Tip No 4:

If you want to buy individual stocks then pick stocks that mirror the broader indexes, but never buy a single, or a handful of stock exposures. This means that you need to spread your risk across various market segments in the event a particular stock does not perform for reasons beyond the company’s control. It is easier to predict company earnings, but difficult to predict stock prices of the same company in the short run. Ironically, over the long term, stock prices mirror growth in a corporation’s earnings.

Tip No. 5:

Look at company earnings, not at stock prices. Stock prices may tempt or give the wrong impression of a company’s welfare. But to build real wealth in equities, you must always rely on declared profits and facts, rather than make decisions based on stock movements. We all tend to sell stocks when we have made profits and keep the ones that have not appreciated. Eventually, we end up holding a portfolio of companies that are not performing! It is only human to sell for profits and not to want to take losses.

Tip No 6:

Ideal would be to get rid of dud stocks and keep the ones which are growing. Takes courage to admit a mistake but can be done. Keep the winners, sell the losers. Stay on top of your investments. Check constantly for stocks that are not performing and eliminate them from your portfolio if the outlook does not seem promising. This way, you will have all winners left in your portfolio to take you to your goals. Don’t be the one holding worthless paper when the stock market falls.

Tip No 7:

Buy value and not momentum. When investing in stocks, your head should prevail over your heart. Avoid being the “Bigger Fool;” it is imperative that you recognize the difference between price and value. Ignore hot tips from dealers and friends. Do your own home work.

Tip No 8:

Pick stocks with your brain, not your emotions. Large-caps are the ones that have already proven themselves over longer periods of time and have the balance sheet acumen, strong cash flow and brains to manage businesses effectively according to prevailing situations and realistic opportunities available.

Tip No 9:

Invest in large-cap stocks and avoid small- and medium-caps. Investment in small and mid-cap stocks requires expertise and strong tracking abilities. Your portfolio will under-perform. Do not short sell a stock just because it is going up, and thus, one day it must come down. What goes up does not necessarily come back down! If companies are able to sustain earnings’ growth for long periods, then its stock may go up, up and up, or it can even remain high without any reason for a long period of time.

Tip No. 10

Here is a formula to avoid penny stocks and buy large cap stocks.

Let us say you have Rs. 10000 to invest. Now you, like everyone, want to get rich quick and increase your investment many fold. Most people think of buying a Rs. 10 stock hoping it will double and thus make them lot of money. I would suggest you buy 10 shares quoting at Rs. 1000. Now in your imagination reverse the figures and assume you have bought 1000 shares at Rs. 10. The chances of growth of a large cap stock are much much higher than a penny stock any day. This works for me, I hope you would try this rather than throwing your money down the drain on penny stocks.