As a retired fund manager, this is a question close to my own heart, as I am convinced beyond any remote shadow of doubt that being an investor in the right listed equities at the right time is a powerful generator of wealth.
I don't consider myself to be remotely close to the world's most astute stock picker and yet I have become financially independent thanks exclusively to share ownership over the past 15 years.
I have come to the firm view that the reason the great majority of people see the stock market as a risky proposition is because they fail to understand that, while there are around 2,000 companies listed on the Australian Stock Exchange, only about 70 or 80 are truly investment grade, and that only ten to fifteen of those, in turn, might be undervalued at any given time (depending on the position in the equity market cycle).
Wealth creation with limited risk requires: 1) identifying the few investment grade companies, and 2) knowing when they are valued at less than their intrisic worth
I think that 90% of private investors lose money in the stock market because they either buy non-investment grade businesses or over pay for the good quality businesses.
Cam
PS. "Investment grade" I define as companies that generate real growth in surplus capital organically throughout all economic and business cycles, and where the resulting surplus capital is returned to equity holders as a fundamental tenet of the management culture.
