1.

1 Diversification
We must adopt this mindset to consider impact on entire portfolio rather than an
Stock Investing for Individuals

individual stock while taking decisions. We will diversify our portfolio to overcome the
challenges and short-comings that we may face as retail investors.

Do’s

Don’ts

o Make sure that our portfolio

has an industry-level
diversification

o Make sure that our

portfolio has a Stock-level
diversification. o We will refrain from heavily
investing in a single stock.
o Diversify on the basis of
market captialization of o Do not allocate say 40% of our
companies as well. (small cap, portfolio to a single sector.
mid cap and large-cap stocks)

Always have a detailed portfolio with three columns:

Stock Industry % of Portfolio

Monitor the amount of exposure we have to each stock.

What should be our exposure in each industry?

350 What are the market caps of those industries or companies?
We’ll always make sure our portfolio is properly
diversified. Consider it whenever you buy or sell

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something.

> 40% 60%

Specific Industry Others

Even though a company and its If we still want to add that particular
performance is excellent, we will not add it company, we must essentially sell some
in our portfolio if 40% of our investments companies from the same industry
are already allocated in that sector.

The total returns from the portfolio matters rather than individual stock returns.

Ideal expectations from a portfolio:

In order to manage our portfolio we must act with discipline,
consistency and patience.

Approximately 5 companies will generate

majority returns. Thus we can expect that
25–30% of your portfolio will be profitable.

Assume that our

portfolio comprises of
20 companies.

30-35% of our portfolio will simply return the

amount that was initially invested. If we have
purchased 6-8 companies at Rs 100, we might
be selling them 2 years later for Rs 100 itself.

The remaining 6-7 companies , which comprise

30-35% of our portfolio will incur losses.

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