How do you manage your stock portfolio?

[just]

My portfolio consisted of some 30 odd stocks that I didn't really keep track of. I'm in the process of trimming it down and be more strict about buy/sell criteria and sector diversification.

I forked over $120 to https://simplywall.st/ to keep track of the positions and to manage a watch list and some stock screeners.

I'm interested in what tools others are using and what rules/philosophy you use to manage the portfolio.

Currently my portfolio is trimmed down to a more manageable 18 positions, and the goal is to keep it at maximum 20 positions. They should be roughly equal weighted. I'm in the accumulation phase, so the target weight combined with stock specific criteria for buying determines where this month's savings are invested. The stocks should be diversified across sectors.

In summary:

• Max 20 positions, roughly equal weighted, i.e., roughly 5% ± 2%.
  Each position has buy/sell criteria (these can be based on financial ratios or by comparison with an alternative stock in the same sector).

• The positions should cover certain sectors with the goal of making the returns more stable:
  • 5% stock that tracks gold (due to Danish tax rules, it's more beneficial to use stocks than an ETC. I'm using RGLD at the moment, but am looking into whether I can do something else to track it more accurately).
  • 5% mining stocks (non-precious metals)
  • 5% oil/energy

• 10% of the portfolio should be in a money market fund (for rebalancing purposes and as an emergency fund)

[loutfard]

In Belgium, managing a stock portfolio is embarassingly simple for now. There is hardly anything to manage.

You buy specific kinds of accumulating securities, pay 0.12% transaction tax and done. Almost anything that yields a dividend or interest gets taxed 30 to 60%. This makes low cost etf's extremely hard to beat over here.

[okumurahata]

I follow a mixed strategy when investing. I allocate 50% of my portfolio to index funds, such as the S&P 500, because they offer broad market exposure. However, I recognise the risk of these funds entering bubble territory, especially when the P/E exceed 20 or even 30, which can signal overvaluation.

The other 50% of my portfolio goes into individual companies whose products I personally use and appreciate. I have an unusual habit: when I like a product, I check the label to find out who manufactures it, and then I investigate the company’s ticker to consider investing in it.

At present, I own shares in 16 companies, and my success with them has been mixed. Periodically, I reevaluate each holding and sell when I believe the investment is no longer justified. For example, I recently sold my shares in AirBnB. Initially, I found the concept appealing and used their service frequently, but over time, dealing with property owners has become more frustrating, and the cost savings compared to hotels has diminished. Moreover, many cities are increasingly hostile to short-term rental apartments. Finally, I realised that I haven’t booked anything through AirBnB in over two years, which led me to conclude that I don’t like the company as much as I did in the past.

On the opposite site, I want to hear bad news from good companies, like what happened recently with Nike. Got some shares when everyone was pessimistic. Just do it.

In essence, my investment strategy mirrors how I shop at the supermarket. If I find something I like and the price is reasonable, I buy it. If an item becomes more expensive and its quality has declined, I sell. Similarly, if the quality deteriorates and the price also worsens, it's time to sell fast. On the other hand, if something improves in quality and the price drops, I’ll gladly buy more. I don’t care how many products do I have at my basket, but how happy I’m with each item and the prices I’ve paid for them.

[frommi]

I use portfolio123 for half of my portfolio. Google sheets for the other 50%.
I created a spreadsheet with 250 companies (mainly dividend growth companies, but also something like BRK) that i know and understand and where i think i can roughly estimate the future return as dividend yield+growth+valuation change. I mix this with a ranking system based on value, momentum, low vola and quality (and where i know that the ranking worked the past 20 years). All the data for that comes from portfolio123. I hold around 15-25 companies with higher allocations to stocks where ranking+future return leads to me believe they are better bets. As stocks approach a future return <10% i sell and buy stocks on the top of my list, than just rinse and repeat. This has worked for me and i beat the market by a small margin (2-4% per year on average), even though the last several weeks this margin gets bigger and bigger.

Funnily the part that i completly manage with portfolio123 which is a small cap strategy based on Ben Graham's work has blown all my returns out of the water and its compounding north of 20% returns. And it is less work than my sheet strategy. Sadly it only works with small amounts of money.

Since i believe in seasonality and hate large drawdowns i buy put options on the DAX at the start of May every year which i plan to sell when we see a 20% drawdown. I buy a 5% position 5% out of the money with 6-7 month to expiration and so that i get 5 times my money out of them when a 15-20% drawdown happens. On average in the past that happened every 5 years. It works like a volatility dampener in good and bad years and has lead to 1-2% overall higher returns in my backtests. Sadly we didn't have large drawdowns the last several years so i am in the red on this right now, but that one year will turn that around when it comes. ( and who knows, maybe it is this year )

[zbigi]

The other 50% of my portfolio goes into individual companies whose products I personally use and appreciate. I have an unusual habit: when I like a product, I check the label to find out who manufactures it, and then I investigate the company’s ticker to consider investing in it.

