PORTFOLIO MANAGEMENT
SOME PRINCIPLES (Part 1)
If you are a Direct Stock Investor on the Indian Stock Exchanges, and are buying, holding and selling stocks, you own a Portfolio of stocks that you purchased so far and are yet to sell.
STOCK MARKET INVESTING (and Portfolio Management) - is both an Art and a Science. Stock Market is the easiest and safest place to invest. Returns can be Good - to - Fantastic depending upon your level of carefulness.
A careless fellow should neither invest in stock market nor cross a Road nor marry a person of the opposite sex. All these are risky!!! If can cross a city road carefully or marry a person of the opposite sex and live with him/her, congratulations,
YOU CAN BE SUCCESSFUL IN STOCK MARKET INVESTING also, if only you are just that much careful. So, what should you do, before you invest in stock Market and while you invest in stock market. Here is the first batch of guidelines for you :
In stock Markets, if you are dabbling only in F & O segment or buy today and sell within a month or so, you don't own a portfolio in the conventional sense. In my view, those who hold stocks on a fairly long term basis of say one year or more - own Portfolios of stocks and need to understand about Portfolio management principles and strategies.
STOCK MARKET INVESTING (and Portfolio Management) - is both an Art and a Science. Stock Market is the easiest and safest place to invest. Returns can be Good - to - Fantastic depending upon your level of carefulness.
A careless fellow should neither invest in stock market nor cross a Road nor marry a person of the opposite sex. All these are risky!!! If can cross a city road carefully or marry a person of the opposite sex and live with him/her, congratulations,
YOU CAN BE SUCCESSFUL IN STOCK MARKET INVESTING also, if only you are just that much careful. So, what should you do, before you invest in stock Market and while you invest in stock market. Here is the first batch of guidelines for you :
In stock Markets, if you are dabbling only in F & O segment or buy today and sell within a month or so, you don't own a portfolio in the conventional sense. In my view, those who hold stocks on a fairly long term basis of say one year or more - own Portfolios of stocks and need to understand about Portfolio management principles and strategies.
Now - why did you BUY what you bought when you bought and why did you sell what you sold when you sold? These are the two questions you must have a clear cut answer for, if you must succeed as a stock investor.
If you have a clear cut, well thought out strategy for Buying, Holding and Selling stocks - You are managing your Portfolio of stocks reasonably well.
As already said - Portfolio Management is both an Art and a Science. And, it is evolving with every thinker and practitioner of this art and science. Among the practitioners across the world, there are many, many extraordinarily successful individuals, who rose from rags to riches and to super riches.
Warren Buffet is of course the most famous stock Investor in the world. There are many others like him in all countries who are great successes in building up wealth of unimaginable proportions through stock market investments and trading.
In India too, there are many success stories of rags to riches and super riches. Many new stories are in the making in many states in India. Rakesh jhunjhunwalla, Ramdev Agrawal, Radhakishan Damani, Porinju Veliyath, Dolly Khanna,vijay kedia, Ashish Dhawan, Nemish shah and so on are now well known names in the investment world of stocks.
There are many strategies which successful investors employed, for building up their Portfolios. we will discuss a few of them here and hereafter :
1. A good investor must have a reasonable grasp of the country's economic profile, its strengths and weaknesses, its government policies and the directions in which the economy is progressing. In short, a SWOT (strengths, weaknesses, opportunities and threats) analysis of the country we live in is of great help for stock investors. Budget time is always a good time to revisit the SWOT analysis each year.
2. Step.1 above gives us a list of sectors in which we can expect good progress in the next 5-10 years time. We need to understood where the public money will flow in the coming years. This will indicate the type of companies which will see faster progress in the years to come.
3. It is not only the government money that is the criterion. The general public money spending across the country is a bigger criterion and it is always undergoing change. Spot this change.Where do people Buy, what do people Buy, when and why are all easily knowable if we keep our eyes and ears open. your investment must flow into sectors into which this public spending is flowing more and more.
