First of all let me make a distinction between a saver and an investor.
A saver puts his money in instruments which give fixed or very closed to fixed kind of returns. Examples of this are bank fixed deposits, PPF, National savings certificates, Endowment insurance policies, Retirement plans fully in debt instruments, etc. etc. These give good returns but definitely not “real” returns. You always get positive returns over long periods of time and protection of nominal capital.
An investor is a person who buys equity shares, equity mutual funds, real estate, – assets which give fluctuating returns. Here the returns do not follow a direct line. One year with 24% could be followed by one year of -14%. Thus even though the average is high, so is the STANDARD DEVIATION.
Now let us look at what type of an investor are you:
1. a day trader: unfortunately in the media there is no distinction between a trader and an investor: a day trader buys and sells shares on a daily or hourly basis and believes he can make money on momentum. Normally about 99% of traders lose money so that 1% of the traders can make profits. Dice, as usual loaded against the amateur.
2. a growth investor: a person who buys shares with high growth potential and keeps it for a long time to realise its real worth. Once the share hits a high price, this investor will sell off the share and go and try to buy new shares with better growth potential.
3. a value investor: a value investor buys shares with a good growth potential but currently out of favor with the market. Let us say in May 2013 Infrastructure stocks have a good book value, pays good dividend, etc. but however nobody wants to touch it – Buying such shares and selling it when the markets go up is this investor’s strategy. However as a Value Investor you should know why and how the value will unlock.
These are the 3 broad types of classifying a person who buys and sells equity…..
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