Despite the volatility associated with stock markets, equity investing offers immense potential to multiply wealth at a faster pace compared to all other asset classes. With careful stock selection, one can create a winning stock portfolio that has the potential to deliver 5-10 times returns or even more over a long-term period. Historical data proves that stocks like MRF, Eicher Motors, Wipro, Bajaj Finance, Infosys, Maruti Suzuki etc. have generated phenomenal returns over the last few decades.
Here are some valuable pointers which can help an investor to create a winning stock portfolio:
Define your investment goals clearly
This is one of the most primary steps to keep in mind while creating your stock portfolio. It is important to set well-defined goals. This will help not only help you in tracking the direction of your portfolio but also introspecting whether your investing strategy needs to be altered from time to time.
Invest in companies with a strong economic moat
Economic moat can be defined as a unique advantage which a company enjoys over its peers thus giving it a great ability to protect its market share and profitability. Unique advantages in the form of regulatory barriers or huge initial setup costs or exclusive patents etc. makes it difficult for its peers to replicate the company’s success thus creating an effective barrier. Companies with economic moats can generate multibagger returns for investors in the long run.
Diversify your portfolio adequately
Remember the golden adage "Never put all your eggs in one basket". This is very much relevant when it comes to equity investing, as one should adequately diversify their equity portfolio by investing in stocks of different companies and different sectors. Diversification reduces the risk, as underperformance of few sectors or stocks would not hamper the overall performance of your portfolio where other stocks are doing well.
Keep your risk appetite in mind
Opt for blend of aggressive as well as defensive stocks from different sectors on the basis of their fundamentals including management pedigree and scalability of business. While high beta and cyclical stocks are the ones that lead a bull phase run in a market, including defensive bets in your portfolio can help in creating wealth over time at a lower risk.
Rebalance your portfolio strategically when necessary
Invest and forget no longer works in today’s world of constantly changing dynamics. Certain stocks in your portfolio which may outperformed in the past may not continue to do if there is a sudden change in its fundamentals due to factors like intense competition, changes in regulations, financial mismanagement etc. Under such circumstances it is very critical to rebalance your portfolio by exiting such companies and investing in better opportunities available.
Bottom line
Creating a winning stock portfolio may appear a daunting task for many investors. The above pointers can help in making things easier for you. If still in doubt, don’t hesitate to seek expert help.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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