Stock market is one of the biggest wealth creators in India. It is the most popular investment option that provides ample opportunity to multiply your capital. There are number of ways or strategies through which you can do stock investment. The stock investment strategy varies from one person to another as it majorly depends upon your financial goals, risk appetite and investment horizon. In this article, we will walk you through the strategies that you can use while investing in stocks.
Stock Investment Strategies
- Invest in Business, Not Stocks
One of the important principles of stock investment is that you must invest in the business and not in stocks. This means that if a business is viable and has a bright future, the stock price will ultimately move up. You must avoid looking at the market trends and other noise and study the fundamentals of a company. Purchasing the stock of a company having a good business and whose probable future performance seems bright will help you in earning higher returns. This, however, requires research, long term commitment and patience to hold the stock for the long term.
- Be Passionate About What You Buy
When you make a stock market investment you must be passionate about the companies where you are putting your money. Being passionate here means that you must keep each and every information about the business of the company. This is because often the investors get trapped by buying stocks just by looking at the financial statements. Instead, you must conduct deep research about the various ratios like price to equity, debt to equity, EPS, etc. When you invest in companies by looking beyond the financials, you are likely to make higher returns and keep them for a long period in your portfolio. Thus, getting into the deep details of the company should be your mantra for stock market investment.
- Invest in Companies Whose Business You Understand
You must make the stock investment in those companies whose business you understand easily. To become a successful investor, you must be aware of the various activities of the company and sector in which you are investing. However, sometimes it might not be possible for you to get or understand each and every detail of the company. In such cases, as an investor, you have to factor that as uncertain risk. Moreover, value investors look for simple business model companies because in such companies even incompetent management cannot cause much harm to the business.
- Invest in Well Managed Companies
It is no secret that the market has always been harsh on companies that have poor management quality. Therefore, before making stock market investment, you must find companies that have a good set of management. Good management can do wonders for a company. There have been many cases in the past where investor’s stock market strategy has been to invest money in companies with good management and they have made huge profits in the long run. Good management always ignores the market value of a company and focuses on business growth.
- Ignore the Market Most of Times
When making the stock investment, you must ignore the market. This is because you are making an investment in the company and you will hold on to it until the fundamentals are good. The market may have a temporary effect on the price of the stock but in the long run stocks with strong fundamentals will give you good gains and help your portfolio grow. There would be times when there would be huge sell-off in the market and holding to the stocks during such period is the key to success.
- Diversify But Don’t Over Stress
It is a known fact that a diversified portfolio is the best portfolio. However, one should not overstress on diversification. This is because there can be a scenario in the market where only a few stocks are having a good run and adding them in large quantities would be against the diversification theory. In such situation, a value investor invests more money in stocks where the upside is obvious rather than keeping his capital idle.
Always maintain a consistent approach to be successful in the stock market. Investors always seek the best stocks to buy today and in the process forget to maintain discipline. You can build and maintain your portfolio well when you are consistent with the strategies, your financial goals and have the patience to hold stocks for the long term. Taking irrational decisions when the market is volatile can prove to be fatal and it is against the basic rule of investing in the stock market.
The above mentioned are a few strategies for investing in stocks. The best stock to buy today shall always be the one that successfully meets your research and analysis benchmarks. If you want any more assistance for stock investment, you can contact IndiaNivesh Ltd. We assist you in creating wealth through our customised solutions. We aim to exceed our client’s expectations in all endeavours.
Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."