Saturday, August 15, 2015

How to Build a Stock Portfolio


Courtesy :Wikihow

The stock market and its potential for risk intimidates many people. Nonetheless, a well-built stock portfolio is likely to outperform other investments over time. It is possible to build a stock portfolio alone, but a broker can help. Knowing your goals and your willingness to take risks in advance, as well as understanding the nature of the market, can help you build a successful portfolio.

Part 1  Designing Your Portfolio


  1. Know what you're willing to invest. As you invest, you'll need to balance your potential risks against your potential rewards. A portfolio's assets are typically determined by the investor's goals, willingness to take risks, and the length of time the investor intends to hold his portfolio. Some of the most important factors to consider in making these decisions are:
    • The investor's age
    • How much time the investor is willing to spend allowing his investments to grow
    • Amount of capital the investor is willing to invest
    • Projected capital needs for the future

     2
    1. Decide what kind of investor you'll be. Portfolios usually fall somewhere in the spectrum between aggressive, or high-risk portfolios, and conservative, or low-risk portfolios. Conservative investors simply try to protect and maintain the value of a portfolio, while aggressive investors tend to take risks with the expectation that some of those risks will pay off.
      • Understand that your financial goals may change over time, and adjust your portfolio accordingly. Generally, the younger you are, the more risk you can afford or are willing to take. You may be better served with a growth-oriented portfolio. The older you become, the more you'll think about retirement income, and may be better served with an income-oriented portfolio.
      3
      Divide your capital. Once you've decided what kind of investor you'd like to be and what type of portfolio you want to build, you'll need to determine how you intend to spread around your capital. Most investors who are new to the market don't know how to pick stocks. Some important factors include:
      • Determining which sector(s) to invest in. A sector is the category a given industry is placed in.
      • Knowing the market capitalization (aka market cap), which is determined by multiplying a given company's outstanding shares by the current price of one share on the market.

      Part 2 : Making Investments


      1. Understand the different kinds of stocks. Stocks represent an ownership stake in the company that issues them. The money generated from the sale of stock is used by the company for its capital projects, and the profits generated by the company's operation may be returned to investors in the form of dividends. Stocks come in two varieties: common and preferred. Preferred stocks are so called because holders of these stocks are paid dividends before owners of common stocks. Most stocks, however, are common stocks, which can be subdivided into the categories below:
        • Growth stocks are those projected to increase in value faster than the rest of the market, based on their prior performance record. They may entail more risk over time but offer greater potential rewards in the end.
        • Income stocks are those that do not fluctuate much but have a history of paying out better dividends than other stocks. This category can include both common and preferred stocks.
        • Value stocks are those that are "undervalued" by the market and can be purchased at a price lower than the underlying worth of the company would suggest. The theory is that when the market "comes to its senses," the owner of such a stock would stand to make a lot of money.
        • Blue-chip stocks are those that have performed well for a long enough period of time that they are considered safe investments. They may not grow as rapidly as growth stocks or pay as well as income stocks, but they can be depended upon for steady growth or steady income. They are not, however, immune from the fortunes of the market.
        • Defensive stocks are shares in companies whose products and services people buy, no matter what the economy is doing. They include the stocks of food and beverage companies, pharmaceutical companies and utilities (among others).
        • Cyclical stocks, in contrast, rise and fall with the economy. They include stocks in such industries as airlines, chemicals, home building and steel manufacturers.
        • Speculative stocks include the offerings of young companies with new technologies and older companies with new executive talent. They draw investors looking for something new or a way to beat the market. The performance of these stocks is especially unpredictable, and they are sometimes considered to be a high-risk investment.

      2. Analyze stock fundamentals. Fundamentals is the term given to the pool of qualitative and quantitative data that are used to determine whether or not a stock option is a worthwhile investment in a long-term analysis of the market. Analyzing a company's fundamentals is usually the first step in determining whether or not an investor will buy shares in that company. It is imperative to analyze fundamentals in order to arrive at a company's intrinsic value - that is, the company's actual value as based on perception of all the tangible and intangible aspects of the business, beyond the current market value.
        • In analyzing the fundamentals of a company, the investor is trying to determine the future value of a company, with all of its projected profits and losses factored in.

      3. Analyze qualitative factors. Qualitative factors, such as the expertise and experience of a company's management, various courses of industry cycles, the strength of a company's research and development incentives, and a company's relationship with its workers, are important to take into account when deciding whether or not to invest in a company's stock. It's also important to understand how the company generates its profits and what that company's business model look like in order to have a broad spectrum of qualitative information about that company's stock options.
        • Try researching companies online before you invest. You should be able to find information about the company's managers, CEO, and board of directors.

