Many equity investors believe that success in the stock market is all about choosing the right stocks. According to them, stocks that are fundamentally strong will produce good returns. However, that’s not always the case. Succeeding in the stock market today is not just about selecting the right stocks but also about monitoring your stock portfolio. Actively monitoring your stock portfolio helps track early signs of trouble and avoid significant losses, even on the ‘right’ stocks. But how does one monitor stock portfolios? Monitoring your stock portfolio involves a comprehensive approach. In this article, we outline how to comprehensively monitor your stock portfolio to maximise returns on your investment.
Also Read: What is share market
What does monitoring your stock portfolio entail?
Effective monitoring of your stock portfolio entails more than just tracking profits and stock price movements. To ensure comprehensive monitoring, you need to move beyond these surface-level metrics. Focusing on company fundamentals like financial performance, managerial strength, and operational efficiency is crucial for long-term investors. In simple terms, monitoring your stock portfolio is more about tracking company performance and other relevant factors than simply tracking changes in its stock prices.
Previously, investors swore by the ‘buy and hold’ strategy, where they purchased shares of a stock and held the same for a long-term duration to maximise returns. Today, this strategy has been proven ineffective, especially given the different factors that can sway investor confidence on a daily basis. Hence, closely monitoring your stock portfolio is the key to optimised returns. As a modern investor, you have to remain updated on company news, its credit rating, guidance announcements, and all other relevant developments since these factors have the power to influence investor sentiments and stock prices. Similarly, factors like industry trends and macroeconomic forces can also impact your portfolio and must be factored in when monitoring one’s portfolio.
At the same time, you should understand that vigilance is different from obsessive tracking. In other words, excessive tracking of profits or stock prices should be avoided. Tracking your profits at the end of each trading day can cause an emotional reaction and a desire to time the market. This counterproductive approach can deviate you from your long-term investment strategy.
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How to monitor your stock portfolio?
Here are a few tips that can help you monitor your stock portfolio:
Updated about the latest news about the company
Keep yourself updated with all the latest news and trends that can affect the companies you invest in. Various political, economic, social, and macroeconomic factors can affect the performance of companies in particular, and industries in general. Apart from the general news and trends, you should also remain up-to-date with announcements made by the company. Company announcements can sway investor confidence and result in changes in stock prices.
Analyse the quarterly results of the company
Next, carefully review and assess the financial results of the company. Listed companies release their quarterly results to help investors gauge their performance. Results are usually released within 45 days after the end of the last financial quarter. Evaluate these financials to understand more than short-term profits and losses. Consider the broader trends and the potential of the company. Remember to contextualise the quarterly results against the larger economic backdrop to see if the company’s performance is justified given the macroeconomic forces at play. If a company is consistently underperforming, you might want to understand the reasons for the same to make an informed decision.
Keep tabs on any corporate announcements
To monitor your stock portfolio, keep an eye on any corporate announcements made by the company. These announcements may include initiation of a new project, merger, acquisition, change in senior management, etc. Being aware of such announcements is crucial since they have the power to impact equity share prices. Having a clear picture of the company’s future course of action allows you to make informed choices about whether to buy more shares or sell your existing holdings.
Be aware of any changes in the shareholding pattern
Listed companies in India disclose their shareholding patterns every quarter. Monitoring changes in these shareholding patterns is crucial, especially when changes concern the promoters. The total stake of promoters in the company’s stock is indicative of the company’s confidence and reliability. While a higher stake is positive, a lower one may be problematic. Compare the current promoter stake in shareholding against earlier quarters to see if the pattern has changed. If promoters have increased their stakes, the company may have a good potential for growth. However, if the promoters have withdrawn from the company, it can signal a potential loss of confidence and other potential issues.
Check the credit rating of the company
Effectively monitoring your stock portfolio entails monitoring the company’s credit rating. Much like individuals, companies also receive credit ratings from various agencies like CRISIL, ICRA, CARE, and others. These agencies review companies and their debt management procedures to grant credit ratings every year. These ratings are then published on company websites. A poor credit rating implies financial instability and possible risks in the future, while a good credit rating indicates good debt management.
Track the stock price
As mentioned earlier, tracking stock prices may be one of the methods of monitoring your stock portfolio, but it should not be the only method you use to do so. You can use a digital tool called a portfolio tracker to monitor the price movements of stocks in your portfolio regularly. Most such tools offer a centralised dashboard, where you can track share prices in real-time every day. However, when using a portfolio tracker, you should remain objective to avoid making sell/buy calls based on short-term fluctuations and emotions.
Assess the promoter’s pledge of shares
Monitoring the promoter’s pledge of shares can help you identify the initial signs of financial trouble in the company. If a company’s promoters have pledged a significant portion of their shares, the lender reserves the right to sell the shares to recoup the loaned amount in case of a default. This, in turn, will cause a ripple effect, forcing general investors to sell and plummeting share prices. You can monitor this aspect on a quarterly basis since listed companies disclose information about the promoter’s pledge of shares every quarter.
Also Read: Types of shares
Summing up
You can use a mix of the methods outlined above to monitor your stock portfolio effectively. While there are various ways of monitoring your stock portfolio and your returns, opting for a mix of different strategies helps optimise the tracking process. Remember, the key is comprehensive and regular monitoring. This entails not just stock price tracking but also staying updated about the companies you have invested in. Doing so helps you make informed decisions about your investments.
