RULES FOR SELECTING MID-CAP STOCKS

Select relatively well known names

Even in the mid-cap universe, there are a number of well-known companies, which are run by reputed managements. These companies are well-known in the market for their products and services and most investors can easily identify the companies by their field of business. Investing in unfamiliar companies should be strictly avoided.

Stick to solid fundamentals

While investing in mid-cap stocks, investors must be extra careful to buy only those scrips that pay regular dividends and have a good track record of profits. Dividends may not be a critical factor while investing in large-cap companies. However, in case of mid-caps, it is important to look for higher dividend yields to ensure that even if the stock has to be kept for a long time investor gets some return on his funds. Higher the dividend yield, the safer it is to invest in that stock.

In case of going for a growth company, quarterly performance of the company should be tracked closely. Since these companies do not give dividends but they have great future, their performance should be closely monitored.

Book profits quickly in case of sharp rise

In case an investment in mid-cap counter gains sharply in the short term, profit should be booked quickly. Or at least a part of the holding should be sold to book profit and bring down the cost of the balance holding. Usually mid-cap stocks see spurts in trading volumes. Therefore, it is a smart strategy to sell a part of the holding when the stock is in focus. Do not wait too long in anticipation of a very big gain.

Don’t get swayed by rumours

Investment decisions should not be swayed by rumours or positive news-flow on a counter. If a stock has already risen sharply or the fundamentals in respect of yield do not appear healthy, investors should think twice before investing. Usually mid-cap stocks see increased activity around the time of some positive news-flow from the company.

Don’t average blindly

Do not average your cost of holding by buying more shares on a decline unless fundamentals warrant value investing.

Don’t take decisions

Resist the temptation to make a quick buck. This is the most important principal to be kept in mind. Hasty investment decisions usually lead to huge losses later. And in case a bad or hasty decision has been made, it would be wise to keep a stop loss. Only fundamentally sound stocks should be kept for long term.