        4.
        Look at the price-to-earnings ratio. The P/E ratio can be figured as either the stock's current price against its earnings per share for the last 12 months ("trailing P/E") or its projected earnings for the next 12 months ("anticipated P/E"). A stock selling for $10 per share that earns 10 cents per share has a P/E ratio of 10 divided by 0.1 or 100; a stock selling for $50 per share that earns $2 per share has a P/E ratio of 50 divided by 2 or 25. You want to buy stock with a relatively low P/E ratio.
        • When looking at P/E ratio, figure the ratio for the stock for several years and compare it to the P/E ratio for other companies in the same industry as well as for indexes representing the entire market, such as the Nifty,Sensex..etc


      5
       
      Look at the return on equity. Also called return on book value, this figure is the company's income after taxes as a percentage of its total book value. It represents how well shareholders are profiting from the company's success. As with P/E ratio, you need to look at several years' worth of returns on equity to get an accurate picture.
       
       
       6 
       
       
                Look at total return. Total return includes earnings from dividends as     well as changes in the value of the stock. This provides a means of comparing the stock with other types of investments.
       
       
      1. Try investing in companies trading below their current worth. While a broad spectrum of stock investments is important, analysts often recommend buying stock in companies that are trading for lower than they are worth. This sort of value investing does not, however, mean buying "junk" stocks, or stocks that are steadily declining. Value investments are determined by comparing intrinsic market value against the company's current stock share price, without looking at the short-term market fluctuations.
        8
        Try investing in growth stocks. Growth stocks are investments in companies that exhibit or are predicted to grow significantly faster than other stocks in the market. This involves analyzing a given company's present performance against its past performance amid the industry's ever-fluctuating climate.
         

        Part 3 : Maintaining Your Portfolio

        1
         
        Avoid dipping into investments. Once you've invested capital in a stock, it's important to let the stock grow for at least a year without selling your shares. Consider that money that for all intents and purposes cannot be withdrawn and spent elsewhere.
        • As part of investing for the long term, determine the amount of money you can afford to commit to the stock market for five years or longer, and set that aside for investing. Money you'll need in a shorter period of time should be invested in shorter-term investments such as money-market accounts, CDs , Treasury bonds, bills or notes.

        2
         
        Diversify your portfolio. No matter how successful a stock might be doing at the moment, the price and value of stocks are bound to fluctuate. Diversifying your investment portfolio can help you avoid this pitfall by spreading around your money to a number of stocks.
        • A well-diversified portfolio is important because in the event that one or more sectors of the economy start to decline, a diversified portfolio will remain strong over time and reduce the likelihood of taking a significant hit as the market fluctuates.
        • Don't just diversify across the spectrum of asset classes. Some experts recommend you should also diversify your stock picks within each asset class represented in your portfolio.
        3
         
        Review your portfolio (but not too often). Anticipate that the market will fluctuate. If you check your stocks every day, you might end up feeling anxious over the value of your investments as things go up or down. But by the same token, you should check on your investments periodically. Some experts recommend checking on the quarterly earnings reports of a given company to see if your predictions for that company are holding true. Make changes as necessary, but don't jump ship every time a share reports a minor decrease in value.
         
       

73 comments :

  1. Wish you,your family and all the blog readers a happy Independence Day.

    ReplyDelete
  2. Happy Independence Day to one & all....!!

    ReplyDelete
  3. Sir your view on MIC electronics Q1 15 result?

    ReplyDelete
    Replies
    1. It is improving ,as expected one year back .

      Delete
  4. Dear Sir, Excellent results announced by Patels Airtemp considering that it just the first quarter. Seems company will do much more than 112 crores in FY 16. Planning to buy more shares . What are your views ?

    ReplyDelete
    Replies
    1. During a period of overall poor business sentiment in core industries , company's result is commendable .

      Delete
  5. Nice article. Happy Independence day

    ReplyDelete
  6. Dear Sir,

    Wishing a very happy independence day to you and all your followers.

    May I join all other followers in praying to the almighty, to bless you to continue with this mission - to help all of us - small investors- as guiding light leading to economic freedom !

    And may the almighty bless all us - your followers - to not only read and understand the right advice, but to ACT accordingly.

    Warm Regards,

    Atul

    ReplyDelete
  7. thanks sir for sharing such nice information,
    I just want to know how many stock I can hold in my stock port folio???
    now in my portfolio 34 stock
    60% blue chip
    40% mid & small cap
    please guide me sir.

