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Monday, September 12, 2011

How to Manage your Equity Portfolio?

Investor with a long-term horizon should not be worried by volatile market movements and hold on to their positions. The current market correction has given a good opportunity for investors looking at building an equity portfolio.

Below are some significant aspects of building and managing an equity portfolio in these conditions:

Risk & Returns

It is very important to set realistic expectations from your equity investments. An investor's expectations of unrealistically high returns from the stock markets force him/her to take some irrational decisions where he/she will end up losing his/her hard-earned money.

It is important for you to understand your risk profile which depends on many individual factors like age, financial background, earning visibility and stability and family background. This also helps in taking decisions on picking the right set of stocks.

Equity investments should be a part of the total investment portfolio. You should also look at other instruments such as life insurance cover, medical insurance cover, investments in tax-saving instruments etc, apart from maintaining sufficient liquidity.

Picking Stocks

In the equity markets, stocks are categorised into sectors based on their business focus and industry. It is advisable to identify sectors whose outlook is good in the current market conditions. Look at diversification in terms of identifying more than one sector, and within a sector, selecting more than one stock to invest in.

An ideal equity portfolio will have 10-12 carefully selected stocks.

Do evaluate your equity portfolio on regular time intervals, this will help you to know whether stocks in your portfolio are meeting your expectations as compared to peers in the same sector in terms of QonQ as well as YonY growth, expansion plans, dividend payouts etc.

Stock Analysis

An analysis is very important before investing in any stock. This includes past performance of the stock with respect to market indices, outlook of the sector , management guidelines for the future on business/earnings visibility etc. An analysis is recommended even more for investors who are new in the markets and mostly rely on tips.

Analysis and questioning helps in increasing your understanding of stocks, and taking the right decisions based on your investment objectives and risk profile.

Stock Tips & Recommendations

Many investors rely on tips from analysts, stock brokers, and the media. Try to understand the basis of these recommendations rather than just following the advice. Discuss with other investors to identify stocks to invest in. This also helps in building knowledge about the market as well as stocks.

Due to the dynamic nature of the stock markets, it is very difficult for an individual to track and react to significant developments. Investors can share their views with others in the same community, various financial websites with discussion forums is a good platform to learn through interaction and be attentive to many significant market developments.