General tips for an ideal stock investor.
Thumb rule 1: Invest in basket of stocks.
– Never put all eggs into same basket. Never ever lock all your money into single stock, choose a basket of stocks across various industry sectors. Not all sectors across the industry will have good times during the year. Make it a habit to constantly to keep yourself updated on whats happening on the economic front & understand the sectors which are in flavour for that year.
For Example: Year 2018 is getting marked as year of NPA’s of PSU banks, which may hint of switch over of money from PSU to private sector banks, housing finance companies & other sectors.
Thumb Rule 2: Assign a weighted average to stocks in your portfolio.
– Make sure your basket has stocks from all industry verticals, otherwise having weighted average will be of no use. List all industry sectors in your portfolio & money you have invested in each sector. You can assign a weighted average based on Industry sectors you have chosen – to do this you can either either rely on your knowledge/understanding of the industry else you could go by Nifty 50 dynamic weighted average for each industry sector. (https://www.nseindia.com/products/content/equities/indices/nifty_50.htm – PDF file name – Fact sheet of Nifty 50). By doing this, you should be able to understand which sector is under performing & accordingly you can make a choice to shuffle stocks in respective portfolios.
Thumb Rule 3: Understand cyclical variations during the year across industry sectors & decide on your entry points.
Get into a analytical mode & you would notice that they are many cyclical variations in the industry every year – and you could use them best to set an entry point into those stocks in the industry.
Example 1: March is considered as year end, 3 months prior to this is when most people either start thinking about investments or checks the status of previous investments. Most favourite investable instruments are – either directly invest in mutual funds or take the SIP route. This is the time when most mutual fund companies & DII’s sit on huge pile of investible money anticipating a slow down in trend to get to the boat & do bottom fishing of stocks.
Example 2: Yearly budget season – this could be one of the entry points. Identify which are the industries that may be in flavour during the budget season – remember budget in India is the most watched event unlike across the world where people would be interested in expense statement of previous year. Look to capitalise on these emotions.
Example 3: If you are looking to buy fertiliser stock, wait till winter – that is the time crops need less fertilisers & expect slippages in results during winter quarter – which may lead to stocks coming down. This could be one of your entry points. Similarly, if you are looking to buy electrical companies that primarily sell air conditioners only – buy them in winter & look to sell them in summer – just like temperature these stock soar to higher levels with increased revenue from sales in their results.
Think on these lines & you can identify cyclical variation for all sectors. Remember – Introspection that comes with natural curiosity is better than categorial introspection that comes from media platforms.