Have you ever watched channels like CNBC-TV18, NDTV Profit and Zee Business? Do you remember what they discuss on these channels? As far as we can remember, they discuss about investment ideas, target prices, breaking news, directional calls, trading strategies, etc. But there are 2 things that they never discuss:
Size of stock holdings in portfolio
But before we talk about importance of these two things, we will like to thank these channels for showing us the real beauty of stock markets!! (Don’t worry: the link takes you to Google search page, no malware or spamware would be installed on your device). 🙂
Oh My God!
So why are Time Horizons important? It’s because it helps in deciding whether we should be affected by daily price movements (& news) or not. For example, when Maruti had labor unrest in Manesar and stock was hovering around Rs 1000, it should not have affected an investor with time horizon of 10+ years. The labor problem was a short term blip and provided long term investors an opportunity to pick up a great stock at very cheap price. And as we later saw, Maruti ran up to 1500 in no time at all (i.e. 50% up in 3 months!).
Now we come to Size of stock holding in portfolio. By having a cap on size of individual stock holdings, an investor can keep a check on his risk levels. It also helps in not getting too emotional about a single stock. You may hold the best stock in the world, but putting all your eggs in one basket doesn’t make sense. One bad quarterly result and your entire portfolio comes down crashing. But there is a flip side to this approach too. You can pick as many winners as possible, but if you’re not invested in them to a degree that their positive movement has a significant impact on your portfolio, you are essentially failing.
So to tell you frankly, we watch business channels for entertainment and glamour. 🙂 What about you?