An almost fail-safe stock portfolio for starters

I understand that getting started in stocks is not an easy thing with so many experts giving a lot of conflicting advice to you. Some will tell you that you have no hopes of building a good portfolio unless you can understand all kinds of ratios and read Balance sheets like a CA does, others will tell you that going for direct stocks is akin to a horse race where anything you bet on is almost certainly going to lose. Yet others will chide you for thinking anything beyond Mutual funds. After all they are experts and invest only in MF with all kinds of complex strategies, who are you to even think otherwise?

While all of the above has very obvious counters, read my post on Why you must be in direct equity to satisfy yourself on the importance of being in stocks. Building a long term portfolio of direct stocks does take a lot of understanding of the economy, the industry and the business. You can get these only with experience and there is really no magic potion to make you an expert overnight. There is however, a way to get started on building a portfolio of stocks, while you gain this knowledge and experience over time. Is there a guarantee that you will not lose money if you follow my suggestion? Unfortunately not, but the chances of your losing money are indeed very slim.

Without further ado, let me give you the simple steps to what you need to do from scratch:-

  1. Choose the 5 sectors – Auto, Pharma, Banks, IT and Telecom. You can add other sectors at a later date.
  2. From each sector choose 2 market leaders. You can do it by their Market caps or the PE ratios. Honestly, it does not matter a great deal as to which method you are using as long as you are consistent in your approach.
  3. For people focused on names look at DRL, Cadilla, Lupin etc in Pharma. Tata Motors, Maruti, Eicher, M & M in Auto etc. SBI, ICICI, HDFC Bank in banks. TCS, HCL Tech, Infosys, Wipro in IT. Bharti, Idea and RCOM in Telecom.
  4. Decide on a comfortable amount that you can spend every quarter on stocks related investment. Set price triggers based on 200 DMA of the stock. For example, if the 200 DMA of a stock is 3000 and the current market price is 3200 then set the first price trigger at 3000 or just below it.
  5. Stick to this discipline and never go beyond 20 % of your quarterly money in one go. You are in no hurry, wait for the stock price to drop. In the next 6 months there will be many ups and downs. Buy only on downs, let the ups go by without bothering too much.
  6. In a quarter there are bound to be many more bad days than 5, you just need to be patient.
  7. Remember you are building a long term portfolio, so even if you miscalculate and buy at a higher price it does not matter too much. In 10 years the markets will be far higher than 9000 on the Nifty.
  8. Keep adding to each stock regularly, do not start chasing other stocks that seem to be doing better.
  9. Increase your quarterly allocation based on your surplus availability and your comfort level.
  10. Stick to this for 2 years, by then you will have enough knowledge to get to the next level of risk.

Stock investment is like swimming, you will not do it by reading how not to do it. Get started with it and you will see how things work out at a portfolio level – remember, it will never work out for all stocks that you invest in. Also, next time someone advises you on how to pick stocks, ask him about his portfolio and how successful he has been in his own stock portfolio performance. Trust only advisers who put their money where their mouth is.

I will do other more involved posts on stock picking but this one is good enough for all new investors to get started.


35 thoughts on “An almost fail-safe stock portfolio for starters

  1. For those who have a long term financial horizon, reputed names in beaten down sectors like commodities and real estate may also be of interest. Excepting Tata Motors, many other scripts in (3) above are at the higher end of the curve now.


  2. Rather than doing direct stock investing and then worry about whether or not my share price will go up or going loose all the money etc is it not make sense and less risky in large cap mutual funds? I get what you trying to say but I think people working high pressure corporate jobs may not even time to check and track market movements.


    • I do not agree with you on this. First the risk is the same for stocks and MF. Second it really does not take much time. Third I have done it through my life while having CEO level jobs for the last 15 years.


      • Sir,
        If the magnitude of risk is same in stocks and MF, why you are suggesting to have the MF portfolio then? why cann’t we have only stocks and debt portfolio’s? also you said that in bull market stocks will more returns than MF’s.

        i do not understand the logic behind it. After you got so much experience you still have the MF portfolio i guess as per your posts!!!

        Liked by 1 person

      • In a bull market a good stock portfolio can beat MF but life is not going to be a bull market always. Use MF for goals that are in the range of 15 to 20 years. Stocks are for the really long run mainly for retirement. Hope you got the point why both are needed.


  3. Hi Rajshekhar,

    while selecting the stocks from each sector what should be the parameters with high priority. is it Debt to equity ratio, pledged %, return on equity, PB ratio or anything else.

    some of the good stocks have high PB ratio….what are the sectors for which we should give weightage to the PB ratio.

    K C Rana






  5. In the current scenario what is your opinion about investing in Cement Sector? In this sector which particular Company you like please?


  6. 200 DMA is a technical does that help for long term holdings?A stock may have a high margin of safety even if CMP is higher than 200 DMA and vice versa..are there better fundamental indicators?


    • The point is you can use 200DMA as a guide for determining the purchase price. You have to build up a portfolio over the long term by buying at regular intervals. What price you buy at any juncture is helped by 200DMA.


  7. Hello SIr,
    Karekom tumi??

    My doubt buy from stock from sectors belonging to NIfty or any stock belonging to market category


  8. Dear Rajshekar Roy ji,


    I am still not sure if telecom will make any money in the next 2-3 years for investors. All telecom companies are sitting on huge debt, Indians are consuming very less data still. The upcoming spectrum auctions will add more debt on these companies.

    What should be the long term horizon for investing in telecom ?

    Thank you


  9. Sir,

    Thanks for post. I know its personal choice- but how many stocks to purchase every quarter? like If I need to built decent portfolio- Auto/IT/Auto ancillary/infra


    • An ideal portfolio should have 10-15 stocks in it to start with. Over a period of time you can increase it to a maximum of 25 or so, depending on the capital you are bringing in.


      • Any particular strategy sir Like to buy more stocks in Q1 than in Q2 Etc. Or just keep accumulating same companies portfolio stocks every quarter


  10. RajSjekhar Roy ji

    Great post . I totally agree with your approach Thanks a lot sirje

    How to get the DMA and from where we can get the DMA


    • Sir, if the 200 DNA link of NIFTY 50 stocks are available kindly share it. I googled but couldn’t find the suitable one. Regards,


  11. Dear Sir,

    What software or DEMAT account do you recommend for maintaining a stock portfolio, which are the ones which can give 200 DMA price alerts like you mentioned in your article?

    Please advise.


    • You can use ICICIDirect and place VTC orders at a pre-defined price level. However, 200 DMA figures have to be checked for yourself. Do it at the beginning of every month, for the stocks you are interested in. After this you can place your VTC orders. It will get executed as and when the price levels are reached.


  12. Nice article.

    But I would like to know whether the same strategy can be applied anywhere like as I am in USA, can I blindly look for the below points and buy them?
    1. Stocks which falls under Mid (2 billion – 10 billion)
    2. P/E less than 20
    3. Present Price of the particular stock is less than 200 DMA


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