By Preet Shah
Steps to be followed are:?Stockpiling means not just collecting or accumulating stocks at a low price but also owning a business. Here’s a simple secret to great investing; follow this strategy to build an immense fortune and become wealthy in the long run.
- Filtering: There are thousands of companies listed on the stock exchange. It is a very difficult task to pick a handful of good companies; hence one should apply a filter. First, read trade journals, industry reports, etc. to identify industries with high growth prospects. Second, look for companies in that industry with strong moat (competitive advantage) and competent top management with promising innovation skills and strategic capabilities, this can be achieved by reading annual reports, directors’ report, etc.
- Focus on value and not price: It is very important to differentiate value and price. Price is the sum that you are paying for a particular commodity (stock) and value means value or worth of business that you will be venturing into. The true worth of the business can be estimated using Gordon’s model which is the most extensively used model for valuation. The next step is to compare it with the price prevailing in the market and making the decision of whether to invest or not in the business.
- Buying a business and not a stock: Many investors have become speculators and gamblers in the market. Unfortunately, financial services industry and stockbrokers have conned many millions of people into their game of stock speculation. Most of the people investing today do not actually know the businesses that they are investing into. They buy stocks on the basis of the rumors circulating in the market and sell them off on the basis of news. But a true investor does his homework thoroughly and knows very well about the business that he is investing in. One should invest with an aim to increase ownership and hold it till perpetuity unless there are adverse circumstances.
- Pile up: “When others sell, you buy”. Each time the price falls below the strike price (fair value), one should accumulate stock. This is similar to buy on dips strategy. There is need for systematic allocation of funds so that one has enough funds available to accumulate stock at low price. This is how one can increase ownership. Leveraging should be avoided as the main objective is to increase ownership and hold it till perpetuity.
- Tracking: People, who do not understand stockpiling strategy, simply invest in stocks and forget about it. Macro and micro factors are dynamic and therefore one has to keep track of changing conditions and accordingly revise the outlook for the business. Therefore, stockpiling is a systematic continuous process.
- Get into the list of Billionaires: If you follow this strategy then you’re doing what most of the successful investors are doing. The list of billionaires, who have used this strategy of investing to become wealthy, includes Warren Buffet, the richest and the most successful investor in the world, Carlos Slim Helu of Mexico, Lakshmi Mittal of India, Li ka-shing of China, Michael Otto of Germany, and many more.
