Top Investment Strategies for 2022
When it comes to investment strategies, betting on the equity market has the potential for significant returns. In the last 40 years, the equity markets have had a strong bull run that has helped those who have invested in it with considerable wealth creation. For someone who had invested in stocks such as Infosys or HDFC in the 1980s or 1990s, returns they would reap now are immutable.
Mr. Raamdeo Agarwal, Chairman, Motilal Oswal Financial Services, spoke with ICICI Direct, doling out some tips and strategies for investing in the near future. Here are some investing strategies that can help with wealth creation:
A Few Investment Strategies for 2022
1. Play on Valuea
Price is what you pay for a stock; value is what you get, said Warren Buffet. An important strategy to follow is understanding the difference between the price and value of a stock. Understand the market inefficiencies that lead to a price-value gap and bet on companies with a considerable difference in the two.
Additional Read: 5 smart tips for beginners in the Stock Market
2. Read the Books of Accounts
Start with reading the profit and loss accounts, balance sheets and cash flows of the companies you wish to invest in. While these are useful, everyone has access to this information. Understanding the books of accounts and how a company’s accounting works can give you an edge while investing. For instance, don’t focus on earnings per share. Instead, look at return in equity. Compute the different ratios that tell you whether a company is strong, weak, profitable and then make your investing decision.
3. IT is a Strong Sector
IT companies are making a comeback. Now can be considered the second golden era of information technologies. They are going to the fountains of corporate profit. In the coming years, this is a good sector to bet on. Apart from IT, some other sectors worth investing in are the financial sector – including banks, NBFCs and insurance companies – automotive companies focusing on electric, telecom, and any other company with a strong digital focus.
4. Seek Out Underpriced Companies
Grossly underpriced companies are likely to survive and win in the long run. Examples would be digital companies with solid business models. However, not all companies will make the cut. The trick is to do your due diligence and find companies that will survive and win in the long run.
Additional Read: Best Stocks to Buy in 2022
5. Wait Out the Dips
According to Mr. Agarwal, falls in the equity market are temporary while ups are permanent. This means that a sharp downward correction in the market is not a time to pull out. If you have studied the fundamentals of a stock and believe in its value, then have the courage to sit out the falls. A company with value will always correct after a bear run.
6. Watch Your Portfolio
In the name of diversification, having 30-40 stocks that you don’t understand can land you in trouble. For true diversification and wealth creation, ensure that your portfolio only consists of stocks you understand. While the ideal number of stocks ranged between 15 and 20, if you truly understand only 3-4 stocks, only invest in those. The bottom line is; do not invest in equities you do not understand.
7. Find Your Guru
A great way to find investment strategies is to look to the investment gurus such as Warren Buffet, Phil Fisher, etc. Reading books on investment or finding their teachings on the internet can go a long way in helping shape your investment strategies and aid with wealth creation.
Additional Read: How to Create Wealth to Achieve Your Goals?
The years 2020 and 2021 were remarkable for equity markets. Experts suggest that the bull run is likely to continue in 2022. Pruning your investment strategies to invest smartly in stocks can help make a considerable profit and create wealth in the long term.