Wealth Guide: The last few years have been fascinating for equity investors. Even new investors are looking like the most seasoned Dalal Street pros. Slogans like Stocks Only Go Up and Buy the Dip were trending on social media and added to the hype. But, things won’t always look like this and could change sooner than many expect. Every second stock won’t be a multi-bagger, and generating alpha will require serious effort. To navigate this new world, retail investors of all skill levels should zoom out to reconsider their investing goals and sharpen their skills. Shiv Sharma, VP International and India Head of Stocktwits, shares a few fresh tips that could help:
Know Your Style
“Whether you’re a long-time investor or yet to open a Demat account, knowing your style is critical. This is not as easy to figure out as you may think. It requires reflecting on your own investing knowledge, time commitment levels, financial goals, and risk appetite. Once you answer the above questions, you can start crafting your own unique style,” advises Shiv Sharma.
“For example, let’s say you are genuinely long-term oriented and will not check your portfolio very often. In that case, you could build a diversified portfolio of mutual funds, blue chips, and a select allocation to higher risk areas like small caps, future tech winners, and crypto. Side note, the general “rule of thumb” for crypto portfolio allocation is often 1-5%,” he explained.
“Here’s another example, let’s say you are long-term oriented but are uncomfortable with the volatility. Maybe you are using the stock market profits to purchase a car or a home for your family. In this case, “position trading” could be a suitable style. In this case, you can still buy your favourite fundamentally strong stocks while setting clear sell rules to lock-in gains,” he further explained.
Become a well-rounded investor (i.e. find your gaps)
“Investing isn’t easy. You’ll often see experienced investors perform the most rigorous fundamental analysis and still go wrong. To get a stock pick right, one must understand macroeconomics, market psychology, fundamentals (i.e., industry & business dynamics, finance, valuation), and technical analysis (i.e., what the charts are saying). Great fundamental investors often get the stock call right but the timing wrong,” he suggested.
“The issue at hand is that most people, including top professionals and fin-fluencers (influencers who discuss investment topics on social media), are not strong in each of these areas. It is common to find a top IT equity investor consulting with macroeconomic-focused professionals or technical analysts to time their investment decisions better,” he added.
“Once you’ve selected your investment style and horizon, you should study which specific topics matter most to you. For example, if you’re a buy-and-hold investor, then studying the company’s fundamentals focusing on industry dynamics, the company’s moat, financials, and valuation would act as key drivers in your decision making,” he explained.
“Now, here comes the hard part. It’s not easy for busy part-time investors to start studying macroeconomics and valuation. However, the good news is that fin-fluencers are doing a phenomenal job of explaining these complex topics in simple, layman terms that are fun to learn on popular social media platforms where you are spending your time anyway. It won’t happen overnight, but once you trial-and-error your way to a set of fin-fluencers you connect with and share investing philosophies, you’ll find your knowledge slowly compound.”
Learn the basics (at least) of Technical Analysis
“Most people think technical analysis is only for professional full-time traders. This could not be farther from the truth. It is certainly true that fundamental analysis helps identify the right stock. But, technical analysis can guide you to higher probability entries and exits (i.e. when to buy or sell). For long-term investors, adding this layer of analysis to your process can significantly boost returns,” he said.
“So, why does technical analysis actually work? The reality is that large institutions (both domestic and foreign) move stocks. The pros always say that “the big institutions can’t hide their footprints”. They have incredible amounts of capital and it takes them months to build and reduce positions. Key technical indicators like volume and relative strength can give retail investors clues to what the big institutions are doing with their favorite stocks. As one would expect, owning stocks that are being “accumulated” by big institutions will yield higher returns,” he reasoned.
“These are a few tips to help you along in your investing journey. Either way, it will be a long but hopefully profitable journey. To support retail investors, platforms such as Stocktwits is focused on playing a key role in democratizing investing knowledge by building a transparent and centralized community of like-minded investors,” he concluded.
(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)