Many new entrants frequently ask me this question. I think that I have now accumulated enough knowledge to answer the question.
You will be surprised to know that it is enough to follow just 5 to 10 stocks all your life in order to make crores of rupees in the stock market. Yes! What you are reading is an absolute truth I learned from reading and experiencing the market. So, always opt for focus investing. Neither new entrant nor an accomplished investor should hold more than ten stocks in his portfolio.
The newbies must know that investing is not a betting. You have wait years after investing in a company. Further, you must know how to analyze the fundamentals of a stock i.e. PE, BV, ROI etc. One must analyze the company both at the micro level and the macro level. You must closely see how it performed since its inception. Then only, you will realize the real worth of the company, its management and ownership. A realistic assessment of the quality of management and ownership is a crucial thing in buying a stock.
If you follow the company regularly on micro and macro parameters, you will definitely predict when it is going to rise and fall. Follow the news of the company on a daily basis. But, you may ask me when to buy a stock or sell it. You can buy a stock if it falls drastically due to the reasons that are not at all related to fundamentals of the company. You can buy a considerable amount of stock at that time. Then, when to sell it. The right time to sell it is 'NEVER' if the fundamentals are right. So, buying a stock at a low price and keeping it long-term is the thing that ultimately makes a difference in your life. The experience of top investors always supports my long-term theory. I always advise you to invest only the idle money that you hold in your savings accounts so that you may not be compelled to withdraw early. Taking trading as your profession is not a good idea if you want to earn a lot from the market.
Another most important point to remember is diversification. You can't keep your portfolio too narrow with just two or three companies. Only psychologically strong people can do it. So, I always advise you to buy at least ten companies from five different sectors. If stocks from some sectors fall this week, another sector stocks may rise at the same time, so that you won't suffer any mental disturbance due to market fluctuations.
The gist of my suggestions is :
1. Buy only a few companies not more than ten
2. These stocks should at-least be from five different sectors
3. Take the stocks from large cap, mid cap and small cap
4. Remember a company is behind every stock. Analyze the fundamentals of the company before buying its stock
5. Buy the stock when it falls due to extraneous reasons
6. Follow the fundamentals and the news of the stock regularly
7. Never sell the stock if the fundamentals are good