Ritu and Mohit's journey in the stock market

"Mohit, it's a marathon, not a sprint. I am an advocate of investing for the long term. If your goal is short-term gains, then go ahead and get into trading stocks. But if it's a medium or longer-term investment, you will be better off staying away," Ritu said with an air note of authority.

"Yes, but isn't this all too risky?" asked Mohit. "We are talking about investing in stocks that could fall by 50% overnight!"

"Risk comes with everything," said Ritu. "But not all risks are equal. You can control some risks and manage others. Look at what happened with Lehman Brothers. The company was under pressure for many years before its collapse. If someone had invested in the company, they would have lost their money because there were no buyers left when the firm went bust.
However, if you invest in a good firm that has been growing steadily over decades, then even if the stock price falls, it doesn't matter much as it will rise again. It's only when the company goes bad that things become difficult. This is why we have to research and take our decisions carefully."

Source
It took nearly three months before they(Ritu and Mohit) found a suitable stock. They chose a large Indian firm that had made profits consistently for years. The stock was trading at Rs 1,800 per share (Rs 100 = $1). Its P/E ratio was a modest 15. It also had a high dividend yield of 4 percent. The company had grown its revenues by 20% every year since 2005 and its net profit was growing at a rate of 30%.

"This is a good stock, right?" asked Ritu. "Should we buy it?"

"Let's see how the markets react after we buy the shares," said Mohit. "There's nothing wrong with buying a good-quality company at a cheap price. But if the price is not cheap enough, then we shouldn't buy it. We'll wait for another week."

After waiting patiently for two weeks, Mohit still felt that the price was not low enough. He spoke to his father, who suggested that they should sell a part of their gold to raise capital for the purchase. The family sold about 200 grams of gold for Rs 42,000 ($600) and used the funds to buy four shares of the same company.

The next day, the stock price rose further, closing at Rs 2,300. Ritu and Mohit were delighted! They now owned four shares worth Rs 10,200 each. Their total investment was now worth Rs 22,400.
"Woohoo!" shouted Mohit excitedly. "Our portfolio is now worth Rs 24,500, which means our initial investment is now Rs 12,000! Let's celebrate!"

They bought a bottle of whisky and drank it together.

"I think we should look for another stock," said Ritu. "We can't just sit back and enjoy our success. We need to make sure that our money grows quickly. And now we know that we can do that by investing in quality companies."

She looked through the newspapers and magazines and found several promising stocks. In addition, she discovered that one of her friends, Shikha, had recently started a venture fund that was looking for investments. She wanted to invest in good companies and help them grow. After meeting Shikha, Ritu decided to invest some of her money in the fund.

Over time, they bought many other stocks. Each time they did, they checked the company's financial statements and its management team to ensure that they were capable of running the business well. And the siblings were comfortable with such business models. The first few years were exciting, but they soon realized that making money on the stock market was harder than they thought. Many of the stocks they picked performed poorly.

A few of them crashed and burned altogether. They suffered losses. The experience taught them the importance of doing thorough research, and of being patient.

In the beginning, they didn't make any real money. But they kept learning and improving. They came up with a system to evaluate companies based on their financials, stock prices, and dividend yields. Every month, they would pick five to ten stocks.

Most of these would perform badly. But they learned from their mistakes and became better investors. Within a few more years, their portfolio value had doubled. Over the next five years, they continued to learn and improve. Finally, they were able to quit their jobs and make money from the stock market. Today, they own a small hedge fund and run a profitable business.