Investors, who wish to earn profits by trading in stocks, understand the importance of building a healthy stock portfolio. Portfolio is all about picking up the right share at the right time. Only those who know the rules of the investment game understand the importance of each component of the portfolio. Perfection in trading shares is an ongoing process, with no stoppage to learning. Safety of the capital first and profitability next is the goal of a prudent investor.
In investing, there is no escape from the fundamentals. But the fast changing conditions in the market demand change in strategy and tactics. Some of the issues that concern an investor are:
- Abjure the inclination to trade more than what you can afford. That is to say, do not cross the limit that you have earmarked for stock investment. You have other priorities too in life.
- Interpret the market to the best of your ability and judgment. Never develop the feeling that you can outsmart the market. Market has the history of beating the best of investing brains. Avoid rash predictions.
- What really matters is the long-term results. Let not the multitudes of changes, and small-time volatilities upset you.
- Provide stop-loss limits to each and every share in the portfolio. A sterling performance over the years of a particular share is no guarantee to its ongoing success. Though you have engaged a broker to take care of your portfolio, develop the habit of reviewing the performance of each company from your own sources once in a quarter. Demand and get the balance sheet of the companies that you are interested in and have a close look at their quarterly performances.
- Stick to your system. However, this is not to say that you need to stay rigid. When you consider that the changes are necessary, it is necessary to change. But when the changes are not necessary, it is necessary not to change.
- One muffled drum can spoil the symphony of the entire orchestra. One continuously sliding share may affect your portfolio adversely. Do not develop emotional attachment to a particular company. When you reach the stop loss limit, act upon and substitute the share with a better alternative. Partial loss is better than the total loss. Investors need to curb the waves of their hearts. You are into a serious financial business and your intention is to earn profits.
- If you are into the forex trade, most of the time your broker may be right. Do not bother him with uncalled for advice. The trade in this area is too complicated for a layman to understand.
- Your inclination may be to make fast profits in the stock exchange. At the same time, give a serious consideration to the aspect of your capacity to stomach the risks. Be specific about your goals, short term/long term. Segregate your plans with reference to the time devolved on each, and set the time-table of your financial goals in shaping the portfolio accordingly. Create a model mix, for a balanced portfolio.
Your success in building a profit-yielding stocks portfolio depends on your ability to follow the ground rules, not carried away by the intense pressure of tips floating in the market that promise you the art of doubling the money. It has never been so, and it will never be so. Trading in stock market is not gambling. The business character of the brokers and the investors may have undergone changes with the internet revolution. But the basic characteristics of the stock exchange have remained the same, and it is impossible to fox the mode of functioning of the market.
Two forces in the stock exchange govern your money. Your broker and your fate! There is no sure-fire winner in the market or a certain loser. Strive to become a balanced gainer!