    ReplyDelete
    Replies
    1. Depends on each persons, no meaning in generalization.

      Delete
  8. Nice posting sir, very informative. Happy independence day to all the readers and vp sir....

    ReplyDelete
  9. Happy Independence Day to all Indians!
    Sir, what is your view on Tata steel, this is blue chip well managed company but down due to demand lower as well corus acquisition. Please provide your views, had sent earlier too

    ReplyDelete
    Replies
    1. Steel is a cyclical industry and now Chinese import creating lot of issues . It is expected to recover in long term , but one need enough patience .

      Delete
  10. Hi VP sir,
    My query is regarding aimco pesticides. Aimco is promoted by excel cropcare. Even excel cropcare is in the same line business of aimco. why should somebody promote same business in a different entity??

    If someone owns (Promoter) asian paints or berger paints, will they ever promote one more paint company. Instead they can concentrate on their own business only. Awaiting a reply...

    Thanks in advance

    Regards,
    chetan Biluve

    ReplyDelete
    Replies
    1. Aimco's initial promoters are not Excel . Old promoters are still running the company and Excel holding a strategic stake in it.Company is now planning to enhance its capacity . Agrochemical company's last quarter performance generally affected by adverse weather condition and Aimco is not an exception.

      Delete
  11. Hi VP Sir,

    Happy Independence day, Jai Hind.
    I saw one of your comment in FB stating IL&FS should be getting around 1000cr from ex group company satyam.
    Just for my understanding, when will this amount be transferred, is there any legal litigation on the same. Will it be one time payment or in some installment.

    and also your view on Godavari Drugs results.

    ReplyDelete
    Replies
    1. Please read the note no .6 of the foot note available with quarterly result announcement

      Delete
  12. Very nice post sir. Happy independence day to you and all your followers.

    ReplyDelete
  13. Sir
    What is your view on JBM auto after results.I think it is a good buy at this CMP as it corrected to great extent.
    Regards
    Upendra

    ReplyDelete
  14. Hi Sir,
    Happy Independence day....
    Nice article surly your great blogs are making us independent in stock market....

    ReplyDelete
  15. Wats happening with Polyplex. 10cr is exceptional loan to the subsidiary.
    I think investors are losing patience. What is your take?

    ReplyDelete
    Replies
    1. Already replied for same question below the previous posting .
      One general qn. If you are a person loosing patience why you still keeping this stock ? .It reached a level of Rs.327 just 10 days back which is an appreciation of 50 % in one year from recommended level . Why didn't take profit even at a decent appreciation or loosing patience is only when the stock come down and not when it going up :)

      Delete
  16. VP sir, It will be a great help if you could update on Liberty Shoes results and their plan to takeover 2 footwear business from group companies.
    It has been laggard since many months and we have not heard anything on it from you so this time seeking your valuable inputs on Liberty.
    Dscl - Holding since your recommendations.

    ReplyDelete
    Replies
    1. Don't expect every time a stock will move only up after our purchase. Consolidation is part of any move and the time period of each stage may vary from stock to stock. In case of merger of group companies , at present it is premature to comment anything about it even before they disclose the valuation..etc.

      Delete
  17. Dear Sir,
    Please comment on Pearl Electronics update, Board decided to invest 500 million in the areas of manufacturing of electronics goods etc.

    link: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/746AB197_9728_47DD_B1D2_A55292C5E2F3_114402.pdf

    Can we consider this update as important update.

    Thanks.

    ReplyDelete
    Replies
    1. In a bull market we will hear lot of positive news . Be choosy , otherwise we may get trapped once the mood of market change .

      Delete
    2. Sir honestly your reply is 1000% correct

      Delete
  18. Sir please please your view upon result of orchid chemical and pantalon fashion am holding since long need your guide please reply

    ReplyDelete
  19. sir, any idea when will real estate pick up?

    ReplyDelete
  20. Sir, What is your view on Kopran, after this quarter Result?

    ReplyDelete
    Replies
    1. Before posting queries please check whether the question with similar meaning answered in recent past ,which will help to avoid repetition and the save the time and effort of both of us. This same question answered below the previous posting . This is the reason questions of many readers not displayed .

      Delete
    2. Dear Valuepick,
      Please leave your views on Kaveri seed company..
      Positives about the company..
      1. Kaveri is operating in the area where huge opportunity is there. Technonogy is the only way forward for falling agriculture output. Being the leading seed producer, available attractively @ 12 P/E.
      2. Well established company, good brand name, good distribution network, debt free company.
      3. Mangaement - I do not know much about the management integrity.