I don't think that's unusual, I've read about plenty of people doing the same. This leads me to wonder whether there's a bias in the market for consumer product-making companies, generated by people who invest like you, and whether B2B companies, esp. in niche markets (e.g. manufacturers of mining equipment, sulfuric acid etc.) are undervalued.

EDIT: grammar

[fiby41]

India had Asia's first stock market yet stock market penetration is 17% of households.

I had use screener.in to research Oil India Limited which was in Decemeber 2023 at 0.7 book value and has since tripled.

Equities are 0% of my portfolio and I have a few units of MIDCAPETF left to remind me of what I am missing out in the form of post-lockdown retail-investor led boom by showing +112.16% next to it.

[fiby41]

This leads me to wonder whether there's a bias in the market for consumer product-making companies

Availability heuristic: Peter Lynch, the former director of Fidelity’s Magellan Fund (one of the largest mutual funds), argues in favor of buying stock in firms that are unavailable in the minds of most investors (for example, due to their blandness); the more available the stock is, he notes, the more overvalued it will be.

[ertyu]

The more subject to momentum it will be, too: which might be a bug or a feature depending on one's investment strategy

[just]

I use portfolio123 for half of my portfolio. Google sheets for the other 50%.
I created a spreadsheet with 250 companies (mainly dividend growth companies, but also something like BRK) that i know and understand and where i think i can roughly estimate the future return as dividend yield+growth+valuation change. I mix this with a ranking system based on value, momentum, low vola and quality (and where i know that the ranking worked the past 20 years). All the data for that comes from portfolio123. I hold around 15-25 companies with higher allocations to stocks where ranking+future return leads to me believe they are better bets. As stocks approach a future return <10% i sell and buy stocks on the top of my list, than just rinse and repeat. This has worked for me and i beat the market by a small margin (2-4% per year on average), even though the last several weeks this margin gets bigger and bigger.

I tried something similar where I scraped the data from a website (when I was too cheap to pay for data), but found that it was too unstable when I used it on a broad range of stocks. By unstable I mean some stocks had gaps in the data or were impacted by one-year financial items. Using it on a more narrow set of companies with more stable returns sounds like a wise decision.

How do you measure growth (est. 3 year earnings growth?), and valuation change (revert to average p/e?)? And what about value and quality for the ranking? Simplywall.st has its own measures of value, future performance, past performance, health and dividend. Is it something similar on portfolio123?

Funnily the part that i completly manage with portfolio123 which is a small cap strategy based on Ben Graham's work has blown all my returns out of the water and its compounding north of 20% returns. And it is less work than my sheet strategy. Sadly it only works with small amounts of money.

Do you want to elaborate more on this strategy?

[frommi]

I fill gaps with my own data in the sheet. For growth i normally take the average analyst growth projection over the past 5 years, because this value often fluctuates a lot over the years, i also cap growth at 10% for my calculations, because even that is often not sustainable. 7-8% is the range that most quality companies can sustain over a long period, so thats my go to if i get N/A's. Dividend growth of the past several years is also a good predictor if that number is low. In the end i try to get an average growth rate that makes sense for the next 5 years and typically its very conservative.

Valuation change is either the mean of the past several years (i try to go back 5-10 years if growth has not come down massively since then) or a number that i think is appropriate. I try to average several numbers here, like fair value bases on P/E, EV/EBITDA, Bookvalue and dividend yield. For financials or cyclical stocks for example (0.434+RoE*14.12) is a good estimation of its fair value. (got that number from a book, where RoE is past 5 years average). But you can go on gurufocus.com and get a reasonable average from there. For very defensive stocks like PEP, KO, MDLZ i take upper limits of value, otherwise you will never get high enough estimated returns on them. But they often return to these numbers faster than "normal" companies. https://companiesmarketcap.com/ is also a good free site to see what valuation metric is appropriate for a company.

Quality in my ranking is typically measured as a rank of last quarters RoE and gross profit/assets. Value in the ranking is a mix of EV/EBITDA, shareholder yield, EV/EBITDA projected 3 years in the future, FCF/Mktcap, P/E,P/B etc. Using several value metrics has improved returns over the past 20 years in the backtest.