4. Once you identify the sectors which are fast expanding, now, identify the most promising companies in those sectors.There are some companies which are expanding the FASTEST and some which are slow and sluggish. Some produce and sell the best at best prices and some are inefficient producers. Your task is to find out the companies which are growing the fastest in each sector.
5. identify a list of at least 5-10 sectors and 2 companies from each such sector, which you feel are growing fastest.
6. Well. the task is not yet over. Now, you may have about 10 to 20 companies which are growing fastest and which you like. Now, compare the price per share at which the shares are being sold in the stock market. Keep an eye on the face value of the shares, while making this comparison.
7. The shares you want to buy - must be (i) in sectors which are growing well (ii) of companies which are growing well and (iii) the prices of shares must be reasonable (and not very costly). For each of these steps, there are again methods, procedures, principles and so on to help you go through each step.
8. A successful investor never hurries to invest in a company without examining all this about the company by himself. Acting on friends' tips,market gossips and rumours and even on TV shows of experts is not a good idea - unless, you invariably make your own analysis of each company before you invest in it.
9. Can you name a few sectors, say 5 to 6, which are growing the fastest in India? If not, find out that immediately.
10. Can you name a few sectors, say 5 to 6, which are the most sluggish and in which no reasonable growth is possible for next few years, in India? If not, find out that too immediately.
11. Can you name a few companies, say 10 at least, which are growing fairly fast, in India? Now, check up, if your feeling is really correct. You may not be right in respect of at least a few companies. What grew well 3 years ago - may not be growing at all now! Find out. Find out. Find out. The most famous companies may or may not be growing at all right now.
12. This is the basic preparation you must undergo - before you want to be a successful stock investor. But,this is not enough.
13. Now, what is your planned level of Investment in stock markets? Is it a one time lump sum investment, or, is it going to be continuous, periodical or monthly investments or is it a combination of both?
14. Never, ever, invest borrowed moneys in stocks. Make this an inviolable principle, for a long, long time to come.
15. Never, ever, invest ALL THE MONEY that you have in stock markets however attractive you feel a particular stock may be. Keep sufficient money for your urgent and emergent needs always.
16. Insurance for illnesses, death, assets etc is always an Essential NEED. It depends on your age, economic and health conditions and family back ground. Assess your Insurance needs and take care of the same. Over insuring and under insuring are both equally bad.
17. House is of course a need. But, you can rent one temporarily. Never go for owning more than one house in the same town - unless your stock Investments are bulging at the seams and you have sufficient profits to afford many luxuries.
18. You can own a car, if you can afford its maintenance and if it is a real need. Otherwise, make stock Investment the first priority and car owning the second priority.
19. Assess how much you can easily invest every month. Invest that amount as the first thing you do every month. Spend only the balance. Don't think that you must invest only after all expenses are met and some savings are left. Plan your savings and balance is for expenses.
20. when I say SAVINGS - I mean, your stock investments. Should we put good amounts first in Bank Fixed deposits, chit funds, other debt instruments etc? This was the old idea and is no longer preferred. No debt instrument is saving you from inflation. stocks are more liquid in case of need than most debt instruments. We will examine all these and many others in the next Post.
* * * WILL CONTINUE * * *
Warren Buffet is of course the most famous stock Investor in the world. There are many others like him in all countries who are great successes in building up wealth of unimaginable proportions through stock market investments and trading.
In India too, there are many success stories of rags to riches and super riches. Many new stories are in the making in many states in India. Rakesh jhunjhunwalla, Ramdev Agrawal, Radhakishan Damani, Porinju Veliyath, Dolly Khanna,vijay kedia, Ashish Dhawan, Nemish shah and so on are now well known names in the investment world of stocks.
