Ways Of Building A Profitable Stock Portfolio

Posted by Traders Gurukul on May 20th, 2021

For the fact that the stock market has the power to make you or break you, the possibilities of the risk involved are very intimidating for all traders. To combat this situation, investors like to understand the market well and build a stable profitable portfolio. It is only a good portfolio that can outperform the losses a trader makes even in an adverse market and protects him/her from financial instability.

However, building a stable portfolio is not an easy task for beginners and requires stock market training for guidance. Here is a simplified list of steps that can be followed by beginners to work on a good portfolio from the beginning.

Understanding your investment bandwidth

The first step towards building a stable portfolio is to understand your capacity and what is that you are going to invest in once you start trading. It involves factors like the age of the investor, the amount of trading capital, the duration for which a position can be withheld, etc.

Deciding what kind of a trader are you

What kind of trading behavior you show is somewhere related to the characteristics you have, as a human and is not taught in stock market training. On one hand, an aggressive trader tends to take more risks in the market with an expectation of earning more profits. On the other hand, a conservative trader tries to take on positions that are protected. The portfolios of both types of traders will include the type of stocks that complement their approaches.

Additionally, it is seen that the younger you are, the more growth-oriented your portfolio would be whereas someone who is nearing the retirement age would maintain an income-oriented portfolio.

Diversify your portfolio

"Don't put all your eggs in one basket" is the saying that aptly sums it all up. Diversifying a portfolio simply means including stocks of different companies across different sectors/industries. This is done to safeguard yourself from losing everything if something negative happens to a particular industry/sector/company. Make sure that you have 1-2 blue-chip stocks in your kitty as they are the market leaders and you know they are not going anywhere.

Also, there are times when one of your favorite stocks might be underperforming but you know that it is going to perform well in the future, you can hold onto it if your portfolio is overall in profit at that time. Diversification is a way of minimizing market risks.

Keep reviewing your existing portfolio

Since the market is volatile and may not be the same next minute, there is a need to review your portfolio and shuffle your stocks if needed. However, it is not advisable to review it quite often because a good portfolio might be underperforming at a certain point in time but might be profitable in the long term.

All these steps might seem to be a little difficult when you are building your portfolio and hence, it is better if you discuss your ideas with market experts or during your stock market training sessions to help you build it for the first time.