November 4, 2014

Question on stock selection

Question: 

If we run a scan on CNX 500 stocks for finding out stocks which are trading at 20 day high, we get a long list. How to choose which stocks to invest in??

Thanks, Varun Danturthy
Answer:

Choose a different index

NIFTY 50 - 50 stocks, low beta, highest liquidity, lowest returns compared to any other index
NIFTY JR - 50 stocks, high beta, good liquidity, better returns as compared to nifty
CNX Midcaps - 100 stocks, high beta, average to good liquidity, high returns
Nifty Midcap 5050 stocks, high beta, average to good liquidity, high returns

KPL 30 - 30 stocks from NIFTY and NIFTY Jr index - more than enough for most investors.

You can also set a filter for stocks meeting a specified liquidity. For eg., I have a set filter for stocks having 50 day average volume at Rs.20 crores. This outputs 140-150 stocks.

Your portfolio size should ideally be 20 stocks... max 30. 

Beyond this, you are unlikely to benefit from higher returns or lower risks.


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