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Monday, March 23, 2009

Stock picking in turbulent markets

Over the last few months, the stock markets have been a rollercoaster ride. Investors saw the index go up with some positive developments and plummet at unexpected times. The risk-averse chose to keep away from the markets . Some others think it is the right time to buy more stocks. What are the strategies you need to adopt to pick stocks in this uncertain market climate?

Stock movements seldom adhere to logic. It is dependent on many intangible factors , emotional reactions and unpredictable events. This makes stock markets an extremely volatile investment platform. Hence, there is no single unfailing investment formula that will earn you profits. An investor's aim must be to build a good equity portfolio that will generate ample returns over the long term.

A common strategy of many investors is to pick good stocks trading at throw-away prices. They sell their picks immediately even for a small profit, when the index moves upwards. Upward and downward trends are common features of a turbulent market. This way you can churn profits in short timeframes. If your picks go wrong you could end up with a portfolio of worthless stocks. Stock markets must be considered long-term investment vehicles .

Comprehend the market cycles. In a typical business cycle, the health of a company transcends from expansion and growth towards a peak. A journey from peak to recession is inevitable in a business cycle. Investors, who understand a company and its business cycle well, will refrain from investing, if it is time for a cyclic downturn.

Interest rate hikes by the Reserve Bank of India can mean trouble for some sectors . Sectors like finance and utilities may face a turbulent future while healthcare and FMGC may not be so impacted.It is undeniable that equity investments carry with them higher risk. But through a judicious approach and well-planned strategy, investors can minimise their losses.

Here are two strategies:-

Growth investing:Here, investors select companies that can grow at a phenomenal pace. It is expected that this growth will directly translate into an increase in stock price. Investors must patiently wait for a long term before it is time to reap rich returns. Investor must also have a high threshold for risk.

Value investing:Investors purchase cheap and overlooked stocks that have been shunned by the markets. They hold on to it, till the market discovers the worth of those precious picks. The investor must wait patiently till the true value of the stock is realised.

Income investing:Income investors purchase good quality dividendpaying stocks. The price of these stocks generally does not fluctuate much. People with a low risk appetite and who seek regular income adopt this strategy.

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This blog does not share personal information with third parties nor do we store any information about your visit to this blog other than to analyze and optimize your content and reading experience through the use of cookies.You can turn off the use of cookies at anytime by changing your specific browser settings.This privacy policy is subject to change without notice and was last updated on 20.3.2013. If you have any questions, feel free to contact me directly here: Investment in equity shares has its own risks.Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that I consider reliable. I,however,do not vouch for the accuracy or the completeness thereof.This material is for personal information and am not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above.The stock price projections shown are not necessarily indicative of future price performance.The information herein, together with all estimates and forecasts, can change without notice.

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