How to build a good portfolio of stocks?

Updated: Thursday, April 18, 2013, 14:51 [IST]

It's never easy to build a portfolio and if you ask folks, they would tell you it has taken years to build a solid portfolio. Take a look at a few things to keep in mind before building a portfolio.

Look at companies with strong track record

One of the main reasons why investors have lost money is that they have put money in companies promoted by individuals with no track record. Hence, it's always good to stick to companies that have had a proven track record.

Sound business models

Many companies that once formed a part of the Sensex are no longer a part of the Sensex, simply because their business models failed and they wound up business. Today, it's almost impossible to believe that a company like Hindustan Unilever or Larsen and Toubro could ever fail. Hence, look at companies with a sound business model.

Invest for the long term

Investing for the long term always pays. Ask shareholders of Infosys, Bajaj Auto, ICICI Bank, HDFC Bank or Reliance Industries. Shareholders who have stuck with these companies have generated good returns over the long term.

Don't chase stocks at any price

Many investors before the Lehman Brothers crisis chased stocks at any and every price. For example, people were ready to pay Rs 1200 for the DLF stock, which is today trading at just Rs 234. If, you are not able to understand market fundamentals, seek expert advise.

Diversify

Have a portfolio that is well diversified. Add to it stocks from beaten down sectors like infra and also from defensives like pharmaceuticals.

Evaluate your portfolio regularly

It's possible that certain companies in the portfolio could have been hit by regulatory hurdles, change in management etc. It's best to evaluate your portfolio and switch accordingly depending on the circumstances.

Creating a portfolio is all about patience and understanding. Do not expect overnight gains.

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