Investing in the stock market can be a lucrative way to grow your wealth over time. However, not all stocks are created equal, and it’s crucial to identify the right opportunities for maximum returns. In this article, we will discuss the importance of investing in stocks that show promise of growth in terms of price appreciation rather than relying on potential future movements.

The National Hydropower Company (NHPC) serves as an exceptional case study to highlight this concept. From 2009 to 2021, NHPC’s stock remained stagnant, fluctuating between the range of Rs10 to Rs20, with occasional peaks at Rs25. Even during periods of economic downturn, when the stock was near Rs10, some dividends were distributed.

During this twelve-year period, had an investor been solely focused on NHPC’s historical performance, they would have seen the stock moving within a relatively narrow range of Rs10 to Rs20. At Rs25, it might have seemed like an outlier, a temporary aberration. Given the stock’s historical behaviour, one might have thought it wise to exit the position when it crossed Rs25.

However, what unfolded after January 2021 completely changed the game. NHPC experienced a significant surge in value, catapulting from Rs60 to nearly Rs115 at the time of the recording. This extraordinary growth demonstrated the power of strategic timing and capitalising on opportunities when they arise.

Consider two hypothetical investors in NHPC. Investor A had been holding the stock since 2009 and stayed invested until 2021. They might have contemplated selling at Rs30, considering the stock’s historical performance. However, hindsight reveals that this choice would have been unsatisfactory, missing out on significant returns in the subsequent market rally.

On the other hand, Investor B entered the market when NHPC was trading at Rs30 or Rs25 and decided to hold onto the stock until it reached Rs110 or even exit at Rs90. By doing so, Investor B would have realised substantial returns of 50% to 70% in just a couple of years. This example showcases the importance of choosing stocks that exhibit signs of momentum rather than investing in stagnant entities.

Here are a few key reasons why you should allocate your capital to such opportunities:

Maximising Opportunity Cost

By investing in stocks with growth potential, you can maximise your opportunity cost. Opportunity cost refers to the potential benefits you forego by choosing one investment opportunity over another. By opting for stocks showing promise of upward movement, you allocate your funds to assets that have a greater potential for returns, ensuring your money is working its hardest for you.

Leveraging Your Capital

When you invest in stocks that are already on the move, you have the opportunity to leverage your capital effectively. Just like climbing onto a moving bus, you can enter the market at an opportune time and exit when it suits you. This flexibility allows you to make sound investment decisions based on market conditions and maximise your gains.

Mitigating Risk

Stocks that have already demonstrated growth potential often carry less risk than those with uncertain prospects. By investing in stocks that have already shown signs of upward movement, you can mitigate some of the uncertainties surrounding future performance. This approach provides a higher degree of confidence in your investment decisions.

Capitalising on Market Momentum

The stock market operates based on momentum and investor sentiment. Investing in stocks that are already showing signs of growth enables you to capitalise on market momentum. As more investors join the rally and demand for the stock increases, the price tends to rise further. By getting in early, you position yourself for potential higher returns when market sentiment is positive.

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