Don’t churn your portfolio

The only way to make money in the stock market to regularly buy and sell, this is our belief, but in reality it is not. With a government having a majority in the lok sabha there is a sense of stability with regards to governance, yes, we still need to see the results, but the stock market is on the rise. The currency is also getting stronger, thanks to the tough stand taken by the RBI with regards to inflation. If things go as they are going now, you should see the stock market just going up in the coming 2 to 3 years. One of the best things you can do now is buy the right stock and stick with it and watch it grow. Do not sit and watch the price on a daily basis. Do you do the same when you invest in real estate? No, because you are looking for long term appreciation.

Stock market is not a gambling den, if you are looking for long term gains, buy and then let the stock grow. Don’t go by just the P/E ratio, see if the company would be able to keep giving you a continuous earnings growth. How do you decide that? Look at what are the items or brands you use on a daily basis and then find out the companies which produce them. These are companies whose products, services or brands you trust and if you trust them then why not participate in the company’s growth. In this manner just purchase around 10 to 15 stocks from 3 to 4 sectors. Do not over diversify.

You can look at the price of the same stocks 3 years earlier and you would have noticed that if you had purchased them then, they would have given you better returns than the fixed returns where you have been getting. Remember the markets will keep going up and down, this would be because of cyclical trends and some news. People might tell you the next boom sector is x or y, just ignore that and go by what you would use. So start making a list of items you use, the name of the companies and then the sectors and you are on your way to make money.

Are we making good returns from the stock market

We all have heard of a lot of people make money in the stock market and the return have always been more than what you would have got in any other class of asset. So we all want to get good returns to meet all our goals. So what do we do, looks for tips, read newspapers, watch TV and of course tips in our emails. We also try to be smart and see what the fund managers are buying and selling and then we try to mimic the same. All this in the hope to make more money. We always want to see the returns, before the performance. Everyone is focusing on returns and very few on the performance. Remember in our quest to make more money we forget all other basics i.e. risk taking ability or for the matter the reason for which we want to make the money or even the returns expectation.

The only thing we look at is making a lot of money. All this is nothing but putting the cart before the horse. We should always ensure that our investments are diversified, so that whatever the outcome our goal will be met. All this only impacts the performance of our portfolio as we are taking risks dis-propionate to what we need. We do not try to understand what the underlying reasons are for the fund managers buying or selling or the tips you see, read or hear. This uninformed choice is what leads us to the fear of the stock market. If you make an informed choice you have a lots to gain. Because of such choices we tend to miss actual opportunities.

Currently what is happening is the fund manager makes a call, we read it and we make a decision. But should it not be the other way, what I want as an investor, what is my risk tolerance and what are my return expectations, in the short, medium and long run. Based on this the call on where and what I need to invest needs to be taken. The focus should be on right investment, this is where the Financial Advisor comes in. There will be good times and bad times in the stock market, but some stocks will always give you returns, some in good times some in bad times. So you need to choose rightly. In investing emotions have to be kept aside. A good Financial Advisor will look at your risk taking ability and your goals before suggesting a stock or a portfolio for you. Want good returns from the stock market, focus on your risk appetite and goals before deciding on the stock. Ensure proper asset allocation and be ready to change your portfolio over time, based on the situation at that point of time.

Clean your portfolio, it will lead to a clean portfolio

New Year, new resolution. Start a new habit. Cleaning, yes, cleaning your portfolio of all the junk you have accumulated over the years. I think it’s high time to take our Prime Minister more seriously with regards to keeping things around us clean. We must have bought many insurance policies, ULIP’s or even ELSS schemes for tax saving purposes, which were sold to you by your friendly neighbourhood agent or your bank manager. They met their targets by doing the selling, have you met yours? You might also be having some Post office MIS, or RD or NSC or KVP, yes I’m reminding you of all the possible money you might be having around.  Oh! I should not forget, different bonds, FD’s and NCD’s from Companies or some deep discount bonds.

Hey, the list is getting long, Equity shares which you purchased based on tips, recommendations from friends, TV or even Newspapers. Even Shares purchased during the IPO boom. Hopefully last, mutual funds purchased during NFO’s, sold to saying cheap at NAV of Rs.10 only. This sounds more like peddling on the roads.  I might have missed some other financial instruments. We have just been saving, with the assumption that we have been investing. There was no plan in place, hence such a vast portfolio. Wake up, make a list of all of them and start cleaning them up.

How? Simple, make a list of all your financial savings, with type, company, maturity date, Nomination done, current value and maturity value. If nomination done, who and if not done, do it now. There are many websites where you could just feed this data and you could get a report and have a look at it from time to time. Check how many of these are in Physical form, try to get them into electronic form, it’s easier as well as safer to sell or redeem. This will also give you an idea of when premiums have to be paid and you could keep the cash ready, instead of running around to get your finances ready, when you receive the notice. Sometimes you do not receive a notice or your agent forgets to inform you, then what? You end up paying a penalty, for your own negligence.

Now that you have everything in place, review the list and check what is needed as per your goals and what is not. Check if they are giving you good returns. Get rid of the unwanted and loss making. Don’t get emotional, that you have made a loss, better to have cash in hand than to have duds in your portfolio. This is the reason for cleanup (You see this on Mumbai Municipality garbage clearing trucks) or garbage clearance. Review your list regularly. If you need help, let us know, we are ever willing to help.

Strategies to invest in the stock market

We have heard or seen very often, when the market is up, people start investing and when it is down people start selling. This trend is actually with novice investors who are very punctual about reading the newspaper and see the sensex going up and feel the need to enter or when the market falls they feel it is the right time to exit. Frankly this is the worst strategy. That is why most of us do not make it big in the stock market, we sell the winning stocks early and losing stock late. I have even seen some persons holding on to losing stocks hoping for a resurrection. Also most of us do our investment based on tips of brokers, friends and experts on television. Any free advice is risky, you should do research on stocks and then buy. Remember all stocks do not rise at the same time nor do all stock keep rising through their life.

There would be some persons who did make some extraordinary gains, but not all of us are lucky. But there are some who have taken the pains to research before entering the stock market and these persons have made money. Because these persons have either done the proper research or paid for the research, before investing. They just did not go blindly with the tips. They read when to enter the market and when to come out, they have discipline. They book profits when they need to and hold stock when needed. They just do not go by newspapers and television interviews.

 

Here are some tips to succeed in the stock market

Do a research of the sector and then the stock you want to buy.

• If your research is good, do not worry if the market is up or down, since you have purchased a stock and not the market.
• Start with small investments in a stock and buy with every fall.
• Invest for the long term
• Invest in Large-caps, since there is liquidity in these stocks. If you want to go in for mid-cap or small-cap, ensure your research is through.
• Do not just keep buying, keep a maximum of 10 to 15 stocks, which are from 3 to 5 different sectors and where the stock has strong growth prospects.
• When the fundamentals of the stock deteriorate  ….. exit
• Don’t go for all IPO’s, research before investing.

If you find all this difficult or do not have the time, switch to mutual funds, the fund managers will do all the above for you. For wealth creation, thinking and working long term is most important, do not react to short term market changes. Long term is better from tax angle as well, there is no tax on long term capital gains. Stock market is not a gambling den, if you do look at it as a gambling den, then be ready to lose heavily as well. Look at the stock market as a wealth creation opportunity. Hope these tips help you, all the best.