As the indices have grown over the years, the psychological impact of the dips and highs has become larger. India vix is one indicator of how volatility swings happen in a short time frame. A 1000 point change today is the same as a 300 point change a few years ago, as it works out to roughly the same in percentage terms. Though we live in volatile times, a 1000 point fall makes one feel that something is drastically wrong. Headlines such as “10 lakh crores of investor wealth lost in 2 days” can have a deep impact on investors.
To keep their peace of mind and the portfolio in one piece, an equity investor can check the following when investing in stocks (Equity investor checklist) in mind:
The ROOTS & WINGS investment philosophy is a handy framework for picking stocks. Companies with strong ROOTS, i.e. robust balance sheets, aligned promoters and consistently high Return on Equity and with growing sales, cashflows, operating income and profits on the wings side will do well
In addition to this, we look for companies which excel in ABCDE, which is an acronym for Advocacy by customers, Brand power, Cost leadership & Pricing power, Distribution, and Engineering & Technology.
While ROOTS & WINGS is a numbers-driven approach, ABCDE adds a qualitative flavour to the portfolio selection. A combination of quantitative and qualitative approaches can help an equity investor construct a high-quality portfolio (Equity Investor Checklist) that reduces emotional bias and makes for better decisions. Such a portfolio will augur well for long-term investing and aid in wealth creation.
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