how to diversify the stock portfolio with different sectors?

Many think the share market is a place to earn quick money. And some think a share market is a place where you lose your money very quickly. In some sort, both these statements can be considered true.

If you are wise enough to pick a good company at a reasonable valuation you can make money but if you are stuck up with a wrong bet and keep on holding you can lose your money. Direct Equity investment is a part of financial planning. And the same way financial planning is a continuous process, the same thing is with direct equity investments. You have to be vigilant all time when you invest in Direct Equity. If

  • You are able to give time to educate yourself about equity
  • If you are able to understand the risk-return relationship of equity
  • If you can control your emotions
  • And do not let your emotions intervene in dealing with the direct equity buying and selling process

then investing in shares can be fruitful to you and you can create wealth through it.

As far as I am considered you all know my style of investing. The style which I follow myself I always advise my clients to follow the same. I follow the one simple rule in Direct Investing is that I only invest in Bluechip Stocks. The stock which I pick is based on the following 3 simple things.

  1. I look for such company which is debt-free..(or negligible debt) and cash-rich
  2. I look for such a company whose business I understand. I know what is the basic line of business operation the company follows
  3. The company should show steady growth for years and have good profits on the balance sheet.

These are three fundamental criteria for my selection. Some more parameters I follow

  • The company should have a good number of employees (at least more than 10k)
  • No government intervention
  • The business is more of B2B instead of end customers being retailers.

Apart from this High PE/EPS ratio, the Goodwill of promoters, scalability of the business, Adaptability of changing business and technology, etc. should also be considered.

In last year’s bear market, I was searching for such stocks which were 51 weeks high in their valuation as in such truculent times if those stocks were in their highs it means serious investment was coming in.

One important thing I follow in Direct Equity is that I book my profits periodically. If I hit 35 to 40% profits in one stock I sell some part of that stock and re-enter that stock in dips.

In Direct Equity select only good businesses from large and mid-cap stocks for long-term wealth creation. You can select the top 5 sectors and, in those sectors, select the top 2/3 companies.

Sectors can be:

# Banking


# IT/ Technology


# Automobile

# Insurance

# Pharmaceuticals

# Consumer durables

You can purchase stocks in such companies when you find a fair valuation. Kindly follow the 65:35 ratio in mutual fund and direct stock investment.

Always remember :

As long as you control your anger and ego, you feel the sweetness in your relationships. Similarly, so long as you control your FEAR and GREED, you start getting success in Investing!!

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