Getting started with equity investments

Investing in stocks is an art that has to be mastered. There are certain basic rules that have to be followed for the investment to be successful. The first ting is to plan the amount of money or the percentage of money that has to be invested. This is the asset allocation plan. If you cannot scrutinize and follow the equity investment closely then it is better to invest in equity mutual funds than in individual stocks. There are ground rules which can help the novice in this field.

• The investor has to identify the type of investor he is. Whether he would like to be defensive or trade aggressively. Whether he would like investing in blue chip and stable business with regular dividends or companies that might become blue chip in the future. He has to identify his aim; value, growth, or both. Once these have been analyzed, he can go forward and buy shares of the appropriate companies.
• It is good to understand the business of the company you invest in. Verify credentials, earnings, turnovers, profits, growth, operations, performance in comparison to competitors etc. Check the company’s management and corporate governance adherence before investing. Study the balance sheets available through research reports. The important thing here is to understand price of the share and its value.
• It is always wise and safer to diversify. Better not to put all the eggs in the same basket. In equity investments, different perspectives have to be studied to form a macro outlook. There might be favorite sectors that you are comfortable in investing but there are good companies worth the investment in all types of sectors and widening the horizons would be profitable in the long run. Identify the best companies and invest.
• According to Warren Buffet you should not own something for ten years if you are not comfortable owning it for even ten minutes. Thus while investing in equity, plan for long term investment. While investing for short terms, investment is liable to be under the influence of fluctuating markets. Stick to your company during positive and negative movements of the stock prices. Pessimism, anxiety and rumors should be avoided at all costs.  Emotions should be kept at bay.
• Monitor and study the individual stocks and their companies in the equity portfolio that you build. Study and analyze earnings, profits and growth of the companies through this. Sometimes your choice of company might be wrong. Dispose off the shares as soon as possible and reinvest the money in a better and more profitable company. Don’t hold onto worthless stocks hoping that they would recover their status. You could be losing opportunities.
• Don’t hesitate in building a portfolio of potential stocks. The time and effort would be well spent since you will reap well deserved rewards. The investment in equity is a risky business but the returns are geometrically greater and hence the risks worth taking. The element of risks can be reduced drastically by monitoring and knowing what is being done. The investment of money, time and efforts would not go waste if equity finance is handled with discipline.