There is a long list to build a successful Portfolio but, as a general rule, you should consider six things which are most important while building a portfolio that can help you and your family to build capital, generate earnings upon which you live and leave a legacy for your children and grandchildren.
The Specifics of how you implement each point will differ based on your own personal situation. These are the 6 things you should look out for:
1.HAVING A CLEAR OBJECTIVE OF YOUR INVESTMENT PORTFOLIO
When you want to invest, you should have a clearly defined objective. By objective I mean an investor should know what he should expect from an investment
. In the initial posts, we had touched upon goals and principles of an investor. If you don’t know about your objective of a buying an investment it would be like a rudderless ship at sea, with no direction and purpose. That’s a terrible situation you find yourself when you are nearing retirement.
2.CREATE & FOLLOW THE CHOSEN PHILOSOPHY
In Be an early bird Investor article
, we have talked about the philosophy of why is it important to have one. Even the investment legends like Benjamin Graham, Warren Buffet, Philip Fisher
followed different styles of investing. They integrated their investment ideas into investing style which led to investment philosophy. One of the approaches by Philip Fisher in his book “Common Stocks and Uncommon Profits” was “SCUTTLEBUTT APPROACH”. Having a philosophy will help you in making a disciplined and right investing.
4.KEEPING AN INVESTMENT AMOUNT TO MINIMUM
Being a fresher in the market, it will be foolish putting all your money into one investment. Instead allocating a part into diversified funds would be a better option. If you are taking Equity as one of the options then invest only 30%-40% of your corpus.
As said by Warren Buffet in his quote, “Never invest in a business you can’t understand”,
Invest only in that business that you understand and you can hold more time. This will help in growing your capital. With that capital formed as investment start reinvesting in equities itself.
The rest 60%-70% of the corpus should be diversified elsewhere such as Mutual Funds, Real Estate, Fixed Income Products.
4.CONTROLLING COSTS BY KEEPING INVESTMENT EXPENSES LOW
Every Rupee an investor gives for fees, brokerage, commission, entry load fees is a rupee that cant be compounded for the investor. Small Amounts would end up costing loads of money at the end of the year which cannot be recovered.
5.NEVER OVERPAY FOR AN ASSET
No investor would like to give away extra funds for what they are buying. An investor should always look out for worth for what they are paying. The next big consideration should be the valuation of the company.
The investor should look out for undervalued stocks but still perform exceptionally well in terms of revenue, earnings and margins. As the saying goes, “Buy on Dips, sell on rallies”, an investor should keep a check on stocks which are in correction mode and buy them when they are at low. When we say overpaying for an asset it means to check the intrinsic value
and market price of the stock. When the intrinsic Value is less than the Market Price, that’s the correct time to enter the market.
6.DON'T RELY ON SINGLE STOCK
It would be a silly thing to do when you put your money unless you are good at a business, could suffer a total loss of principal amount, and have a thorough understanding of the enterprise There is no reason to put in all money unless you are very good at understanding business. The best portfolio would be one which is small but well diversified, it is unaffected by the breakdown of the market or even when the single company goes bankrupt or cuts down on dividends. The idea of diversifying the portfolio is to get monthly, quarterly or yearly returns on the portfolio.