Stock investing is not for everyone. You should enter only if you can withstand the gut-wrenching feeling that comes with the ups and downs in the markets. Take this short quiz to find out if you are mentally suited to dabbling in equities.
1. When choosing the stocks to buy, you rely on:
a. Research reports from brokerages
b. Your own research
c. News reports about companies
d. Blogs and comments on financial portals
2. What is your investment horizon when you buy stocks?
a. Over 3 years
b. 1-3 years
c. 6-12 months
d. Less than 6 months
3. What are the returns you expect from your equity investments?
a. 12-15% a year
b. 15-25% a year
c. 25-30% a year
d. Over 30% a year
4. What do you do if you get a tip that a stock is likely to shoot up?
a. Confirm the news from a reliable source
b. Research the stock on your own
c. Ignore the rumour
d. Buy the stock immediately
5. The money you invest in stocks is:
a. Surplus money
b. Withdrawn from other investments
c. Raised by selling other assets like gold, etc
d. Borrowed from friends or relatives
6. You want to invest directly and not through a mutual fund because you:
a. Enjoy the thrill and challenge of investing
b. Are confident that you can do better
c. Have a substantially large sum to invest
d. Want to frequently buy and sell stocks
7. What do you do when a blue-chip stock crashes to a 52-week low after poor results?
a. Find out the reason for the poor results
b. Buy a small quantity
c. Wait for the price to stabilise
d. Buy a large quantity
8. The market crashes immediately after you invest a huge sum. What will you do?
b. Buy more and average out your cost
c. Sell some of the shares
d. Sell all the shares and book losses
9. How often do you check your portfolio?
a. Once in 3-6 months
b. Once in 1-3 months
c. Every day
d. Every hour or so
10. A share exceeds the target price you had set. Your broker is confident it will go even higher. What do you do?
a. Sell part of the holding and set a stop loss for the rest
b. Sell the entire holding as per your plan
c. Reset your target
d. Buy more for the short term
11. What kind of shares do you prefer?
a. Blue-chip companies even if they are high-priced
b. Mid-caps that are quoting at reasonable prices
c. Low-priced small-caps
d. Penny stocks that can be bought in thousands
12. A company you invested in is in trouble and there’s little chance of improvement in the near term. What do you do?
a. Exit completely and book losses
b. Sell some of the shares
c. Hold them and wait for a turnaround
d. Buy more to average out the cost
Give yourself points on the following basis: a. 4 points; b. 3 points; c. 2 points; d. 1 point
41-48 points: Congrats, you have all the makings of a Warren Buffett. You can handle equity investments as well as the risks that come with them. You also know when it is time to cut your losses and exit a stock.
31-40 points: You are fairly good at equity investing. But you need to increase your risk tolerance and take a longer perspective when investing in stocks.
21-30 points: You would be better off investing in stocks through a mutual fund. But scale down your expectations of returns and don’t buy and sell too often.
12-20 points: What are you doing in the stock markets? This is not the place for you or your hard-earned money. Better invest in safer options or go through a mutual fund.