For those of you who have read the first instalment of this article, this is the concluding part.
4. Choose investment criteria
People who invest based on hearsay or popular market sentiments tend to lose money in the long run. Please work out a set of criteria for selecting your stocks in terms of your objectives or targets. The criteria could be in terms of:
- Historical performance
- Dividend payout
- industry domination
- Potential future growth
- Undervalued companies
5. Determine size of portfolio
Overloading your investment portfolio with too many is not a very good idea. You can spread yourself too thin and lose focus when monitoring and analysing too many stocks. If you have done your stock selection properly, you do not need more than 10 to 15 stocks maximum.
6. Diversify your portfolio
In any economy, different sectors perform differently at the same time. Some may be performing well while others are performing poorly. Some months later the situation may be reversed. To reduce your risk, you should spread your portfolio among different sectors. Therefore the poor performance in one sector will have only limited impact on your whole portfolio.
7. Choose a competent stockbroker
Now that you have developed your own personal investment plan, it is time to select a stock broking firm to handle your transactions. With a competent stock broker it is easier to achieve your goals. Qualities to look out for when choosing a broker include:
- Excellent customer service: Make a few calls or send them a few emails to assess how they respond to customer inquiries.
- A research department: Any firm worth its salt should have a research department.
- Good IT infrastructure: Do they have a web presence? Can you transact with them electronically instead of visiting the office.
- More than 1 broker: The firm should have at least 2 brokers. That way if one of them is unavoidably absent there is someone else to handle customer orders.
