Fundamentals to remember before investing in stocks - Deepstash
Fundamentals to remember before investing in stocks

Fundamentals to remember before investing in stocks

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Golden rules of investment

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

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

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

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

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

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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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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