 | « Back to article | Print this article |
The 7 'Ps' of investing in stocks
Get Ahead reader Dhananjay Banthia's stock market success mantras.
The understanding of the 7 Ps of marketing is imperative for every management student. Likewise the 7 Ps of stock market investing will give investors a deep insight into portfolio management and help them win over the volatile stock market.
Every game has got its own set of rules that have to be followed. Likewise investing in stocks also calls for few basic points that investors need to keep in mind in order to ensure they make a fortune.
1. Price
If you don't understand the importance of price then you have to pay a heavy price for it: Anonymous.
This rule is universal in stock market investment. We use price in two terms: Is it the right level to enter or exit the stock? Is it over valued or under valued at this level? Few basic indicators that can help you answer the above mentioned question would be: 52 week high and low, PE multiple, peers stock valuation, company fundamentals, overall market sentiment and news specific to the particular counter.
Secondly, value buying or growth buying involves asking questions like: are we betting on stocks that are on seventh heaven (growth stocks) or are we betting on stocks that have been beaten down (value stocks), but still we can see light at the end of the tunnel?
The 7 'Ps' of investing in stocks
2. Portfolio tracking
Track, else you will be out of track: Anonymous
It is a must kind of thing for those investing in stocks. Portfolio review exercise helps you do the re-balancing act. In case few stocks in your kitty are not able to deliver may be because of stock-specific news affecting those counters, then you can do the churning, and switch to better picks.
A monthly review is always called for given the current ping-pong movement in the capital markets.
Like entering at right price is important, the same way exiting at the right price is also called for.
The 7 'Ps' of investing in stocks
3. Profit booking
Set your goals, stop being greedy: Anonymous
Define your desired level of return from equity investment and book profit, rather than waiting for few extra bucks and then sitting on bench for indefinite period to reach the same point.
A return of 15 to 18 per cent over a span of one year is handsome. If stocks in your kitty touch these levels proportionally at any given point of time within a year of investment do exit if a situation calls for it (based on market sentiment). Do not wait for further uptrend as we may see profit booking or trend reversal happening.
The year 2008 was a perfect example. I saw people gaining 30 to 40 per cent still they kept on holding the portfolio for extra gains, and the rest is history.
The 7 'Ps' of investing in stocks
4. Professional recommendation
Before entering into any stock for investment purpose with a medium or long-term time horizon, do take professional advice. They can provide you a basket of options to choose from; a professional can provide you tailor made solution to suit your goals.
As per an old saying 'ask for suggestion from every corner and take your own decision'.
The 7 'Ps' of investing in stocks
5. Patience
It pays rich dividends. Equity investments do call for patience. In case the market goes through a rough phase, keep your calm. Fundamentally sound stocks will deliver handsome returns over a longer time horizon. Don't worry about the jerks that market gives if the stocks in your kitty are fundamentally rock solid.
They will bounce back for sure. Investing in stock market does have the potential to deliver better return vis a vis any other financial instruments. Keep holding fundamentally sound jewels; they will definitely bring you fortune.
The 7 'Ps' of investing in stocks
6. Priorities
Investing in stocks is all about priorities. I guess we all have seen the catchy line after every equity market investment ad that says, 'subject to market risk'. Equity as an avenue of investment can give handsome returns. Ensure your investments are made out of your opportunity money.
The real question is what is opportunity money. Simple: the answer to the same is money that is left over after fulfilling personal commitment and basic savings.
The 7 'Ps' of investing in stocks
7. Power to you
The Securities and Exchange Board of India, SEBI, have taken up various initiatives for investor right protection. Have an idea about dos and don'ts; it will help you protect yourself in case of any fraudulent practice by your broker.
Always ensure that you keep your stock in your own account, rather than keeping the same in the broker's pool account.
I hope these 7 Ps of investing in stocks prove informative to you and offer a solid pathway to follow in equity market.