Skip to main content

Dos and don'ts in stock picking

Srividhya Sivakumar

If you are an investor on the look out for undiscovered stocks with great growth prospects, be assured you are not the only one! With the stock market no longer predictable, chancing upon value buys in the current market is no more anybody's game. If the bull market that made us all feel like geniuses, remember that the same market, when in a downward or sideways mood, can make fools out of geniuses too. The point is though stock picking in this market is not impossible, it is not going to be easy either. You would have to exercise more caution and restraint.

Though there are no foolproof ways of stock picking, there are some dos and don'ts to help invest wisely. Here are some of them.

Stick to fundamentals

Remember to put money only in those stocks that you think are well-placed fundamentally. A company in a known business with reasonable financials is likely to provide better returns over the long term than one without a convincing business model or history.

Keep in mind that returns, in most cases, are commensurate with the risk you are willing to take. Hence, you would be better off keeping a moderate return expectation from your investments if you plan to stick to the safe bets (read fundamentally good stocks) in the market.

Do your own homework

Nobody can comprehend your investment needs relative to your risk tolerance better than yourself. Hence, it is advisable to do your own homework on any stock you plan to invest in, especially when the market appears volatile. Basing your investment decision on your broker or even a successful trader friend whom you consider the ultimate authority on the stock market, can prove to be costly at times.

Buy in instalments

Once you have identified a good stock to buy, it may also make sense to consider accumulating stocks in small lots, over a period.

Notwithstanding the short-term price fluctuations that can act against you, this strategy is likely to help mitigate the risk of buying stocks at a high price, thanks to the benefits of averaging your investment.

Furthermore, it would also ensure that at any point of time, you are left with cash to buy stocks when the market appears weak. Similarly, you can also consider pyramiding your profits on stocks when the stock price appreciates, that us, selling small lots at different prices.

Confront your fear of regret

If you regret not having invested in a particular stock (a multi-bagger now) that your friend or broker recommended in the past and feel compelled to do so in the latest recommendation from them, think twice. Investment decisions cannot be emotional ones. Moreover, markets always throw up opportunities to make money and, hence, an opportunity lost is certainly not the end.

Fear of regret can also creep in when you invest in a stock recommended by your friend, after which it tanks 50 per cent. This could prompt you to stay away from even good stocks that are recommended later on. Though stock markets are sentiment-driven, remember that it always pays to make informed decisions rather than emotional ones.

All said and done, these are only guidelines to assist you in picking the right stocks. At the end of the day, you need to put in sufficient efforts to make a well-informed investment decision.

Remember the old adage — "What's obvious is obviously wrong."

BEST REGARDS
BVRAO

Popular posts from this blog

Bio-fuel has top investors powered up

23RD ,JUNE India's fortune-hunters believe their new-found love for biofuel will pay off. India's well-known investors who are known for their Midas touch have spotted an opportunity in bio-fuel, betting big on ethanol, bio-mass and even bio-fuel equipment makers in India and other parts of the globe. Billionaires Rakesh Jhunjhunwala, C Sivasankaran, Vinod Khosla, founder of Sun Microsystems, and Nemish Shah, the media-shy joint partner of Enam Financial Services, are investing in bio-fuel makers quietly, expecting that bio-fuel will have a big play in the coming years as the world looks for a viable alternative to the fast depleting oil reserves. Jhunjhunwala, who is known for his ability to spot a multi-bagger at a very early stage, recently invested in Hyderabad-based bio-fuel firm Nandan Biometrics.He is also a 10 per cent stakeholder in Praj Industries, which is a bio-fuel technology provider…

up to 8,500% return in 5 years! Investors made a killing in these 30 smallcap stocks

U By Rahul Oberoi, ETMarkets.com | Updated: Dec 01, 2017, 04.06 PM IST Post a Comment
Efficiency pays in the long run. Among the top smallcap plays on Dalal Street, 30 companies with stable return on equity (RoE) and return on capital employed (RoCE) have surged up to 8,500 per cent over the past five years.

All these companies had a debt-to-equity ratio of less than 1 and have been maintaining RoE and RoCE of over 20 per cent since 2012-13.

Avanti Feeds emerged the chart topper, with an 8,527 per cent gain to Rs 2,596.60 as of November 28 from Rs 30.10 ..


ovember 28 from Rs 30.10 on November 27, 2012. The company’s return on equity for FY17, FY16, FY15, FY14 and FY13 stood at 42.65 per cent, 46.21 per cent, 52.41 per cent, 45.79 per cent and 27.60 per cent, respectively. Avanti also managed to achieve a return on capital employed of over 50 per cent in last four years. Its RoCE stood at 28.59 per cent inRoE measures net income earned for every rupee of shareholder funds, while…

5 dark-horse picks

Kwadrat/shutterstock.com Kwadrat/shutterstock.com
If you are a conservative investor, using the mutual fund route is the best way to invest in stocks. But if you are game for some excitement, you might want to dabble directly in stocks, especially small-cap stocks. Stocks that are smaller in size, in terms of market capitalisation, carry higher risk. The reasons are — one, lower traded volume increases price volatility, two, information is usually scarce on these companies, three, business risk is higher since many of these companies are dependent on a single product and four, governance risk is also higher in these stocks. That said, small-cap stocks have the capacity to deliver far greater returns when compared to large-cap stocks. Sample this: there were 16 stocks with market cap more than ₹50,000 crore in January 2009. These stocks delivered an average return of 138 per cent in the last eight years but 4 out of every 10 stocks in this group delivered negative returns. On the ot…