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Golden rules of investment
There are a few things to remember before investing in stocks:
- First, it's important to have a clear understanding of what you're buying. Make sure you know the company's financial situation and what the stock is worth.
- Second, don't invest too much money in one stock. It's important to diversify your portfolio to minimize risk.
- Third, you will make money by waiting and not buying or selling.
- Finally, don't get too caught up in the short-term movements of the stock market. Focus on the long-term potential of your investments.
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Enter the stock market with a clear goal
When it comes to investing in stocks, there are a few key things to keep in mind. First and foremost, it’s important to do your research and understand the market you’re entering. It’s also crucial to have a clear financial goal in mind and to be aware of the risks involved.
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Filtration of stocks using a screener
- Using a screener website, filter the stocks based on the following criteria:
- Avoid loss-making companies.
- Avoid companies with high debt (ideally go for companies with no debt)
- Avoid companies with low capitalization (Less than INR 100 crore or USD 500 million).
- Avoid companies entering into emerging new sectors like web3 and blockchain.
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Selection of stocks
- Find an industry that has good growth potential. Then, find the leader and the challenger company in that industry. For example, in the tech industry, it will be Apple & Alphabet.
- Consider a company in an industry that is slowly changing. For example, P&G (an FMCG company) will release new washing detergents even after five years. The chances of them going down are very less.
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Selection of stocks...contd
- Look for companies that take calculated risks. For example, Apple first introduced its iPhone then after 2 years introduced the iPad, and after 2 years introduced the Apple Watch. This shows that Apple didn't introduce all products at once and gambled on a low-risk strategy.
- Always make sure to calculate a company's fair value. Don't buy at a high price. Wait for a correction in the price before investing. Set an alert: every time the stock falls by 5%, you will invest X amount.
- Find a company that has a strong competitive advantage (it can be a patent, certain technology, networks, etc).
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Number of stocks in a portfolio
If you want optimum returns on your portfolio, you need to have a maximum of 3-4 stocks (with the ratio 40:30:30) but it will have a higher risk.
If you want good returns with little risk then you need to have 6-8 stocks.
But if you want to take a minimum risk and be satisfied with +2% higher than the index return then go for 10-15 stocks.
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CURATED BY
CURATOR'S NOTE
Before you invest in the stock market, it's important to have a solid plan and be disciplined in your approach. By being disciplined, you'll be more likely to stick to your plan and make smart investment choices. Here are a few tips to help you get started:
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