How to choose the right stocks for your demat portfolio? Here are 10 crucial factors to help you decide | Mint (2024)

FAQs

How do I choose a good stock portfolio? ›

Stock selection doesn't have to be difficult, but you do need to be flexible. Look for markets that are moving but also be willing to hold off on a trade if the indicators aren't conveying a compelling setup. Consider going short as well as long. Finally, and perhaps most importantly, you need to be disciplined.

One must consider qualitative factors like a company's management effectiveness, competitive advantage, and potential catalysts to avoid value traps. Dividend investors often choose stocks with high dividend yields to invest in, but this method can result in holdings of unprofitable, stagnant companies.

Before purchasing or selling any stock, it is important that you consider the price and valuation of the stock. If the company is trading at PE multiples of less than 20, it is considered as undervalued and hence a good buy.

P/E Ratio – The P/E ratio is a calculation that evaluates a stocks relative performance and value. It is computed by dividing the stock's price by the company's per share earnings for the most recent four quarters.

A stock pick is when an analyst or investor uses a systematic form of analysis to conclude that a particular stock will make a good investment and, therefore, should be added to their portfolio.

Look for stocks trending in the direction you want to profit from (uptrend for buying, downtrend for short-selling). In the above stock, we spot the price is in an uptrend with higher highs and higher lows in conjunction with moving averages rising.

How to analyze a stock before buying? ›

One of the most common methods of analyzing stocks is to look at the P/E ratio, which compares a company's current stock price to its earnings per share. P/E is found by dividing the price of one share of a stock by its EPS. Generally, a lower P/E ratio is a good sign.

There are a few aspects to consider when you wish to determine whether a share is worth investing in. The company's fundamentals: Research the company's performance in the last five years, including figures like earnings per share, price to book ratio, price to earnings ratio, dividend, return on equity, etc.

A: Five rules drawn from Warren Buffett's wisdom for potentially building wealth include investing for the long term, staying informed, maintaining a competitive advantage, focusing on quality, and managing risk.

Although old-guard favorites such as American Express (AXP) and Coca-Cola (KO) still form the core of the portfolio, Buffett & Co. have taken a shine to names such as Apple (AAPL) and Amazon.com (AMZN), and even to lesser-known firms such as Nu Holdings (NU).

He looks at each company as a whole so he chooses stocks based solely on their overall potential as a company. Buffett doesn't seek capital gain by holding these stocks as a long-term play. He wants ownership in quality companies that are extremely capable of generating earnings.

A moderately aggressive strategy would contain 80% stocks to 20% cash and bonds. For moderate growth, keep 60% in stocks and 40% in cash and bonds. A good rule of thumb is to scale back the percentage of stocks in your portfolio and increase the percentage of high-quality bonds as you age.

Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.

A diversified portfolio should have a broad mix of investments. For years, many financial advisors recommended building a 60/40 portfolio, allocating 60% of capital to stocks and 40% to fixed-income investments such as bonds. Meanwhile, others have argued for more stock exposure, especially for younger investors.