An equity portfolio is a collection of stocks that are carefully designed to invest in companies with high growth potential. An investor gets to earn returns in the form of capital appreciation and accumulated dividends over the years. As stock prices grow, the value of your portfolio also increases, allowing your investments to grow.

Investment Approach and Risk Profiles

Investment strategies can be broadly classified into three major categories.

  1. Conservative

  2. Moderate

  3. Aggressive

The investors, based on their goals and risk appetite, can create a portfolio of large-cap, mid-cap, and small-cap stocks.

1) Conservative Approach (Low Risk)

If you have a defensive mindset and prefer stability over returns, a conservative approach is best suited to you. Under this, the majority of the fund is allocated in large-cap stocks, which are mostly stable, and the downside is protected to an extent during volatile times.

This is an ideal approach for beginners as it allows them to begin investing in firms with minimum risk.

2) Moderate Approach (Medium Risk)

Under this approach, the investors can have higher allocation towards mid-caps and small caps. Even this approach demands considerable risk aversion. Hence, a significant chunk of your investable amount still goes towards large caps.

Here, returns can be higher than the conservative approach, but so is the risk.

3) Aggressive Approach (High Risk)

This approach is ideally suitable for experienced investors who are willing to take more risk in order to generate high returns.

Since a significant portion of the fund is invested in small caps or short-term opportunities, the portfolio tends to be more volatile.

Stock picking becomes extremely crucial since only a handful of stocks fall under investment grade and there are plenty of chances to end up with wrong stocks.

Teji Mandi calculates your risk profile using 5 simple questions to define you as a low risk, medium risk, or high-risk investor. Then we bucket our users into a category accordingly.

How to decide which stocks to invest in?

1) Research each company and sector

Before putting your hard-earned money into a company, it is very important to learn about the company. You should be aware of the company’s fundamentals, its future prospects. One should know about government policies and industry regulations and its corresponding impact on a company’s long-term potential.

2) Earning Visibility

The market is always a slave of earnings. There can’t be a better trigger for a stock than its future earning potential. Understanding the company’s products/services, clients, market size can be important indicators to determine a company’s future earnings prospects.

3) Competitive Analysis

A company’s strengths and weaknesses can be judged best when it is pitted against its peers. It is important to determine where a company stands within the industry that it operates in and how it fares on various financial parameters. A comparison with the same-sized company with similar offerings can give a better idea about a company’s position.

4) Check Financial Leverage

The balance sheet of a company is in a way its health card. How a company is able to utilise its financial resources-internal, as well as external speaks volumes of its operative and financial strength.

An investor should beware of a company with high debt. Debt to Equity is the best ratio to determine the leverage of a company. A lower D/E ratio is considered better under the usual circumstance.

However, it is best to compare a company’s leverage against its peers to determine the acceptable ratio for the company of your choice.

5) Price to Earnings Ratio

P/E is the widely accepted ratio that indicates whether a stock is overvalued or undervalued. The acceptable P/E ratio again varies from sector to sector. Hence, peer comparison gives an ideal P/E that could be assigned to a stock.

Apart from these factors, the management’s track record and effectiveness of its leadership team are crucial to a company’s fortunes. A well-managed company often enjoys the highest amount of trust from investors.

Closing Comments

These details, though not absolute, can help an investor to assess a company. There are a wide variety of scenarios to keep track of for an investor. It can set a foundation of initial research and put investors on course to identify correct stocks.

An investor will also need to keep close track of the company’s operations and its overall ecosystem to determine its future prospects. As you can see, picking stocks may seem simple, but is not an easy task – Teji Mandi helps you build a portfolio of 15-16 stocks that not only focuses on generating strong returns over the long term but also protects you against market crashes and downsides.

Read about our strategy here: The Teji Mandi Portfolio Strategy