Knowledge & Information is Key to Stock Picking

Here are 11 advises on strategically managing your stocks that lead to profit maximisation
Knowledge & Information is Key to Stock Picking
Knowledge & Information is Key to Stock Picking

Picking a value stock from the stock market bouquet is an art -a judgemental exercise, and a difficult task. More so, because the stock market is influenced more by emotions and sentiments, than by mere facts, with an eye on future business prospects. In fact, stock markets are forward-looking into the future. Investing in stocks indeed is an interesting and absorbing skill game, with a little bit of risk-taking capacity! Here I present my approach to stock picking, which might help a beginner and a small investor, especially in the cash segment.

The basic artillery - the resource : 

Study one or two business magazines, one or two business newspapers, listen to expert comments and business news, management views, and commentary on a particular stock with future plans and prospects on TV. For this purpose, I also suggest carefully listening to interviews of some financial and stock market Wizards, on TV shows. Such a resource provides enough ammunition to win the equity game! Mind you, for value picking of stock, information, and knowledge is the key. My stepwise approach to stock picking is as follows.

Stepwise approach to investing

1. Identifying market favourite sector(s) of the day: These days investor’s hot favourite sectors are Pharma, IT and Chemicals; and Metals, Cement & Sugar among the cyclical.

2. Adopt stock-specific approach: For the purpose of close monitoring and follow-up for 3-4 days, focus on a few stocks, say 5-6 stocks at a time, out of the current favourite sectors, for value stock picking.

3. Focus on promising stocks: Narrow down to 1-2 seemingly promising stocks, for investing. Invest in bits and pieces in a systematic investment mode, rather than investing in bulk hurriedly. Wait and watch for judgemental investing, for the long term, say for 2-3 years.

4. Keep track of the market: Keeping occasional track of the performance of your chosen stocks is important.

5. Buy and sell strategy: As a thumb rule, buy when everybody else seems to be dying to sell, and vice versa. I have mostly gained by this approach.

6. Keep patience: Do not bother with day to day volatility of your chosen stocks. It is normal!

7. Averaging: Indeed averaging the stock price is very important, but it is a two-edged sword. Done judiciously, averaging the stock price of a promising stock, should prove a boost and value addition. However, averaging weak stock, falling steadily, may quickly erode the real value of a stock. So, for a value stock, it is yes, while for a losing stock it must be avoided.

8. Profit booking: The ultimate aim of any stock market investor is to make money. Therefore, while right investing is an art, taking home profit ought to be far more a matter of concern, as the saying goes “ profit in banks is better than profit in books”. Consequently, keep on profit-booking in stock, as per your hypothetically set target price. The aim should be to carry a cost-freeholding, to the best possible extent, to avoid the risk of fear and sleepless nights, owing to seasonal ups and downs in the stock market.

9. Gradually expand your long-term portfolio: One’s portfolio should be manageably big, say up to 20 stocks. Neither too big nor too small a portfolio is desirable. While too big a portfolio becomes unwieldy and unmanageable, with too small a portfolio, we may miss the fruits for wood, adding to the risk as well. A reasonably big portfolio helps in better risk management with averaging effect. The objective of expanding the portfolio wisely could be best achieved by ploughing back wholly or partially some of the profits and dividends, for buying new stocks,out of your scanned list.

10. Keep reviewing your portfolio: Occasional reviewing of one’s portfolio, at least twice a year, in view of changing market scenario, should be a must. 

11. Care but do not wed a stock: Love your holding but don’t wed to stock, for good. Keeping in view market volatility and prevailing conditions, appropriate churning of one’s portfolio is not only essential but a must, to stay green.

One could earn and enjoy while playing in the stock market if one is alert and active with desirable information and knowledge. Pertinent information and basic knowledge of the stock market hold the key for coveted success in the otherwise risk-prone market, which is led and guided more by emotions and sentiments than by mere facts. Nevertheless, a small investor need not go for detailed research into the fundamentals and technicals of a stock. Leave it to experts, but do draw your own inferences from their commentary, for value picking of a particular stock. So, for success, be like a sportsman, and not a gambler, while investing in inequities. This is because stocks never follow a uniform trend and a pattern, for long.

The author is a Blogger and former employer with the Government of India

 DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.

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