Direct equity investment can be very rewarding. Simultaneously this is also true that risk of loss stock trading in direct equity is high.People who can balance risk and return while dealing with direct equity are the winners. But how can one balance the risk and reward? The risk associated with direct equity comes from complexity of information. Its not so easy to decode information’s related to equity.
Information’s related to equity is contained in companies financial reports like balance sheets etc. Let me explain this to you with an example.
How many of us know how to calculate ‘capital employed’ by a company? I am sure only a handful will be able to answer that.
While buying stocks, one of the most essential parameters to evaluate about company is ‘return on capital employed (ROCE)’.
This parameter is so important that a true investor cannot buy Stock trading without noting it. In India alone, there are millions of people who invests in stocks.
But why only a handful know how to calculate ROCE? This lack of know-how generates the ‘risk of loss’ associated with direct equity investment Stock trading.
Millions of people buy stocks, only few has the critical know of reading and analyzing balance sheet.
These minority people are the ones who are making huge money inStock trading
For balance, stocks market is more like a casino because they are investing blindly. Direct equity investment can be very profitable if one has those critical know hows.
Is there no other way-out? No, direct equity investment cannot be consistently profitable if one does not know to decode financial statements of companies.
But there is a great alternative to direct equity. Mutual funds are such products which are designed for common men.