As much as stock picking is important, equally important is portfolio management. Good portfolio management can help an investor to do right capital allocation and also help him in being consistent in his returns.
The commonly known method of classifying portfolios is either running a concentrated portfolio or to diversified portfolio. Generally accepted norm is that below 10 stocks a portfolio is concentrated and for diversified anywhere between 20- 50 stocks.
Making a portfolio would comprise off following steps
Although, above method is the most prevalent method of making a portfolio, it also exposes once portfolio to biases which are a function of once investing strengths. Most of us have a bias towards certain theme of stocks like growth stocks, graham style stocks, turnaround stories, defensive bets etc. These biases are a function of past successes, comfort with these themes etc.
To overcome this bias i try to diversify my stock ideas on the below mentioned themes.
Regards,
PS-Another key point is that each of these themes will have a different checklist which i think deserves another separate post.
PPS- I ha
The commonly known method of classifying portfolios is either running a concentrated portfolio or to diversified portfolio. Generally accepted norm is that below 10 stocks a portfolio is concentrated and for diversified anywhere between 20- 50 stocks.
Making a portfolio would comprise off following steps
- Picking number of stocks basis your comfort
- Assigning % allocation of funds in these stocks basis your belief in the stock.
- Ensuring that these are from different sectors and that their is no bias towards one sector.
Although, above method is the most prevalent method of making a portfolio, it also exposes once portfolio to biases which are a function of once investing strengths. Most of us have a bias towards certain theme of stocks like growth stocks, graham style stocks, turnaround stories, defensive bets etc. These biases are a function of past successes, comfort with these themes etc.
To overcome this bias i try to diversify my stock ideas on the below mentioned themes.
- Cash Bargain/Asset Bargain- Piramal Healthcare, Bharat Bijlee etc
- Growth Stocks with Moats- Oriental Carbon, Kaveri Seeds, etc
- Constant Cash Flow Generation- NESCO, Swaraj Engines etc
- Debt Capacity Bargains- Mazda Ltd, Poddar Pigments etc
- Special Situations- For cash investments
If a stock idea doesn't fall into any of them I tend to skip it. Except for special situations each of the above themes has 3 to 4 ideas.When i review my portfolio i try to see that whether I am biased towards a certain theme. If i find that i have more number of ideas of a certain kind i then try to reduce stocks fitting that theme and try to look for opportunities in other themes.
This tends to ensure that amongst a theme only the best ideas remain in portfolio and also some other good stocks are not missed.
As regarding allocation between the themes, I try to equal weighted amongst them.
For Special Situations i try to utilize the cash portion of my portfolio, although ideally i would like to increase my allocation here.
This tends to ensure that amongst a theme only the best ideas remain in portfolio and also some other good stocks are not missed.
As regarding allocation between the themes, I try to equal weighted amongst them.
For Special Situations i try to utilize the cash portion of my portfolio, although ideally i would like to increase my allocation here.
Regards,
PS-Another key point is that each of these themes will have a different checklist which i think deserves another separate post.
PPS- I ha
