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Three steps to building a profitable portfolio

Posted By: Admin

I was at a friend's place over dinner last week, while chatting he introduced me to his son who had just started working a year ago.. a fine young man, he seemed pretty smart and when my friend mentioned that my work is in the space of the investments, he also mentioned that his son had been trading in stocks ever since the start of the Pandemic. I was immediately transported to an era in my youth when the Harshad Mehta led boom seduced me to buy stocks just out of college.. to quite a disastrous result. Back to this dinner, as we started talking the son mentioned some pretty impressive names of companies he had been buying… since the markets have been pretty much on a one way rise since March end, it seems he has had a good experience. My friend wanted me to give him some tips about how his son may go about in the long run, the tips I shared are : In my opinion, we need 3 things to create wealth in the long run :

  1. We must have conviction in what we buy, don’t buy based on hearsay. Conviction means that if that Company or fund you are buying is suspended from trading for a year..still you are fundamentally a believer in their growth story ; To get conviction you must read and research every information about your portfolio. Your conviction will be tested when the value of your investment goes below your investment, what will you do ? sell your portfolio or buy more of the same.
  2. You must be prepared for the long term compounding and therefore be prepared to wait on your investments in the long term, nothing happens in the short term, in fact successful investing is about curbing your instinct to do something constantly to your portfolio other than adding; Of course if you believe that the fundamentals of the investment you are making have changed then you take a call of changing it, otherwise, just stay put.
  3. You must schedule a time periodically to assess your investment and learn from the outcomes and actions and course correct ( Only if needed). Many times people start something when they have a little time and then get busy with work and they don’t watch their portfolio for months / years together, then the results may not be as profitable.

So the mantra for successful portfolio creation could be summarized as Build your conviction on your investment; Stay invested for the long haul; & Review periodically (may be quarterly or half yearly). You will find that in a few years, you will have a decent portfolio for yourself and if left to work by itself can create massive wealth for you in the long term.

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