Warren Buffett’s Investing Style – The Power of Compounding – Eighth Wonder of the World
Growth investing is investing in companies that are going to show compound growth in the future. The key here is timing, so you buy a share of a growing company at a reasonably discounted price for a stipulated period and sell it just below its full potential. This will give you the best return on your investment and also without worrying about corrections and dips in the stock market.
Typically, a small-based company can grow at a much faster rate compared to a very large company. Therefore, investing in growth stocks has its challenges. A company with strong and credible management with only 100 outlets can grow at a much faster rate compared to another company with 1000 outlets. The business with 100 outlets may need to add just 50 additional outlets that year to increase revenue and net profit by 50% compared to the business with 1,000 outlets, which may need to open close to 500 new outlets to match that growth. Eventually, there will come a time when even the company with 100 outlets at the beginning can grow enough to sustain such a high growth rate.
Consider investing small amounts for growth gains
The returns on growth stocks can be staggering. When you invest for the long term, you don’t worry about short-term volatility, corrections, and market dips. You believe in the actions and in the story that will unfold, and this story can only be unraveled through thorough investigation. Let’s say you invest $10,000 and double your money every 2 years, that’s about a 40% return compounded annually. Watch your money grow:-
2nd year US$20,000
4th yearUS $40,000
6th year US$80,000
8th yearUS$160,000
10th yearUS$320,000
Isn’t it amazing? Three hundred and twenty thousand US$ in just 10 years. Remember, you invested only $10,000 per ounce. This is the Power of Compounding, the eighth wonder of the world.
Don’t be a bystander: get the necessary insights
It is never too late to gain the desired knowledge at any stage of life. The sooner it is purchased, the better. So how do you find a good company to invest in that will make you money? Always keep an eye out for companies with good growth potential, but don’t get sucked into even good stocks by paying a high price. This will be eaten into your returns. Invest in the business that can withstand the competition. This type of business will stick around longer and maintain superior returns in the long run. Companies with unique, high-quality products that are hard to emulate would be the horses for the long run.
These are just some basic tips to start investing in the stock market. Study the stock market and invest before you start. The stock market can be a crazy place at times and the better informed you are, the less you will lose. Come in to get your share of the pie!
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