There are two types of investors in this world: the dumb investors and the smart investors. What's the difference between a dumb investor and an astute one? Before we get to that, know this. A study says, with little luck a dumb investor might make 11.5% returns on his investment into equities, whereas the smarter guy can clock 14.8% equity returns. Well, there does not seem to be much difference between the gains of the two. So, can the dumb also make handsome money in stock markets? Also, in the tough times, can smarter kid on the block also fail to clock decent gains?
Before you start scratching your heads to figure out the satisfactory answers to the above queries, allow us to take you through few points to drive home.
It is often believed that stock market investments require exceptional skills and perfect timing. While that may be true, the time spent in the markets and the experience amassed goes a long way in building wealth. Therefore, while a dumb or a lay investor can get through making quick bucks, the wealth creation is something he will have to give a miss. For luck and time cannot always be by your side. So it becomes quite essential to do lot of research, employ effective analytical tools and invest regularly. That's how a smart investor can get lucky most of the times. Moreover, investments into good quality companies can beat the benchmark indices. That way you are assured of gains on a regular basis and such sound investment strategies can help you build wealth over time. But that requires patience and perseverance too. For Mr Market functions on his own terms! And we need to respect that.
Moreover, dumb investors end up making blunders. For instance, they always tend to miss the upturn boat. By that we mean that the half-baked folk are generally found to be buying at highest point, with the worst possible luck. And needless to say, they subsequently end up selling at the lowest points. So while the gains are definitely dicey, this layman stays perennially away from the wealth generation. And that's exactly where the smart investors have an edge. A smart investor backed by adequate research and analysis, takes staggered exposure to shares over a long period of time. This helps him generate healthy returns and also he need not indulge into timing the market. Having said that, it is very important to know that even the best analysis can fail and the results may not be spectacular.
Wealth creation is long process. And stock markets are just a medium to that destination. If used effectively to the best of the means, the results stand in favor. So even a feeble-minded person can turn into a resourceful and a capable investor! All it requires is diligence, research and right approach. Not just that! If stock picking is not your cup of tea, doesn't matter. Dumb investors are often advised to mimic the performance of benchmark indices. And surprisingly that has worked wonders for years together. That's what we call passive investing. What more? You have professional money managers and mutual funds to guide you. Who help you build up a resilient portfolio, diversifying risks!
Remember what Warren Buffett had to say. "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."
Think over it! For you might be few miles away from being wealthy.