While many investors dream about making £1,000,000 by investing in shares, perhaps only a minority truly believe that it is possible. Of course, we’ve all heard the stories about individuals with relatively humble salaries who, over a number of years, invest wisely and build a portfolio worth seven figures that allows them to lead an enjoyable life in retirement. However, for many investors it seems like a mammoth task that could take so long that it’s almost impossible to attain.
The truth is, though, that by being a Foolish investor, you can become a millionaire. Better yet, it doesn’t require you to sacrifice your free time or your other commitments, either. Here’s how.
It’s All About Business
Perhaps the most important consideration for any investor is to remember that you’re buying shares in a company — a real-life, tangible entity. This may seem rather obvious — of course a business exists — but for many investors there is a detachment between buying shares and actually owning part of a company.Shares are all-too-often seen as an abstraction — just a name and a number — rather than a real chunk of net assets and a cut of future profitability.
But viewing sharedealing as buying a part of a business is crucial in terms of how you view your investments. By focusing on the business, you inevitably consider it in much greater detail, by looking at things such as its financial standing, cash flow, competitive advantage, geographic exposure and the track record of management.
In other words, you act as an owner of a business (which, as a shareholder, you are) always should — you take an interest in your business and begin to question whether it is doing the right things.
Long Term Growth
Thinking about your shareholdings as parts of real businesses also helps to focus on the longer term, rather than the short run. This is essential, since there are no sure-fire “get rich quick” schemes in the world of investing. It really does take time for even the most enticing of investments to come good. In this sense, shares are no different than any other investment.
For example, if you bought a house to rent out and its value had increased by 20% within six months of purchase, you probably would not sell it. With shares, however, the conventional wisdom seems to be to bank the profit and find something else.
The reality, though, is that the business you just sold a slice of probably rose in value for a reason: because it is worth owning. And, with the world of business being slower moving than today’s fast-paced social media/internet era, taking your time and being patient can be a difficult skill to master, but patience is a very valuable weapon to have in your investing arsenal.
Keep The Faith
Clearly, shares will not always perform as well as all of us would like. In fact, the FTSE 100 has been a huge disappointment over the last fifteen years, for example — it’s only slightly higher now than it was at the end of 1999. So it would be easy to look at the past performance of the stock market and think that there is little prospect of making £1m from your investments. And with other asset classes, notably bonds and property, having moved considerably higher in recent years, shares may appear to be a rather poor place to invest at the present time.
However, it could equally be argued that the lack of performance in the last fifteen years makes shares an even more lucrative place to invest. After all, valuations are not ahead of themselves (unlike in property and fixed income markets) and, with a multitude of high quality companies to choose from that operate across the globe, have excellent management teams and products that can command tremendous customer loyalty, the stock market looks hugely appealing.
