Hello investors, my name is Sagar and in this video, I'll talk about portfolio management
and at the end, I will also give some tips, so you can apply them in your portfolio
so what is portfolio management? Imagine you have 100 000 Rs and you want to invest them in the stock market
So how should you invest that money ? should you put it all in one stock ?
maybe 2 or 3 stocks ? How should you distribute your capital ? That is what we will talk about today.
Usually when you will ask people about capital allocation they will tell you, just put 2 % in any company
that means 2 000 Rs in any company or maybe 10 % ( 10 000 ) Rs in any company
But there is never a fixed number and I will explain this with an example.
Imagine I take you to a shop and I offer you 10 phones (Lenovo , Apple , Samsung, Oppo )
and you can take 6 phones of any brand. If you want you can take 6 phones of the same brand
So what would you do ? if you like apple as a brand , you will take 6 of that .
but this is not what people do in the stock market. In the stock market, if someone likes Apple, they will take 2
but then give me more of Lenovo , Samsung and oppo
Something similar happens in the stock market. You have 5 000 companies in the market
out of 5 000 companies if you like one company , should you buy a lot of it ? or buy just a little and invest in other companies also
That is why I used this example so I can explain that if you like something , you shouldn't be investing just 2%
you should buy a lot because if you like the company and the price, it will give you great returns
but then how much should we invest ? 5 % of our portfolio or 10 % in one company ?
So in the case of 100 000 Rs , 10 %would be 10 000 Rs. I will show you how I do it.
I decided from the beginning that I will invest in only 4 or 5 companies
So in the case of 100 000 Rs , I will invest 20 000 Rs in each company
But why 20 000. There are 2 main reasons. First, when I like something, I like to invest a lot in it.
Just like the example I told you, if I like Apple I will buy more of it.
So , 20 - 25 % is ok but don't invest 70 or 80 % in one company.
that's simply because there is always risk in the stock market as there are elements which we can't control
So, if we invest in breweries and the Government imposes a new rule, that would affect our company
and that is something out of my control and if the company is very small, it might even close
but I know many people who won't feel comfortable investing 20 - 25 % in one company
many friends of mine just invest 10 % in a single company but that's because they are not comfortable with 4 stocks
if you have 4 stocks in your portfolio and you can't sleep well, then 4 stocks is not ideal for you
because that doesn't suit your personality. If you feel comfortable with 10 or 15 stocks
in that case, you should invest in 10 stocks as that's ideal for you and you don't need to invest like me
but I would suggest everyone not to invest in more than 10 stocks, when you invest in more than 15, the effect is drastic
Imagine we both have 100 000 Rs to invest and I invest 25 000 Rs in one stocks
and you decide to invest 10 000 Rs in the same stock. The stock then doubles so from 20 Rs to 40 Rs
My 25 000 Rs investment doubles to 50 000 Rs but you 10 000 Rs investment doubles to only 20 000
So when nay stock doubles or triples, the more you invest in the company, the better results you will have
that's why I suggest investing more in companies that you like
if you invest just 5 % in any company you like, you will be leaving money on the table
but why am I insisting in buying more in a company you like?
when you see other investors, you will see they invest in very small quantities in a single company
So, if they have 100 000 Rs to invest, they will invest 5 000 Rs in one company. That means they will have around 20 stocks in their portfolio
If you want to over perform them, which everyone wants to do , you can't invest the same way they do
if you want to win the same, you will have to do something different, this can be investing 15 or 20 % in a single company
but there is a small disadvantage. If you make a bad investment decision, let's say 2 out of your 4 decisions are bad
then you will take a big loss, so you need to act very carefully. So if it's your first year in investing
Then don't invest 20 %in a single company , better put only 10 % maximum in a single company
and as you get advanced, you can start concentrating your portfolio
So now you can shift from 10 %in a single company to 15 % then 20 and lastly 25 %
I wouldn't recommend more than 25 %as there are some risks which we can't control directly
There is one last advantage. Imagine you have 100 000 Rs and you are going to invest 25 000 s in a single company, firstly you will be very nervous
as you are making a huge bet but you will also do a detailed analysis on the company
because you know you will invest only in 4 companies and if anything goes wrong, you will have big losses
So you will do a great and detailed research and you will benefit from that indirectly.
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