Direct Equity Investment is riskier compared to Mutual Funds investment. At the same time if you would like to beat the returns of Nifty then only Equity Investment is the way out. You can create your own portfolio by selecting 7-8 good stocks which can help you to beat the returns of index comprehensively. The Nifty return should be considered as the the benchmark to judge the performance of your portfolio. If you can’t beat Nifty returns then the best way is to buy NIFTY ETF. It will deliver returns of Nifty. Secondly, you need to decide whether you are an investor or a trader. As a trader, you should be on toes and identify momentum stocks for trading. The stock strategy is completely different for trading and investment. This post is relevant only for investors i.e. for medium to long term investment.
For successful Equity Investment, it is critical to select Right Stocks. As a thumb rule, i always suggest that you should invest only in assets with basic understanding and knowledge. For example, if you are investing in stocks then you should know what all factors impact stock movement. Moreover, you should have a basic knowledge of financial terms like P/E ratio, P/C Ratio, Moving Averages etc. These are some of the basic financial parameters which can help you to take right Equity Investment decisions. Even though you are taking a services of Stock Broker, but you can always discuss the reasons for particular stock selection. In last 10 years of my Equity Investment, i observed that there are some common blunders which you can avoid to beat the Nifty returns. I am highlighting these blunders in this post for the benefit of my readers.
It will not be an over-exaggeration that if you simply avoid PSU Stocks for Equity Investment then you can easily beat nifty returns. You need not go through trailing points. I am not saying that PSU Stocks deliver negative returns, but they are laggards. The best example is MMTC. Most of the PSU stocks are range bound like NTPC or Power Grid. From technical and fundamental analysis, these companies are best suited for any Equity Investment portfolio. Unfortunately, they don’t deliver good returns on the long-term basis and remain range bound. PSU Banks are grappling with NPA’s, therefore, underperform. Only exception i can think of is Coal India. Coal India has the monopoly in its domain but still the stock’s P/E is only 19.71 whereas in case of monopoly the P/E should be much higher.
News Driven Stocks
These stocks should be avoided by investors and best suited for traders. These stocks can give you short term pleasure provided you know when to enter and exit. The recent example is Sun TV. Some of the sectors which are news driven are Beverages, Fertilizers, Textile, Steel and to some extent Pharma. There are exceptions also, but i am only highlighting the broad sectors which are news driven. Equity Investment in any news driven stock should be completely avoided. It was quite shocking when recently stocks related to tea rallied 20%. When i checked the reason it was purely driven by news that there will be a drought in Kenya and Kenya may import tea from India. Barring news trigger these stocks rest peacefully throughout the year and become active only when some sector-specific news is out.
Equity Investment in stocks dependent on the regulatory framework is suicidal in nature. The best examples are Airline and Telecom Stocks. I and such stocks are not made for each other. Any adverse regulatory guideline can spoil your party. The performance of these stocks is dependent on regulatory approval. In India, Regulator works more as a social regulator rather neutral regulator. I agree that the regulator should keep a check on cartels but should also address business concerns. For example, worldwide airlines are allowed to charge for handbags but recently regulator denied permission to airlines in India. In my opinion, regulatory stocks should be skipped from your Equity Investment portfolio.
Replicate Big Bulls
I don’t want to name anyone but investors blindly follow some well known names for Equity Investment. In my opinion, it is another blunder. Best examples are Aptech and Edelweiss. One of the well-known investor invested in both these stocks and both are consistently under performing. You should go by your judgement rather judgement of others. Investors lost their money by adopting Me To approach. In past, i also burnt my hands by investing in such stocks :). Any such mistakes made me wiser. I ignore any such news for Equity Investment.
I love my Stock / Equity Investment
I have covered this point in detail in my post Why it is imp to book profits in Stock Market?. Like the job, you should never love your stock. You never know when your stock will stop loving you.
In my opinion, Failure to trigger Stop Loss is another big culprit for the loss in the stock market. As a thumb rule, you should always protect your profit or loss through Stop Loss. I personally trigger stop loss when there is a loss of 10%. In case of profit, you should trigger the trail stop loss of 10% from current stock price. You can exit and then enter again at lower levels to cover the loss in Equity Investment.
Evaluate your Equity Investment
Last but not the least, Equity Investment require more frequent evaluation compared to the mutual fund. Reason being, a single trigger can make or break the fortune of your Equity Investment. An external trigger override the fundamental and technical analysis. Recently, the Yes Bank stock which was darling of all investors collapsed after a downgrade from UBS. Therefore, you should always keep a watch on such triggers and churn your portfolio accordingly.
Concluding Remarks: I follow above-mentioned learning’s religiously in a constant endeavor to beat the returns of Nifty. This post is purely based on my personal learning’s. Out of all the stocks mentioned by me in the post, currently i have an investment in Coal India.
Disclaimer: The objective of this post is only to create an awareness.and educating investors about the Subject matter. The views and opinion expressed on this website are my personal views and is NOT an investment advice/Stock Tips whether to buy, sell or hold the shares of a particular stock. All investors are advised to consult their investment adviser and/or conduct their own independent research into an individual stocks before making any decision. I am not responsible for any loss or implications arising out of any decision taken by the readers after reading my post.
Copyright © Nitin Bhatia. All Rights Reserved.
Share this Post: