Stock Markets are known for giving better returns among asset classes. Being the part of growing economies, businesses are expected to grow with faster pace being standing on the low base. The opening up of International arena for Indian companies given them an adequate space and exciting opportunity to flourish and make profits. Comparison of stock markets with other investment avenues like Bank FDs, Gold, Real estate shows their superiority in returns over a period of time and better and transparent liquidity.
When stock markets shows a track record for better returns, most part of these returns comes from the businesses on the high growth trajectory. These are called growth stocks in the language of stock traders. Such businesses shows a year on year growth in the profits thus reflecting an exponential curve upside. Investor putting their money on the block also expect better then market returns.
How is this possible…
Let us take an example of a classroom where number of students are there. While most students lies nears the average few of them will be above average. They study harder and score better then others. Similarly, few business identifies a better opportunity in the markets and taps the same fast by working harder. A great team lead by a visionary leader is a ingredients of success for any such business. This make them earn better then others and thus generating better returns for their investors.
How should I choose …
The simple way to identify is calculate growth rate on profits for last 5 or 10 years. But if you are going by this, you might loose a chance of making money in actual growth years. You need to glance though magazines, newspaper and journals and look for business with innovative ideas. It is just like hitting six sixes in an over or finding a pearl in the shells. The innovative businesses only make their way to the top. However only innovation is not enough, you need a game plan for success and a real real execution. Business with both innovation and execution is the right choice for your investments.
Is it safe …
Actually speaking, not very safe. The fast growing business generates money and consumes money at a very fast pace. Any disruption in this cycle hits them real hard. Also being the innovator or the first mover, they also stands a chance to hit the regulatory roadblocks. Such business are in a hurry to achieve success and may ignore or knowingly forgo several risks associated with business. An investor should look out for an approach of the business towards risk associated in making decisions and their focus towards mitigating those risks.
Well, to conclude, nothing comes easy in the life. If you actually wish to get ahead of other, you need to run without fearing the fall. I read about companies like Wipro and Infosys where investment of few thousands became several crores in just few years. Globally also we saw companies like Microsoft and Facebook starting from scratch and standing now where they are. However, businesses does not have 100% success rate so diversify among companies and among sectors to safeguard your interests.
