buddha asked his youngest and most impatient disciple to fetch some water from that lake as he was thirsty.

The disciple went to the lake, but stopped when he noticed a cart pulled by of oxen crossing the lake, near the shore in shallow water. Slowly, the water became muddy. On seeing this, the disciple thought, "I can't give the teacher this muddy water to drink." Thus, he went back and told his master, "The water is very muddy, and hence we cannot drink it."

Half an hour later, Buddha again asked the young disciple to go back to the lake and get some water to drink. However, on reaching the lake, the water was still dirty. So, he returned and informed Buddha that the water was still dirty and it would be better if they walk to the nearest town to get some water to drink.

Buddha listened to him calmly but did not reply. After some time, Buddha asked the disciple once again to go back to the lake and bring him water. As he didn’t want to question his master, he went to the lake furiously without understanding the reason why Buddha had asked him to go back again despite knowing that the water was muddy and they couldn’t drink it.

When he arrived at the shore of the lake, he was surprised to see that the water now looked crystal clear. So, he collected some water in a bucket and brought it to Buddha. Buddha looked calmly at the water and asked the disciple, “What have you done to clean the water?”

The disciple failed to understand the question. It was evident that he hadn’t done anything to clean the water.

Buddha smiled at him and clarified, "You waited and the mud settled on its own, making the water clean. Your mind is also like that! When it’s muddy, you have to give it some time. Be patient. It’ll reach a balance on its own without you having to make any effort to calm it down. Like the water, everything will pass on its own as long as you don't hold on to it."

I hope you understood the story as well and of course, the importance of patience.

Patience is a crucial aspect of long-term investing in equity which multiplies your wealth with the power of compounding. A power which all short-term investors are completely unaware of.

Don’t just take my word for this. Check out the below numbers which validate what I am saying about the amount of wealth one could generate by investing for the long term.

Here is what you may earn if you are invested for five years:

Amount Invested

CAGR @ 20%

CAGR @ 25%

CAGR @ 30%

CAGR @ 35%

Rs. 2,00,000

Rs. 4,97,664

Rs. 6,10,352

Rs. 7,42,586

Rs. 8,96,807

Rs. 5,00,000

Rs. 12,44,160

Rs. 15,25,879

Rs. 18,56,465

Rs. 22,42,017

Rs. 10,00,000

Rs. 24,88,320

Rs. 30,51,758

Rs. 37,12,930

Rs. 44,84,033

Rs. 25,00,000

Rs. 62,20,800

Rs. 76,29,395

Rs. 92,82,325

Rs. 1,12,10,083

The calculations in the above table are just for illustration purposes only and not to be taken otherwise.

But wait, that is not all.

The real power of compounding is still not visible in the table above.

If you would continue to stay invested for the next 5 years as well, here is what you would get 10 years from now:

Amount Invested

CAGR @ 20%

CAGR @ 25%

CAGR @ 30%

CAGR @ 35%

Rs. 2,00,000

Rs. 1,238,347

Rs. 1,862,645

Rs. 2,757,170

Rs. 4,021,311

Rs. 5,00,000

Rs. 3,095,868

Rs. 4,656,613

Rs. 6,892,925

Rs. 10,053,278

Rs. 10,00,000

Rs. 6,191,736

Rs. 9,313,226

Rs. 13,785,849

Rs. 20,106,556

Rs. 25,00,000

Rs. 15,479,341

Rs. 23,283,064

Rs. 34,464,623

Rs. 50,266,390

The calculations in the above table are just for illustration purposes only and not to be taken otherwise.

If you check the above two tables, they clearly showcase the power compounding would have. Even at a CAGR of 25% annually, you have the potential to grow your wealth 3x every 5 years.

The real power of compounding in investments can only be experienced if you invest for the long term and probably for a lifetime.

What this means if you invest Rs. 500,000 now, it would be over Rs. 15 Lakh after 5 years or over Rs. 45 Lakh after 10 years. That's a whopping 9 times of the sum invested.

The above table only showcases if you make an investment one time. Imagine the magnitude of wealth one can create by investing every month. If this may seem too good to be true - it is as well.

Long term investing in equity is the best way to create huge wealth.

You just need two things, patience and the correct approach to stock picking.

A stock advisory service can help you to choose the best stocks for wealth creation after detailed research. However, remaining invested in those stocks for the long term requires a lot of patience, a virtue which an investor has to develop on his own.

Click here to invest in a portfolio of well-researched 20-25 multibagger stocks for long term wealth creation.

 

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