      Since regulatory overhang is there always on seed companies, it may never quote @ very high P/E (more than 30; but i have a doubt regarding advanta. Even it has lot of debt on its books, it is quoting @ 50 P/E).

      Do you think current price play well in the long term.

      Regards,
      chetan Biluve

      Delete
    3. This stock suggested @ Rs.272 when its FV was Rs.10 . Later it splitted its FV to Rs.2 and reached a rate of Rs.1075 . Adjusted to stock split Rs.272 skyrocketed to Rs.5375 in 3 years . I suggested booking profit in a staggered manner upto 80 % and keep the rest as free of cost . Recently state government's started to implement price caps for seeds. Such restrictions may negatively affect market's interest in sector and result is lower P/E . Not suggesting any fresh entry till some clarity emerges in case of policies like this from the part of other states too.

      Delete
  21. I want to sought your advice on one of the respectable business of kerala :kitex garments .There has been some concern of 200 cr kept in a current account which has not been earning any interest .
    Is there any reason why a management will chose to do so or is it a serious red flag?
    Waiting eagerly for your inputs.

    ReplyDelete
  22. VP Sir Firstly thank you for all the valuable nuggets of investing. A query about your old favorite Kaveri seed...It seems to have cooled off quite a bit in the last Year... Has there been any fundamental changes that we need to watch out for... Or is it a chance to accumulate as a value pick

    ReplyDelete
  23. vp sir whats your view on lykis now....do you think it has a good prospect in near future

    thnx once again

    ReplyDelete
    Replies
    1. I don't think stock market will shut down in near future :)

      Delete
  24. Dear VP Sir

    Requesting your views on Q1 results of Precision electronics? The result is not that great but like what you said, I believe the company has a good chance to come up with good performance going fwd given the strength of its products / resolution of family disputes...Thanks

    ReplyDelete
    Replies
    1. More opportunities are emerging , success depends on the promoters ability ti utilise it.

      Delete
  25. Sir, Can you please share your views for NOCIL(48) and RICO AUTO(55) @CMP

    ReplyDelete
  26. Hello Sir

    Seems Pantaloon will face fierce competition from foreign brands..
    http://economictimes.indiatimes.com/industry/services/retail/malls-opt-for-global-brands-as-indian-brands-lifestyle-pantaloons-westside-have-outlived-utility/articleshow/48520734.cms

    sir ur view on this news pls...

    ReplyDelete
    Replies
    1. Competition is part and parcel of any business

      Delete
  27. Sir,

    Now a days negative sentiment is getting spread by few TV analyst about over all market and would like to know your views on it. Some are even giving alarming situations of bear market in 2016.

    ReplyDelete
    Replies
    1. Let us talk about companies and stocks , least interested about 'Market '

      Delete
  28. Arrow coated, Interseing investor ppt, truly innovative co with great growth potential. Thank you for showing this co to us.
    http://arrowcoated.com/Arrow_Coated_Investor_Presentation_Q1FY16.pdf

    ReplyDelete
  29. whats wrong to Amtek Auto correcting sir

    ReplyDelete
    Replies
    1. Not tracking any companies from Amtek Group

      Delete
  30. Replies
    1. In the present situation ,only for those willing to buy and forget

      Delete
  31. Helo vp sir.
    Plz share ur current view on aimco pesticide.

    ReplyDelete
    Replies
    1. Neither negative nor positive happened in recent times.

      Delete
  32. hi sir

    are u still tracking orchid.. cudnt find any views on orchid from u, except the recco in 2011...

    its showing improvement...... is it a worthwhile investment now

    ReplyDelete
  33. Sir ur view on shailey engg plastics and pennar industries

    ReplyDelete
    Replies
    1. Positive on Shaily Engg , not tracking Pennar Ind

      Delete
  34. Sir,
    I was studying about Pitti Lamination recently. I searched your site and saw that you had recommended it at Rs 42/- in 2011.
    It is at Rs 68/- are you still positive about it.
    Regards

    ReplyDelete
    Replies
    1. While checking the details of a company ,we should be very careful about all aspects . This stock recommended @ Rs.42 when its FV was Rs.10. Now its FV is Rs.5 ( Shares allotted in 2:1 ratio) which means stock already appreciated almost 3 times ,Neutral at CMP

      Delete
  35. Hi Sir, please give your view on BINANI INDUSTRY, ARCHIES.
    Thank you

    ReplyDelete
  36. Dear sir,
    What is your view on adani enterprises. I'm having 200 of it.
    Regards,
    U.Sundar

    ReplyDelete

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