Managing investments is a serious business. It can be a time-consuming task, because it requires intelligent planning, continuous monitoring and periodic adjustments. And it can be challenging, because it requires expert knowledge and experience. Equity investment does not provide you the luxury of sleeping over your investment just as would be possible in case of fixed income securities. Indian markets no longer work in isolation. You need to be very well aware of not only happenings of national interest but global issues which affect the future prosperity of your investment. Selecting stocks for one’s portfolio is only the beginning of the investment process. You need to review your valuation metrics to determine which stocks remain undervalued and which are approaching or have surpassed their fair value.

Enter The Stock Market When No One Dares

Warren Buffett says “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

• Don’t buy stocks recommended by brokerages or analysts without careful analysis.

• “The market is always right”.

• You can never be taught about market, you have to learn it by yourself from your experience.

• You must always balance fear and greed.

• Panic selling during a sharp fall is the worst thing to do

Top-down and bottom-up approaches

Before trying to understand the differences between top-down and bottom-up investing, remember that both of these approaches have the same goal - to find out great stocks. Top-down investing involves analyzing the ‘big picture’. Investors using this approach look at the economy and try to forecast which industry will generate the best returns. They then look for individual companies within the chosen industry and add the stock to their portfolios. For example, suppose you believe there will be a drop in interest rates. Using the top-down approach, you might determine that the home-building industry would benefit the most from the macroeconomic changes and then limit your search to the top companies in that industry.

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The risk/return trade-off

This is one of the basic principles in investing: Taking reasonable risks could result in higher long-term rates of returns. Equity shares promise higher rates of return over the long term. On the other hand, debt instruments offer more stable but lower returns. As an investor, you should be able to judge whether the perceived risk is worth taking in order to get the expected return and whether a higher return is possible for the same level of risk and vice versa. The only way you can do this is if you are aware of all the risks that you are up against. Here’s a list of the more common risks that are attached to investing in equity.

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A robust economy, impressive corporate earnings growth, relatively stable interest rates and the rising recognition of domestic companies in the overseas markets have made India a favorite investment destination for overseas fund managers.This is over and above the increasing interest among domestic institutional and individual investors, alike, for availing themselves of investment opportunities in this fast emerging financial market. Accordingly, the long-term prospects of the Indian stock market, which measures the pulse of the Indian economy, continue to be buoyant as almost all industrial sectors have been benefiting from the country’s economic growth.

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