There are many strategies which successful investors employed, for building up their Portfolios. we will discuss a few of them here and hereafter :
1. A good investor must have a reasonable grasp of the country's economic profile, its strengths and weaknesses, its government policies and the directions in which the economy is progressing. In short, a SWOT (strengths, weaknesses, opportunities and threats) analysis of the country we live in is of great help for stock investors. Budget time is always a good time to revisit the SWOT analysis each year.
2. Step.1 above gives us a list of sectors in which we can expect good progress in the next 5-10 years time. We need to understood where the public money will flow in the coming years. This will indicate the type of companies which will see faster progress in the years to come.
3. It is not only the government money that is the criterion. The general public money spending across the country is a bigger criterion and it is always undergoing change. Spot this change.Where do people Buy, what do people Buy, when and why are all easily knowable if we keep our eyes and ears open. your investment must flow into sectors into which this public spending is flowing more and more.
4. Once you identify the sectors which are fast expanding, now, identify the most promising companies in those sectors.There are some companies which are expanding the FASTEST and some which are slow and sluggish. Some produce and sell the best at best prices and some are inefficient producers. Your task is to find out the companies which are growing the fastest in each sector.
5. identify a list of at least 5-10 sectors and 2 companies from each such sector, which you feel are growing fastest.
6. Well. the task is not yet over. Now, you may have about 10 to 20 companies which are growing fastest and which you like. Now, compare the price per share at which the shares are being sold in the stock market. Keep an eye on the face value of the shares, while making this comparison.
7. The shares you want to buy - must be (i) in sectors which are growing well (ii) of companies which are growing well and (iii) the prices of shares must be reasonable (and not very costly). For each of these steps, there are again methods, procedures, principles and so on to help you go through each step.
8. A successful investor never hurries to invest in a company without examining all this about the company by himself. Acting on friends' tips,market gossips and rumours and even on TV shows of experts is not a good idea - unless, you invariably make your own analysis of each company before you invest in it.
9. Can you name a few sectors, say 5 to 6, which are growing the fastest in India? If not, find out that immediately.
10. Can you name a few sectors, say 5 to 6, which are the most sluggish and in which no reasonable growth is possible for next few years, in India? If not, find out that too immediately.
11. Can you name a few companies, say 10 at least, which are growing fairly fast, in India? Now, check up, if your feeling is really correct. You may not be right in respect of at least a few companies. What grew well 3 years ago - may not be growing at all now! Find out. Find out. Find out. The most famous companies may or may not be growing at all right now.
12. This is the basic preparation you must undergo - before you want to be a successful stock investor. But,this is not enough.
13. Now, what is your planned level of Investment in stock markets? Is it a one time lump sum investment, or, is it going to be continuous, periodical or monthly investments or is it a combination of both?
14. Never, ever, invest borrowed moneys in stocks. Make this an inviolable principle, for a long, long time to come.
15. Never, ever, invest ALL THE MONEY that you have in stock markets however attractive you feel a particular stock may be. Keep sufficient money for your urgent and emergent needs always.
16. Insurance for illnesses, death, assets etc is always an Essential NEED. It depends on your age, economic and health conditions and family back ground. Assess your Insurance needs and take care of the same. Over insuring and under insuring are both equally bad.
17. House is of course a need. But, you can rent one temporarily. Never go for owning more than one house in the same town - unless your stock Investments are bulging at the seams and you have sufficient profits to afford many luxuries.
18. You can own a car, if you can afford its maintenance and if it is a real need. Otherwise, make stock Investment the first priority and car owning the second priority.
19. Assess how much you can easily invest every month. Invest that amount as the first thing you do every month. Spend only the balance. Don't think that you must invest only after all expenses are met and some savings are left. Plan your savings and balance is for expenses.
20. when I say SAVINGS - I mean, your stock investments. Should we put good amounts first in Bank Fixed deposits, chit funds, other debt instruments etc? This was the old idea and is no longer preferred. No debt instrument is saving you from inflation. stocks are more liquid in case of need than most debt instruments. We will examine all these and many others in the next Post.
* * * WILL CONTINUE * * *
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