just want positive overall performance. It might possible that 2 or 3 stock gone negative but the overall performance of your portfolio would be positive, that too with great margins.
According to the studies, “93% of retail traders are losing their money in stock market”
Let me get to the point.
Here are some stock picking tips and tricks
I’ve had immense success with these tactics and that can help you get great stocks for your own portfolio.
This might look simple but are worth trying. Sometimes doing small things in an extraordinary way can lead to extraordinary results.
#1) Keep it Simple
Well said: Simplicity is the best policy.
What’s true in life is true in investing too.
Your Stock portfolio is not an exception.
The simpler, the better.
As a retail investor, keep a stock portfolio of 8 to 10 stocks. And if you’re good enough to pick excellent stocks then 4 to 6 stocks would be best.
The idea is: if you’re 99% sure that this half dozens stock (from 20 filtered stock) will outperform the market then why would you waste your money for the opportunity cost of getting more returns in the same duration of time.
Also, its too confusing to track 50 stocks at a time. When to buy? When to sell? When to hold? Where to invest?
It’s too confusing to manage bundle of stocks.
I too have a concentrated portfolio of 8 stocks. No more, no less.
Here the crux: Keeping more will reduce the return & Keeping less will increase the risk. So as per my opinion, a portfolio of excellent 6 to 8 stocks is the portfolio that outperforms.
#2) Use the Six-ratio rule
You don’t need to waste your time analyzing each and every stock for hours. Juts what you need is 5 minutes to conclude “whether XYZ stock is worth giving time or not?”
This is the default Screener.in stock screen:
And this is the customized screen of my screener account:
You can figure out some extra metrics added in the screen, that’s what help me to decide whether the stock is worth giving time or not.
These tactics are very much helpful to save time while you analyze a stock.
Of course, you can choose your own ratios. If you prefer companies that give 20% of earning as dividend then customized this ratio in the list.
#3) Never dump your money in top buzzing stocks.
It’s a great barrier to become successful investors. They normally invest in the stocks which are in trending talk. Step out of this internet world and then think as you’re investing a business, not in a product known as the stock that goes up and down on daily basis. This would help you to conclude perfect unbiased conclusions.
Also, consider asking yourself below questions:
- Do I like the stock just because it has fallen to its 52 weeks low?
- Am I biased towards this or that stock just because I’ve spent ten days researching it?
- Am I impressed by just the company’s recent performance?
- Do I like it just because I heard 2 or 3 positive news on web or channels?
When I started investing, I was highly excited for making fortunes but it all disappear after understanding the real world of stock market.
I keep myself up-to-date with latest news and announcements.
In just a week I created a portfolio of 6 stocks and to know, all from Nifty50.
Then I figure out the whole scenario. What the heck I’m doing? How can I make fortunes by investing in stocks which are preferred by many? If it is the real way then most of the population would have make fortunes out of the market, as 70% of the total traded volume occurs in large cap.
Then again I optimized my portfolio and this time bought some excellent out-of-stocks which are not currently highlighted but are fundamentally strong and people will be dying to buy it in future.
#4) Never stuck with your computer/mobile screen
I don’t know about you, but when I first started investing, I keep checking my bought “stocks” about 20 times a day. It was exciting to see that the stock was increasing (even if only a teeny bit).
Same applies vice verse. A drop in the price ponders my heart at a high pace. That movement when I realize that I’m just losing my money for doing nothing but seeing the screen where the price goes up to down and down to up.
And it really hard to see your stock price going down and down and down and also that gasp when price rise.
But if you know that aversion of losing money is more than gaining from the stock market. That’s why you either end up panicking or losing your hard earned money.
#5) Try not to sell off your stock in one year of buying
Many investors are not even aware of the taxes that government charged from you on the profit you made on your investments.
Of course, you might be earning a lot but it’s better to earn more than your existing earning.
If you sell your stock in 1 year, the government will charge you with 15% tax on profit. So if you made 1 lakh, government will take 15,000
And if you sell it after 1 year, tax rates are 0.
Now it’s understandable – which is the smart move?
#6) Stop digging when you find yourself in a hole
An uncle of mine once bought a huge amount of shares of Jaiprakash Associates.
He bought it 3 years back when it was quoted at 100 INR and now it’s trailing around 8.
Why didn’t he sold out it stocks when he found it going down?
Interviewing him a bit gave me a good conclusion. Here comes an emotional phenomena…. step by step.
- When a stock goes down to 75 from 100. The though came in his mind was – “I’ll wait until it again gets recovered”
- When stock goes down to 50 from 75. The thought came to his mind was – “I’ll wait until it again get recovered, otherwise my 50% investment will get lost”
- When stock goes down to 25 from 50. The though came in his mind was – “I’ll wait until it again get recovered. I already lost 50%, lets bet other 50 too. May be possible that it may go up”
- Now when stock is trailing around 8. He may be thinking – “What the heck will I get by selling this crap? let me retain them and wait for any miracle”
At every downside of stock, his “emotions of losing money” and “hoping that stock may go high” conquer his decision. Instead of relying on vicious circle of advisers, brokers, pro investors etc, he would have rely on financial data of company.