Experience plays a major role in investing and so does discipline. Neelesh Surana, CIO, Mirae Asset Mutual Fund shares with Value Research analysts how some people fail to realize the thin line of difference between discipline and rigidity. The aim must be to construct a diversified portfolio, which could handle mistakes by not taking disproportionate calls on buying and selling of stocks.
Buying quality stocks is important, though this does not translate to buying them at unreasonable valuations. This means that pay attention to value stocks than growth stocks. The focus should be on buying quality stocks at reasonable prices, thus, aiding in satisfactory trading and investments. Surana explains how there are only vital aspects of investment decisions in any institutional format.
Stock picking
At an aggregate level, one generates more profits from selecting the right stocks than from making sectoral calls. Investors must focus on selecting stocks using the bottom-up approach in growth companies available at reasonable valuations. Most people who created or destroyed wealth in the past can be evaluated on three grounds
- Business selection
- Assessment of management
- Buying discipline
Checking these three basic buckets of finances is important to understand the “margin of safety” while buying shares and stocks.
Pay attention to diversification
An essential element of portfolio creation and diversification is to avoid making mistakes during stock selection and purchase. Also, all stocks, sectors, styles and themes must conform to the benchmarking movement, which means that none of them must diverge from the benchmark.
Surana quotes an analogy from boxing, “It is not about how hard you can hit, it’s about how hard you can get hit and keep moving forward.” This analogy explains how well diversified your portfolio must be. While mistakes in stock decision making and selection are inherent, it is important to create diversity in your portfolio that can handle mistakes while ensuring risk-adjusted returns.
Many people misconstrue the stock market as equivalent to gambling. This results in unwarranted and unwanted risk as not many investors study the fundamentals of the companies in the market nor assess the market movements influencing the stock prices.
Different investors have a different outlook and myriad investing styles. But it all boils down to one common need, i.e., prudent investment decisions.