In today’s blog, we’ll explore how to achieve consistent profits in the stock market, and most importantly, we’ll uncover a no-loss strategy. When you log into your Demat account, you might have seen a notification or a pop-up informing you that nine out of ten people incur losses in futures and options (F&O) trading. This alarming statistic is not without merit. Many individuals plunge into trading without a solid understanding, resulting in substantial financial losses. The message also highlights an average loss of ₹50,000 for those who venture into trading.
Now, as you dive into the world of stock market investments, it’s essential to grasp that making money is indeed a primary objective. However, the critical point is to mitigate or eliminate losses. Protecting your capital is paramount. Profits will follow if you can ensure your capital remains intact.
Let’s begin by considering the common advice of investing in stocks. While investing is often touted as a favorable approach, it’s essential to discern where and how to invest. Investment, in essence, involves purchasing stocks with the intention of holding them for an extended period. This strategy aims to allow the stock’s value to appreciate over time. However, the decision of when to sell these stocks can blur the line between investment and trading.
To qualify as an investment, one typically holds stocks for at least a year, which qualifies for favorable tax treatment. But, the key question is, can you be certain that the stock you buy today will not lose value over time? The degree of certainty can vary greatly depending on the specific stocks in question.
When contemplating investments, we often think of large, well-established companies with a proven track record of stability and growth. Names like Reliance, Hindustan Unilever, Tata, and top-tier banks like HDFC come to mind. These companies are considered reliable and are less likely to experience significant declines. Investing in such stocks carries a reasonable degree of safety.
Nonetheless, there’s a trade-off. While these established giants offer more safety, their potential for rapid growth is comparatively limited. If you’re seeking substantial returns in a short period, large-cap stocks may not provide the velocity you desire.
That brings us to an essential consideration – the trade-off between risk and reward. While large-cap stocks offer security, the potential for significant returns is relatively modest. To achieve substantial growth, you’d need to opt for riskier stocks, which could lead to substantial losses.
Now, let’s pivot to the idea of index investing. This approach entails investing in stock market indices such as Nifty 50. Nifty 50 represents India’s top 50 companies and serves as a benchmark for the broader market. When the Nifty 50 index rises, it indicates overall market growth; when it falls, it signifies market decline.
Index investing offers a level of security not found in individual stock investments. The Nifty 50 consists of the nation’s top companies, and a catastrophic drop in this index is a rare occurrence. Additionally, index investments can span a wide range of timeframes – you can be a long-term investor, or you can trade index derivatives for shorter periods. Nifty 50, for instance, has historically shown growth over time, and even significant market downturns are generally followed by recoveries.
The Nifty 50 and similar indices are less volatile than individual stocks, which means their risk levels are relatively low. While significant gains may take time, the protection against substantial losses is a significant advantage. They provide a no-loss or minimal-loss strategy, which can be particularly beneficial for beginners.
Now, can the Nifty 50 or similar indices experience a 50% drop within a month, as penny stocks might? It’s highly improbable. Such an event would indicate a severe crisis affecting the entire economy. But even in such circumstances, market recoveries are observed in the long run.
Many people are here today, and I’m going to show you Nifty, which is an important stock market index in India. Nifty is currently at an all-time high, reaching around Rs. 20,000. But to understand why this matters, let’s look at its historical context. If you check Google, you’ll find that Nifty started from levels as low as Rs. 800 to Rs. 1000. This significant growth is a testament to India’s developing economy.
Now, let’s talk about the concept of index investing. Indexes like Nifty, Nikkei, or Nasdaq are essential tools in the stock market. They are constructed based on specific criteria. For instance, Nifty comprises the top 50 companies on the National Stock Exchange in India, while Nikkei represents the leading companies on the Tokyo Stock Exchange. Nasdaq 100, on the other hand, consists of 100 prominent IT companies in the USA.
These indexes are crucial because they exhibit certain unique characteristics. While individual stocks may face steep corrections and can even decline over time, indexes tend to demonstrate long-term growth. Take the example of Japan’s Nikkei 225. In 1989, it experienced a significant correction, dropping by almost 80%. The index plunged from a high of nearly Rs. 26,000 to a low of around Rs. 8,000. This correction lasted for several years, with the index struggling until around 2003. However, since then, it has shown signs of recovery, with levels reaching up to Rs. 31,000 in 2023, surpassing the previous highs seen in 1990.
Now, some may argue that Nikkei did not yield any returns for a prolonged period. It’s essential to note that those who may have suffered losses were likely investors who made lump-sum investments at the market’s peak. For example, someone who invested a substantial amount in 1990 might believe they haven’t gained much. However, it’s crucial to consider the value of their investment over time.
To illustrate this point further, let’s examine the concept of systematic investment plans (SIP). If an individual had consistently invested a fixed amount every month into the Japanese market over the years, a compound annual growth rate (CAGR) of around 5% could have been achieved. It’s important to note that this 5% return is after considering inflation, which is higher in India (around 5-6%) compared to Japan (less than 2%).
So, the returns on a SIP in Japan would have been more significant due to the lower inflation rate. Now, you may wonder why Japan’s returns are lower. That’s because developed economies often have lower inflation rates. For instance, savings accounts in government banks in India yield around 3-4% interest, while private banks offer higher interest rates, often exceeding 5% or 6% due to India’s higher inflation.
