Saturday, June 20, 2015


 Courtesy : Investopedia

Investing is actually pretty simple; you're basically putting your money to work for you so that you don't have to take a second job, or work overtime hours to increase your earning potential. There are many different ways to make an investment, such as stocks, bonds, mutual funds or real estate, and they don't always require a large sum of money to start.

Step 1: Get Your Finances In Order

Jumping into investing without first examining your finances is like jumping into the deep end of the pool without knowing how to swim. On top of the cost of living, payments to outstanding credit card balances and loans can eat into the amount of money left to invest. Luckily, investing doesn't require a significant sum to start. Gain more insight in Invest On A Shoestring Budget and Should I Invest Or Reduce Debt?.

Step 2: Learn The Basics

You don't need to be a financial expert to invest, but you do need to learn some basic terminology so that you are better equipped to make informed decisions. Learn the differences between stocks, bonds, mutual funds and certificates of deposit (CDs). You should also learn financial theories such as portfolio optimization, diversification and market efficiency. Reading books written by successful investors such as Warren Buffett ..etc  are great starting points. 

Step 3: Set Goals

Once you have established your investing budget and have learned the basics, it's time to set your investing goal. Even though all investors are trying to make money, each one comes from a diverse background and has different needs. Safety of capital, income and capital appreciation are some factors to consider; what is best for you will depend on your age, position in life and personal circumstances. A 35-year-old business executive and a 75-year-old widow will have very different needs.

Step 4: Determine Your Risk Tolerance

Would a significant drop in your overall investment value make you weak in the knees? Before deciding on which investments are right for you, you need to know how much risk you are willing to assume. Do you love fast cars and the thrill of a risk, or do you prefer reading in your hammock while enjoying the safety of your backyard? Your risk tolerance will vary according to your age, income requirements and financial goals. 

Step 5: Find Your Investing Style

Now that you know your risk tolerance and goals, what is your investing style? Many first-time investors will find that their goals and risk tolerance will often not match up. For example, if you love fast cars but are looking for safety of capital, you're better off taking a more conservative approach to investing. Conservative investors will generally invest 70-75% of their money in low-risk, fixed-income securities such as Treasury bills, with 15-20% dedicated to blue chip equities. On the other hand, very aggressive investors will generally invest 80-100% of their money in equities.

Step 6: Learn The Costs

It is equally important to learn the costs of investing, as certain costs can cut into your investment returns. As a whole, passive investing strategies tend to have lower fees than active investing strategies such as trading stocks. Stock brokers charge commissions. For investors starting out with a smaller investment, a discount broker is probably a better choice because they charge a reduced commission. On the other hand, if you are purchasing mutual funds, keep in mind that funds charge various management fees, which is the cost of operating the fund, and some funds charge load fees.

Step 7: Find A Broker Or Advisor

The type of advisor that is right for you depends on the amount of time you are willing to spend on your investments and your risk tolerance. Choosing a financial advisor is a big decision. Factors to consider include their reputation and performance, what designations they hold, how much they plan on communicating with you and what additional services they can offer. 

Step 8: Choose Investments

Now comes the fun part: choosing the investments that will become a part of your investment portfolio. If you have a conservative investment style, your portfolio should consist mainly of low-risk, income-producing securities such as federal bonds and money market funds. Key concepts here are asset allocation and diversification. In asset allocation, you are balancing risk and reward by dividing your money between the three asset classes: equities, fixed-income and cash. By diversifying among different asset classes, you avoid the issues associated with putting all of your eggs in one basket. 

Step 9: Keep Emotions At Bay

Don't let fear or greed limit your returns or inflate your losses. Expect short-term fluctuations in your overall portfolio value. As a long-term investor, these short-term movements should not cause panic. Greed can lead an investor to hold on to a position too long in the hope of an even higher price – even if it falls. Fear can cause an investor to sell an investment too early, or prevent an investor from selling a loser. If your portfolio is keeping you awake at night, it might be best to reconsider your risk tolerance and adopt a more conservative approach. 

Step 10: Review and Adjust

The final step in your investing journey is reviewing your portfolio. Once you've established an asset-allocation strategy, you may find that your asset weightings have changed over the course of the year. Why? The market value of the various securities within your portfolio has changed. This can be modified easily through re-balancing. 


  1. Dhananjay BaranwalJune 20, 2015 at 6:44 AM

    very Informative Article.Every Saturday we wait for this type of article.VP Sir You are really Great.

  2. Sir good article for small investors

  3. Fantastic article sir... Thank you for great work....

  4. very nice and informative article for the investors community as a whole

  5. Sir pls give your views on Gulf Oil Lubricants.

  6. You are always inspirational for retail investors....

  7. Hi Sir, Hats off to you for coming up with such knowledgeable post which help one realize and understand how to invest, wanted ur view on Premier Explosive at CMP if one considers to invest in it and also on Adlabs Entertainment....Thanks a lot and having patience with all followers of this Blog

  8. Dear VP sir

    Would request your views on Kabra Extrusion Technik, Mangalam Drugs, Haldyn glass and JK tyres (Q4 results offers great hope, I believe). Also the market correction is making some of these stocks attractive in my humble opinion. Thank you


  9. Sir pls give your views on KEI Industries and KEC international.

  10. Dear Value Pick
    It is very useful for small investor,courageous to be long term investor..

  11. Plz share your review on Dena Bank..?

    1. Not tracking any of the above mentioned stocks

  12. Dear VP ,
    Thanks for the useful info. I keep reading your bog regularly as and when there is update from you and your readers. I benefited a lot from your write ups and readers inputs. I am long term investor.
    1) I generally keep my investment on companies from 1 year to many years. Minimum I will keep my investment for a year in all my investment (I will exist before 1 year only if I see something seriously wrong with the company). When I get 100 % return I take out 50 % of my money out and keep the remaining money in the Co as long as company is doing well. Each investor may have different risk strategies, but in general is it good idea to book partial profit?
    2) If there is no change is company performance growth /sector, if co share price falls 40 % or more over few months, it is good idea to average? Can you give your general opinion on averaging?


  13. Hi VP,

    Do you track palred technologies or kellton technologies. Both looks to be aggressively growing in the small cap IT space. Please share your views if you track them.


  14. Respected Sir,

    Please share ur views on Ajanta Pharma & Tata Elexi at CMP.Can I consider buying it for long term.

  15. Not strictly tracking above stocks



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