Chapter 1 : Creating Stock Portfolio

The first step for any value investor is creation of stock portfolio.

Many new investors choose stocks of 15 to 20 companies from 5 to 6 sectors for building their Stock Portfolio. That means choosing three to four companies from each sector.

Over 6000 companies are listed on Stock Market. Selecting 20 stocks from these listed companies requires good knowledge about the selected company, its business model & Company’s Management. Even after taking all precautions, any fake news or rumor about the company may destroy your wealth.

How can you safeguard your Money Invested?

Let’s take the example of LIC or insurance company or Mutual Funds. All the premiums paid by the retail customers in LIC or insurance companies are invested in stocks.

How many stocks do they buy ? How do they manage their funds?

LIC is holding stocks from over 400 companies. As everyone is aware that LIC is running their business since inception and never went bankrupt. LIC is known for it high settlement percentage and providing high returns on investment of the retail customers. The Mantra of LIC is to invest in a good number of companies to increase it’s returns.

Investing in large number of companies will reduce your risk. But you may be wondering this strategy will also reduce your profit percentage. The Success Mantra of Stock Market Investment is safeguarding your funds is more important than earning profits.

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1” – Warren Buffett

I strongly suggest you to invest in a good number of stocks, at least 100 companies should be in your portfolio. That means the value of investment in any company will be less than 1%, and due to any unforeseen circumstances if few companies in your portfolio under perform also it doesn’t create any Big Dent in your portfolio.

Cash percentage in your portfolio

No one can predict what can happen with stock market tomorrow. Market corrections are quite common in almost every year, even Large Cap companies are not an exception. So it is always advisable to maintain fine cash balance at hand. The Cash Balance helps you increase your returns when the market corrections happen.

Lumpsum Investment : It is always better to maintain 3:1, equity – cash portfolio. That means for every Rs. 100, you should invest Rs. 75 in stocks and Rs. 25 as cash.

SIP Investment : Once you invested as lumpsum, every month you need to invest as SIP (Smart Investment Plan) to maximize your gains and explore the power of compounding.


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