HOW TO AVOID LOSSES PICKING STOCKS?

Stock picking is a difficult game. We pick stocks and they go down the next day. We avoid a
stock and that shoots up 10% in 2 days; doubles right in front of us in 6 months. So what do you
do? Shun away from all stock picking altogether? Of course no. Here are some of the rules,
following which you can avoid losses in your stock portfolio. I am no valuation expert so the
practices I am about to mention are have more to do with common sense than financial
wizardry. Here goes:
1. Diversify. No matter how sure you are about a stock and how much cash you are sitting
on, do not invest more than 20% of your portfolio into a single stock. This will
automatically mean that you have 7-8 stocks in your portfolio which means a single
stock will not drag down your entire portfolio. However, it is important to strike a balance.
As a retail investor with a day job, it will be difficult to follow 20-30 companies. Hence
keep your portfolio limited to 7-15 stocks
2. Build your positions slowly. Whenever you plan to invest a certain sum of money on a
stock try to invest the money in at least 4 installments. This will help eliminate sudden
shocks and help you build your portfolio around a healthy price point
3. Be patient. Give yourself some time to be right. Being an average retail investor,
chances are that you won’t be the first person to know something about a company
which the markets don’t already know. So do not even try to trade stocks for short term
gains. Invest in a company you trust for the long run and be patient
4. Take out emotions. When you look at your portfolio, always ask yourself – Would I
invest in this stock today? And if the answer is no, sell the stock. This should hold for
positions which are both in the red and green. This may be because now you have more
knowledge about the company, or the stock has run up a lot and you are not too
comfortable with its valuation now

Folks, my outlook is always to avoid losses. I strongly believe that key to doing well on
your portfolio is avoiding short term speculation and always, always playing it safe.