My smallcap strategy is a system based on NCAV (liquidation value). You want companies that buyback shares or at least don't issue a lot of shares, and where NCAV is stable or growing. NCAV is a good proxy of liquidation value of a company, its typically the lowest value you can assign to a company with no earnings. You can basically liquidate the company and pull out that money. And it is very easy to calculate (net current assets-total liabilites-preferred equity)/shares outstanding.
So if a company also earns money, the true business value should be higher than NCAV. You will see a lot of takeovers in this segment, because companies are so cheap. Typically companies lose money when i buy them, but one quarter of earnings or cashflow or a takeover and the stock price shoots up. There are several books on this topic, for example Evan Bleeker's: Benjamin Graham’s Net-Net Stock Strategy. There are also some free papers on the performance of NCAV stocks in the net: https://greenbackd.com/2010/01/21/monti ... -strategy/

[Lemur]

Excel spreadsheet that I update once a month. I generally just keep an allocation split between 90% (VTI, VXUS, VTV, VIG) and 10% (Cash, VGIT, JEPI, JEPQ). I generally understand the active stock picking vs passive index funds debate but after years of experimenting I opted for the latter. I picked some winners here and there and had the occassional big winner or loser from options plays - but my biggest flaw was that I realized I didn't have the right tempermant to let positions play out over the long-run. So I decided I wanted to be hands-off. OTOH, my biggest win is recognizing that and changing course. I now sleep well at night.

[just]

@Lemur

I'm also not sure whether I have the temperament for active stock picking in the long run. How much I follow the market varies a lot over a year. I guess that speaks for going passive if I can't sustain the effort, but I can't quite let it go. I do have 30% of my portfolio in a global index. Maybe I ought to make that a larger percentage and only stock pick a smaller portion.

Do you not get the urge to invest actively every once in a while?

[Henry]

but my biggest flaw was that I realized I didn't have the right tempermant to let positions play out over the long-run.

That's the existential rubber hitting the stock market road. Not just the volatility but the lack of movement a stock can display for years, sometimes a decade. Buy and hold pertains to the stock. Buy and hold on is the person.

[Lemur]

@just

At first when I retired* from active stock picking (and options), I would keep checking the markets/apps and keep my eye on things. Those urges decreased over-time. Now I don't even have the risk tolerance to put even 1% of my portfolio on a stock.

* I think I would need a catastrophic pandemic-like market crash for me to look at buying opportunities again. And even then I might not care...I'm more focused on other things.

I kinda like how @oku invests. Reminds me of some ideas I read from Peter Lynch a long time ago. My advice would be to perhaps split things 50/50. Half index, half active. Compare your performance after 10 years. You may invest in the next NVDA who knows. Or you may realize that you wasted your time and would've been better off with the indexes. Either way you will gain some insight about investing but also about yourself.

You'll find out overtime how you play each hand. Kind of like poker. Do you bet big when you've a strong enough conviction on a business? With conviction in a business, do you typically raise or fold on the flop (down 10%), turn (down 25%), or river (down 50%)? How you handle loss aversion is important...but can you also hold for bigger gains on the reverse when you're right?

[frommi]

Half index, half active. Compare your performance after 10 years. You may invest in the next NVDA who knows. Or you may realize that you wasted your time and would've been better off with the indexes. Either way you will gain some insight about investing but also about yourself.

A lot of people do it this way and i think it is the completly wrong way to do it. It puts outcome before progress, you know exactly nothing if you don't know how exactly you picked your stocks. Focus on the process (and backtest it over many years and market cycles) and the outcome will follow sooner or later.

[Lemur]

@frommi

ah. You make a good point. I retract my advice then because it is a bit too outcome focused.
https://www.nextgov.com/ideas/2022/05/g ... ome/366971

This did remind me of something...I do remember Jacob has previous posts about these maxims...don't know the origins but they go something like:

Good thinking process ---> Good Outcome (good decisions ++)
Good thinking process --> Bad Outcome (bad luck +-)
Bad thinking process ---> Good Outcome (dumb luck -+)
Bad thinking process --> Bad Outcome (poor decisions --)

Best served to figure out then how to build a good thinking process around investments. But also some wisdom may come from pulling in different fields, skills, and educational backgrounds...which is where I was going with the poker analogy.

[FieDollar]

Simple buy and hold using discretion as to how dividends are reinvested and how your new money is invested. Sell when you opinion of the company changes. Go with Bond ETF vs money market fund IMHO. 10% in cash sounds like a losing strategy but good for piece of mind.

The second best strategy would be to use a random number generator or use an animal such as a monkey. These are both proven to beat "stock pickers" over the long run.

[FieDollar]

Simple buy and hold using discretion as to how dividends are reinvested and how your new money is invested. Sell when you opinion of the company changes. Go with Bond ETF vs money market fund IMHO. 10% in cash sounds like a losing strategy but good for piece of mind.

The second best strategy would be to use a random number generator or use an animal such as a monkey. These are both proven to beat "stock pickers" over the long run.

Important to point out that the bulk of this research was done before everyone scrapped transaction fees.Taxes and transactions fees used to be the dirty little secret that all of the stock picking gurus would forget to tell their followers about, and in many cases, the difference between beating the market and not beating the market.