Overview
Lets first discuss Stock Watch list term. After creating Demat account the first question in mind of people is which stock to buy. The first few days are very thrilling. People want to buy and sell stocks. This initial period tests your temperament.
These few days are important for your Stock trading career. If you make huge loss then you will be tempted or forced to come out of market. I have already written a post on mistakes new investors make. Please read that article before investing in stock market.
However tempting first few days are you should never initiate a trade. The first step should be to create a list of stocks which you will be investing in.
This list of stocks which you will monitor in future is termed as Stock Watch list. There are many websites where you can create your profile and track stock price movement. Now that you have basic understanding of stock watch list terminology lets discuss how to create one.
How not to create Stock Watch list?
Before discussing stock picking for watch list lets discuss the do not part. If we can filter the mistakes we make while creating the watch list we will over come most of your issues.
Mistake 1
The first thing people do is they try to find companies they know and start including them in watch list.For example if you have bank account in SBI or PNB or UBI then you will be tempted to include them in your watch list.
During my early days this is one mistake I made myself. If you are from IT background then you will include IT stocks. Before including them in the watch list we do not perform any checks. Since we are aware of their names it is easy to find them and include them in the list.
People are not aware of many scripts or companies listed on the stock exchange. They may be aware of the products these companies make but company name may not be known to them (For example Pidilite company makes Fevicol). We all know Fevicol but how many of us know Pidilite.
Initially people will have low number of companies to follow and invest in. Due to this reason they will misss out on good companies and may invest in not so well performing popular company.
Mistake 2
The second mistake is not selecting company from one or two sector. This is again due to mistake 1. We tend to include Banks, FMCG and IT stocks in our watch list. They are most popular stocks and get media coverage.
People will be knowing the names so they will track most of the banks and IT stocks or FMCG stocks. IT stocks will be known to people of that field but other consumer focused companies will be known to most. I am not saying that these sectors have bad companies or they are not good sector to invest.
But tracking companies from one sector or other does not work well. Ideally you should track companies belonging to different sectors.
In stock market sectors perform well in cycles. For example Pharma and IT sector have not performed for last 2 to 3 years. But they were working fine before that. During last 2 to 3 years metals are performing but they were not performing earlier.
So if you are concentrating your view on a single or two sectors then you do not get overall picture of market. If the sector is in doldrums then your portfolio or investment will not be performing.
Mistake 3
We all want to buy that one stock which will make us millionaire. This is story circulated and popularized by experts and market pundits. They will cite you example of Infosys and HDFC. But they will never tell you story or RCOM and MMTC.
in early stages of trading people want to analyze and pick that one stock which is trading very cheap and will become next Infosys in near future. Due to this mind set they create a list of stocks which is trading cheap (Penny Stocks).
I strongly discourage you preparing list of Penny stocks initially. You should invest in solid proven stocks initially and with time once you have experience investing and company evaluation you can pick one or two penny stock after thorough analysis.
For now picking Penny stocks is not in scope of this article. I will discuss Penny stock picking in later article. But for now this is one of the mistakes made by new investors.
Mistake 4
This point is related to point 3 but there are some differences. People do not include Pricey stocks in their list. They exclude stocks trading above 500 or 1,000. The upper limit is personal preference but this is what most people set as the limit.
They feel more comfortable trading cheap stocks citing the gains from cheap stocks will be more than pricey stocks. We fail to evaluate things in terms of percentage gain. A cheap stock of price 100 if moves 10 rupee gives you 10% return.
A pricey stock of price 1,000 if moves 100 rupee gives you 10% return. In absolute return terms both are same. If you buy 10 quantity of cheap stocks and 1 quantity of pricey stock the return is same. This basic is often overlooked and people exclude pricey stocks from watch list.
This excludes many quality stocks from their list.So a stock should be included or excluded only based on quality not on price it is trading one. Any day company can issue Stock Split to get the stock price cheap.
Mistake 5
We should only track stocks after basic analysis. We should not include stocks just on assumptions. We should at least check price business vertical and management pedigree before including any stock in our watch list.
Management pedigree is one of the most important part of Fundamental Analysis. How often we have seen one group of companies performing well over the years whereas other group of companies struggling to keep pace with market and time.
This basic screening should always be performed before including the company in watch list initially.
How to create Stock Watch list?
Above we have discussed mistakes you make in selecting stocks in your watch list. If you have taken care of these mistakes then your stock watch list should look good now.But for initial investors it is tough to get list of stocks with sound Management Pedigree.
This issue mentioned in mistake 5 compelled me to list down stocks with proven track record. This list should give you initial stock list for your watch list. You will get list of stocks to get started with and can extend the list with your company of choice.
The list creation follows a simple principle. Note investing in stock market is simple and you should not over complicate the things. Evaluating a company on all fronts is one of the most challenging task. It may not be possible for one individual to gather all information about company and then make a call.
Things change very fast in business world. So the best way out is to learn from past and also select companies which were evaluated and were found great. Management pedigree is one thing very high on Fundamental analysis and can not be evaluated by common person.
So better to stick with companies who have worked well and seen all kinds of downs and ups. With this view in mind I have created list of stocks from best management houses. I will be updating this list with time as well. So stay tuned.
You can click on below list and download the companies from these group of companies. These companies are from different sectors and have proven track records. So you have a ready made stock watch list which you can modify and change as per your requirement.
As mentioned I will include more group of companies which have performed well over the years and you can include them as well. I will be doing research on these companies in coming articles as well. You can merge your research and my research and then make your decision or feel free to decide based on your own research.
Top Corporate Group of companies listed on NSE
Latest Portfolio Top Investors and Mutual Funds
Conclusion
I have written this article to help you create stock watch list. Once you have the watch list and analyzed the stocks you can make investment. We will see how to analyze a stock for investment. This will give you starting point for Fundamental analysis of stocks.