DISCLAIMER (PLEASE READ THIS BEFORE YOU SCROLL DOWN TO THE MAIN CONTENT)
This post here does not serve as an investment advice, and is not a recommendation to buy or sell. Please do your own homework before starting any form of investment. Use the content at your own risk. I do not own the pictures and screenshots taken from different source of website, and the illustration attached are purely for education purpose.
HOW TO BUILD YOUR PORTFOLIO?
“I want to invest in stocks.”
“But, I do not know how to choose stocks, nor build a portfolio…”
“I heard people tell me to buy tech stocks, confirm guarantee return?”
In fact, this is the same problem that many people faced.
Knowing investing is essential for wealth accumulation, but lack of either the right knowledge, platform, people, time or interest to do so.
I know how tough it is. Seriously. But trust me, the only hardest step is to get the first step right.
Back when I started off, I know nothing about finance and stock market.
I learned through the hard way, paid my tuition fees, and build my own portfolio brick by brick.
That’s why, I want to share some as simple as ABC tips with all to kickstart with from my personal experience!
THE FIVE SIMPLE SELECTION RULE
WARNING! PLEASE DO YOUR OWN DILIGENCE WHEN IT COMES TO ANALYSIS OF COMPANIES!
1. List down companies you are interested and familiar with
Most people that lost their money in the stock market are because they are not familiar of what they are buying.
Without knowing what you are doing, you are throwing yourself into the greatest uncertainty risk.
People say high risk high return. That’s true to a certain extent.
But did they also tell you to cut down on unnecessary risk?
Invest only in companies that you have faith in their future.
Invest only in companies that you are familiar with what they are dong.
List down the top companies you are interested, let’s say start off with 20.
Of course, there are so many companies worth buying out there.
Pick only those you will feel proud of becoming their business owner.
Once you are done, let’s move on to step 2.
2. Perform fundamental analysis on the list of companies
Fundamentally speaking, a company fundamental strengths are financial strengths.
To perform fundamental analysis , is to analyse a company’s financial situation.
You can do so easily with a lot of free online financial websites:
Just to name a few above. Obviously, there are more out there.
So, what are the things you should analyse? Three things:
Balance sheet, Income statement, Cashflow statement
With some basic financial knowledge, you can tell how well the company is performing, financially.
A few quick questions to note will be as follows:
Are they making money already? Or are they still in net loss?
Are they borrowing too much money? Too much debts?
Are they willing to pay dividends for their investors?
Are they re-investing their money to grow their business?
Are they doing better as the years go by?
On the other hand, we can also take a look into their earning release every quarter.
Note how their earning per shares (EPS) and revenue are doing.
With all the analysis, rule out the companies that are poor in fundamentals, and focus now only on companies with strong fundamentals.
If the company has a solid economic moat, monopoly/oligopoly, market leader in their field, congratulations.
If within your stock lists, there are companies which behave as peer competitors, make a decision on whether to own both of the companies, or to go for the number one choice.
3. Diversify your risk by investing in different categories
There’s a saying goes for Rule #1 in Portfolio Management:
Never put all eggs in one basket.
First step, you have diversified your portfolio with different stocks.
Now, you have narrow down your list of companies.
Let’s think one step deeper… Are all the stocks you have chosen in the same sector field, or are they fundamentally different?
For example, do you have a basket of companies that covers healthcare, technology, real estate, industrials, consumer staples etc.
Yes, second step is to ensure your basket of stocks, are well diversified out of different businesses too!
For even further diversification, think about diversification across different countries too!
4. Identify your target returns and plan your portfolio allocation
By now, you should have a refined list of companies that you have a strong urge and desire to own them.
These are the companies that will help you make your dreams come true.
So the next question is, what is the return you are aiming for?
Is it 10%? 20%? 30%? Or even more?
Verify whether your goals are achievable with the basket of stocks you have.
Then, size your position (allocation of your investment fund) accordingly.
An example on portfolio dissection, to analyse the allocation in different sectors, markets, to balance out unnecessary risk and achieve targeted returns.
High risk high return takes a play here.
If you demand for a higher return, you will often need to invest more in stocks that are more volatile.
In other words, higher growth in stock price, but potentially stronger falls also when it goes down.
Here, you define your risk appetite, your goals, and the percentage of money you need to put into each of these companies.
5. Establish an investment strategy and stick with it!
There’s simply no one-size-fits-all strategy.
Define your own investment strategy, and be disciplined about it.
The key idea here, is to establish your most comfortable way of investing.
Challenge it. See how it performs. Re-optimize your strategy.
Once it is performing well, stick with it with your dear life.
Also, think of investing in the long term, but not the short term.
In the long run, investments are of 100% profitable when you invest in the right companies.
Wait a minute, I feel like knowing more about it.
Recently, I have been dissecting multiple people portfolios.
I will be giving suggestions on the choice of companies, time of getting in the market, sizing of positions, feedbacks on target portfolio allocation etc.
Sharing my knowledge with people, so that everyone can have their basic capability to invest in their own terms too!
Now, I would like to share it with you.
You can do so now for absolutely FREE.
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Looking forward to see you soon.
Great blog post. Really looking forward to read more. Want more. Janeva Lek Dunc