How do I select stocks for my investment portfolio?

The answer really depends on an investors risk profile. Which basically boils down to how much risk (drawdown loss) are you willing to accept on your investment and how much return do you prefer. This (greed & fear) drives all investment decisions.

Once you are familiar with risk profile, it’s easy to screen through the stocks you understand/are familiar with in real life (never go by tips or hearsay advice) and try to build a well-diversified and optimized portfolio.

Diversification reduces systemic risk (e.g.: when the Founder or CEO of a company resigns) involved with a single stock – even good stocks.

Optimization of your allocation enhances performance while reducing risk on the same set of stocks.

You can use the Portfolio Optimizer to optimize your selected stocks to understand the risk – reward profile at an individual level and at an overall level.

Here is an example of optimization on the 50 stocks that comprise the NIFTY50 index. The optimized allocation concentrates on only 6 out of the 50 stocks.

In comparison to the benchmark, during the same period, the optimized allocation delivers +101% return at -10.5% risk while the benchmark NIFTY50 index delivered +32% at -13% risk.

Building a portfolio using Spotalpha  Portfolio Optimizer 

There are few easy ways to update or build a portfolio to screen a large (upto 60) list of stocks. Click on the ‘Select Portfolio’ icon.

and then,

Option 1: “Popular Portfolios”. Here you can select from over 60 pre-built portfolios

2: Choose from over 100  “Investment themes” and optimize its constituents

Option 3: “Build a new Portfolio”. Here you can select stocks of your choice by typing the Symbol and the current quantity.

Option 4 : “Import Portfolio”. Here you can import your existing portfolio from your stock broking account either by (a) typing/pasting it manually or (b) uploading an Excel or CSV

Once you have created the portfolio, SAVE it to your account and run the Optimizer

Validate the performance of the optimized portfolio using the charts provided

Note down the allocations to the portfolio stocks and the BUY/SELL trend recommendation against them, and proceed with your investments. Run the portfolio optimizer once a month to re-balance the allocations to the portfolio.

 

When the trend of any instrument in this portfolio changes, alerts are sent via email and users can make the necessary updates in their trading accounts.

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