Investment in Equity - Suggested Approach

At the outset, let me tell one and all – I’m not a soothsayer. I’ve been tracking the equity markets now for close to 2 decades and with every passing day, its more and more clear, that market is the king and one cannot fight the market. Accept the market as is and the possibility of hits will be more than the misses.

If you’re investing in equity, its understood that you’re open to risk (of price volatility , which is visible and emotional upheaval – which is not visible always.) and the monies invested in equity is not required for immediate needs ( We suggest that only monies wherein liquidity is not needed for more 2- 3 years should be invested in line with your risk profile ).

Creating wealth is always in the long run and this rings true for investment in direct equities. Have the rules changed. The basic rules have remained the same …. but the urge to make money grow faster, is gathering more speed than ever before.

So how does one go about constructing one’s equity portfolio in these times.

The investible surplus which one has is Rs. 10 lakhs ( it could be more or less ). Allocate 80% for long term investment and 20% for short term opportunities ( to take advantage of the price momentum ; sentiments). Set a return estimate and once its achieved, do re-visit and take action.

Have a Portfolio of not more than 7-10 stocks ( longterm). Make the investments gradually ( again there’s no thumb rule) over a period of 30-45 -60 days and understand why one’s making the purchase. The experts have their say and outlook. But when one invests, look at the basics:

• Industry which the company is in

• The prospects of the industry ( Growth – is it secular or cyclical / Monopoly or competition)

• Cash flow

• Dividend Yield

• P/E ( Price Equity)ratio

• PEG ( Price Equity Growth) ratio

Once the basics are taken care, believe in your picks ( but do not get emotional). The daily see –saw in prices should not trouble , as you’re in it for the long run.

Investing is not an IQ thing , but it’s the EQ which one has , which goes a long way in determining the number of zeros in your Portfolio .