Entering the stock market can feel overwhelming especially when you're just starting your journey. But once you’ve understood the basics, opened your demat account, and learned what the market actually does, the next crucial step is mastering long-term investment.
This article covers everything —what long-term investment is, why it matters, how to select stocks, how stock prices move, what happens behind the scenes, and how to measure your investment returns correctly.
Let’s dive in.
1. What Is Long-Term Investment?
Long-term investing is simple:
You buy shares of companies you believe in and hold them for many years.
This holding period can range from:
- Minimum: 3–5 years
- Ideal: 10–50 years
When you purchase and hold shares, you take delivery of the stock into your demat account, where it remains until you decide to sell.
Long-term investing is not something you do for quick gains. It is a slow, steady, highly rewarding wealth-building strategy.
2. Why Should You Invest for the Long Term?
There are two primary reasons:
1️⃣ Capital Appreciation (growth of your money)
Over long periods, good companies grow their:
- Revenue
- Profit
- Market share
This business growth causes the stock price to rise, increasing your wealth.
Historical market data clearly shows this.
Both NIFTY and Sensex have steadily risen for decades despite temporary dips.
Example:
If you invested ₹1,00,000 in TCS in 2004, today that investment would be worth ₹15+ lakhs.
If the same amount were placed in a fixed deposit, it would grow to only around ₹2.5 lakhs.
2️⃣ Dividends (extra yearly income)
Profitable companies distribute part of their earnings as dividends.
As a shareholder, you receive:
- Bonus cash flow
- Regular income
- Additional returns beyond price appreciation
Dividend + long-term growth = powerful wealth creation.
3. How to Select Stocks for Long-Term Investment
Choosing the right stocks involves two types of analysis:
✓ Fundamental Analysis → What to buy
Fundamental analysis helps you understand:
- The business model
- Financial health
- Management quality
- Risk factors
- Future growth potential
To do this, investors study:
- Annual Reports (300–400 pages)
- Balance Sheet
- Profit & Loss Statement
- Cash Flow Statement
All publicly listed companies must publish these documents every year.
With the right approach, you can determine if a company is strong enough to hold for decades.
(Later lessons in the series will deeply cover fundamental analysis.)
✓ Technical Analysis → When to buy
Even if a company is excellent, you should not buy it at any price.
Technical analysis helps you identify:
- Good price levels
- Market trends
- Demand zones
- Entry and exit points
Investors use:
- Price charts
- Candlestick patterns
- Chart structures
- Technical indicators
This ensures you enter at a reasonable price, improving long-term returns.
4. What Factors Drive Stock Prices?
Stock prices move every second because of demand and supply.
Price Up → demand > supply
Price Down → supply > demand
But what creates demand or supply?
Two major factors:
1️⃣ Company Fundamentals
Good fundamentals → more buyers → price rises
Weak fundamentals → more sellers → price falls
Example:
- If revenues and profits grow → demand increases → price rises
- If the company goes into loss or takes heavy debt → supply increases → price falls
2️⃣ Market Sentiments
Sentiment can move prices even without fundamental changes.
Example:
- Tata Motors announces India’s largest EV plant → market becomes excited → price shoots up
- Later, Tata Motors delays the plan → market turns negative → price falls
Sentiment = human emotion + reactions to news
It causes short-term volatility but not long-term performance.
5. What Happens Behind the Scenes When You Buy a Stock?
This is one part beginners rarely understand. Let’s simplify:
Primary Market Transactions → IPO
When you apply for an IPO and receive shares, the stock moves directly:
Company → Your Demat Account
Simple and straightforward.
Secondary Market Transactions → Regular Buying & Selling
This is what happens when you buy a stock like Mahindra & Mahindra:
- You place a Buy Order on your broker’s platform
- Your broker sends it to the exchange (NSE or BSE)
- The exchange finds sellers
- Your order matches with multiple sellers
- Shares move from their demat accounts → your demat account
Settlement Time = T+1 day
If you buy today, the stock appears in your demat account tomorrow.
When you sell:
- Shares leave your demat account immediately
- You receive 80% money the same day
- Remaining 20% on T+1 day
This process ensures transparent and safe stock market transactions.
6. How to Measure Your Long-Term Investment Performance
This is where most beginners make a mistake.
There are two ways to measure returns:
❌ WRONG Method: Absolute Returns
Example:
You bought for ₹1,00,000 → it became ₹2,00,000
Absolute return =(2,00,000 – 1,00,000) / 1,00,000 × 100 = 100%
This is meaningless because it ignores time.
✔️ RIGHT Method: CAGR (Compounded Annual Growth Rate)
CAGR tells:
How much your investment grew every year on average.
This allows comparison with:
- NIFTY’s 14% yearly return
- Mutual funds’ 15–18%
- Fixed deposits’ 5–7%
Using the example:
₹1,00,000 → ₹2,00,000 in 3 years
CAGR ≈ 25.9% per year
This is an accurate measure.
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