If you are an investor in the Stock Market then this article is for you!
Each and every investor on his own is also a portfolio manager. I mean, you are managing your own portfolio, right?
Now the question is. Are you doing it in the right manner?
Try and answer the following questions and you’ll know.
Question 1: Have you diversified optimally?
Diversified optimally means to diversify sufficiently, in a most favorable manner. It shouldn’t be excess that you feel exhausted by it, like holding 30, 40, or even over 50 companies in your portfolio. You’ll sometimes forget that you owned the company in the first place. I mean, That’s messed up!
And, it shouldn’t be too much less than needed like holding below 10 companies, it’s when the sheer purpose of diversification is not achieved.
Why do we diversify? Cause we do not know the actual risk involved. The real risk! We just want to reduce the volatility (you know, the ups and down) and to have a structured portfolio that is stable and well spread out amongst different companies.
So, Diversify your portfolio!
Question 2: How’s your weightage for each company?
Wait! What does weightage mean?
Weightage is nothing but, What part of your portfolio is allocated to one particular company. Now, this is very important! Because here you are doing the real risk-return analysis. Here you are strategically thinking that “How much should I invest in this company before it starts becoming a burden in my portfolio”
Now, you may think that companies such as HDFC, Reliance, or DMART cannot become a burden. But, if those companies are actually pulling your portfolio return down. Then you’ll feel odd about it. Right?
So, give importance to the weightage a company can and should hold in your portfolio.
Question 3: Have you invested in all the major sectors?
Sectors such as Banking, FMCG, Infrastructure, Pharmaceuticals, IT/Technology, and others have high growth potential.
So, check whether your portfolio consists of companies from any of the above-mentioned sectors.
After reading this article. Go to your portfolio and list down all the sectors you have touched. Comment below!
Now, Don’t worry if you haven’t touched any particular sector. That’s fine as long as the sectors you are investing in are giving better results.
Now, the 4th and final point. And, I’m sure All of you are familiar with this
Question 4: How do you handle a losing stock as opposed to a winning stock?
Usually, our first action will be to cut down on the losing stocks and hold on to the winning stocks. But, is that all it?
What if the market itself is quoting the price wrong?? What if the time for your company has not yet come and you prematurely sell it out?
In such a case, there’s no 1 right way or one right answer!
All you can do while either buying or selling any company is, Do it in various tranches. Various segments.
Like invest 50% of the amount immediately, then 30% on the next day or so, and then the balance 20% on some later days. The same goes for selling! This way, you get to average in your buy and sell calls. And, it also gives you time to think if what you are doing is right!
Like giving yourself time to re-verify your decision.
So, these are the 4 points to be remembered by you as a portfolio manager.
For more information in regards to Portfolio management, click here!
Remember the below-mentioned points next time you try to restructure your portfolio;
- Diversify your portfolio.
- Give importance to the weightage a company should hold in your portfolio.
- Invest in all the major sectors.
- Re-verify your decision by taking action on a part basis.
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