Now, let’s get to the heart of our strategy. We’ve covered the importance of index investing, and now it’s time to discuss the actual strategy. Before we proceed, it’s essential to clarify that this strategy is designed for those who wish to invest actively in the market and not for beginners. If you’re new to the stock market, it’s advisable to begin with investments rather than trading.
The key element of this strategy is investing in Exchange-Traded Funds (ETFs). ETFs offer a diverse range of investment options, and we’ll explore some of these options below:
1. Safest Gold ETFs:
One option is to invest in gold ETFs, which are a safe and stable choice. Historically, gold has provided an average return of approximately 9%. It’s a valuable component of a no-loss strategy, particularly as a hedge against market volatility.
2. Nifty ETFs:
For those who prefer Indian equities, Nifty ETFs are an excellent choice. Nifty 50 represents the top 50 companies in India, and it has delivered average returns of over 12.3%. Recent years have seen even higher returns, surpassing 15%. This makes Nifty a robust investment option.
3. Nasdaq ETFs:
Global market enthusiasts may consider Nasdaq ETFs. These ETFs tend to outperform Nifty in terms of returns. Nasdaq has historically averaged returns of around 16%, and there is also potential for dollar appreciation.
4. Small Cap ETFs:
Small-cap ETFs are another attractive option, particularly for investors seeking higher returns. Small-cap stocks, often likened to fast-running horses, can provide substantial growth. While some may not perform as well, small-cap stocks have historically outperformed Nifty, offering significant potential for returns.
5. S&P 500 ETFs:
Lastly, S&P 500 ETFs offer a choice for investors interested in U.S. equities. These ETFs have delivered an average return of 8%. Keep in mind that the returns may vary based on currency exchange rates and India’s economic conditions.
It’s essential to understand that companies within these ETFs pay dividends. When companies issue dividends, these payments reach the ETF companies. The Asset Management Companies (AMCs) managing the ETFs use these dividends to purchase more stocks or increase the ETF’s Net Asset Value (NAV). This process enhances the value of your investment over time.
So, in essence, when you buy an ETF, your money is well-placed, and the strategy is to maximize your returns by capitalizing on market dips. Market fluctuations are natural, and indexes don’t rise in a straight line. There will be ups and downs. By buying in the dips, you can ensure that your investment is well-positioned to benefit from the overall upward trajectory of the market.
In this investment strategy, the key principle is to buy into the market when it experiences dips. But how much should you invest during these dips? This is a crucial aspect of the strategy, and there’s a specific method that works well, especially during minor market corrections.
Consider that when the market falls by 1.5%, you can decide the amount you are comfortable investing regularly. Let’s assume you choose to invest Rs. 1,500. The next day, if the market falls by 0.5%, you invest an additional Rs. 1,500. Even if the market experiences further dips, you continue this pattern of investment. You remain focused on the long-term and are unfazed by the daily market fluctuations.
It’s important to note that your primary goal is to outperform the market. You are not concerned with daily gains or losses. You are looking for a strategy that is more likely to deliver positive returns in the long run.
For instance, let’s consider the average return of the market to be around 12-13%. Even though you may experience short-term losses due to buying during market dips, you are building a portfolio with the expectation of these long-term gains.
In cases of a significant market correction, say a 10% drop, you have the opportunity to invest a larger amount, such as Rs. 10,000. If the market starts recovering, even a 5% increase from the low point can provide substantial returns on this investment.
To follow this strategy effectively, it’s recommended to set an alarm to remind yourself to invest at your chosen time. For instance, setting an alarm for 2:50 p.m. is a reminder to start investing 40 minutes before the market closes. It’s an excellent way to ensure you make your investments consistently.
While there may be short-term market fluctuations, your portfolio will likely not show consistent negative returns because you are continually buying on the dip. This approach is focused on long-term investment, and it’s important to stay committed to this strategy for five years or more.
By following this strategy, you will develop the discipline to weather short-term market volatility and focus on building a robust long-term investment portfolio. Even during market corrections, your portfolio will be in the red only on paper. If you stay committed to your strategy, this is just a temporary phase. Remember, this strategy is not meant for trading or short-term gains; it’s about achieving positive returns in the long run.
While it’s impossible to predict the short-term movements of the market with certainty, if you invest during market dips and commit to a long-term perspective, the probability of positive returns is substantially high. Even if the market undergoes fluctuations, you will not panic. Instead, you will see these times as opportunities to invest and strengthen your portfolio. This strategy is ideal for those who aim to create wealth through a disciplined, systematic, and no-loss approach.
As you continue on this journey, stay tuned for more blogs where you will learn about various indicators and market factors that can help you make informed investment decisions. The key is to be alert and prepared for the market’s movements.
This strategy is not only about making money in the stock market; it’s about ensuring that you do not incur losses, especially if you are a beginner. You will enjoy a positive and empowering experience as you watch your portfolio grow and achieve your financial goals.
If you desire to delve deeper into stock market education and learn advanced concepts, consider reaching out to the provided contact number. You can also open a free Demat account to start your investment journey. Whether you aim to invest or trade, a Demat account is an essential tool, and the link for opening one is available in the description and comment box.
In conclusion, the primary objective of this strategy is to help you see consistent positive returns in your portfolio. The power of compounding is immense, and by following this systematic approach, you can build a substantial wealth base in the long run. Remember that while it’s essential to stay informed about market indicators and trends, maintaining a disciplined, long-term perspective will be your greatest asset in achieving financial success in the stock market. So keep learning, keep investing, and go self-made. Jai Hind!