Portfolio Allocation / Management

[shanrui_91]

I would have to allocate considerable work and research to be able to identify "new" companies which are not part of my portfolio, and which are attractive. Even then, I must consider what I mean by "attractive". Industry attractiveness, valuations across comps and intrinsic value after accounting for various factors, all play a part in that determination.

Then there is also the opportunity cost test - balancing one investment opportunity against another to see how I should allocate my funds. It may be all on one company, or 50:50; it really depends. No hard and fast rules to this.

Ultimately it all boils down to my risk-return assessment and factoring in my holding period (and dividend yield while waiting).

maybe i am not direct enough. I just wish to ask if you will consider expanding your number of holdings should the opportunity arise. For e.g the next GFC

[Musicwhiz]

Hi MW, great to see your sharing. Do you have a template or guideline to help you decide on the risk-return assessment or opportunity cost? Or it is more a "art" way of approach based on gut feeling at the very end of the decision process? I find myself hitting the gut feeling path very often which has resulted to my poor performance. Perhaps my investment decision process is not as stringent as yours.

Haha no it's not based on gut feel; I could get into a lot of trouble if I invested based on that!

I derive metrics for valuation such as PER, P/B, Dividend yield etc. Then I compare valuations across a specific industry if possible. It's based on the numbers and forecase of prospects. That said, it takes a huge amount of work, and lots of reading.

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Hi Shanrui,

Unlikely. My work is taking up too much of my time for me to conduct extensive due D, and I also have family commitments.

[dzwm87]

What will you do if there are 2 new companies or more that you have been looking at become significantly undervalued? Will you add them into your portfolio or will you choose to focus on averaging down on your portfolio considering that the 2 new companies are better and more undervalued than your portfolio?

I will switch out and enter into the 2 new & better investment opportunities. This is due to the concept of opportunity cost. No point adding to the total amount of stocks hold. Eventually, this will end up of 1-2% of your portfolio holding these new ideas and they aren't going to move your overall NAV by much.

Of course, I am implicitly assuming that I have hit the optimal amount of stocks which my portfolio can hold. But more importantly, I have to be convicted that the new stock is really good and not just a simple valuation metric such as the P/E is lower, etc.

[freedom]

if having difficulty to buy which one, just follow Lynch, buy all and sell later if they did not perform.

[KopiKat]

If you have a hobby when you were young (or even now), collecting stuff like Stamps, Coins or Trading Cards (younger generation), somehow, you'd have bothered to read and research on what's rare and valuable and what's almost like junk and worthless. You'd then try to collect more of the rare and valuable ones, especially if you can get it at attractive prices.

For stocks, I adopt the same approach. When you are new (or new stock), you have to do your research. Over time, thro' scientific means (number crunching) plus non-scientific means (mgmt, moat,..) you get a good feel of what's good and what's rotten (many get emotional here and hang on their rotten stuff in the hope of a miraculous recovery). You'd then add to your portfoilio for the good ones during times when it's going for a discount or for those that continue to appreciate in value (Growth), it'd be ok to pay a higher price whenever you have the spare cash.

The confidence to add is also proportional to how well you know the stock. So, add or reduce to the level you don't lose sleep.. Very easy to say, but hard to practise as we are after all not machines..

[CityFarmer]

What will you do if there are 2 new companies or more that you have been looking at become significantly undervalued? Will you add them into your portfolio or will you choose to focus on averaging down on your portfolio considering that the 2 new companies are better and more undervalued than your portfolio?

I will switch out and enter into the 2 new & better investment opportunities. This is due to the concept of opportunity cost. No point adding to the total amount of stocks hold. Eventually, this will end up of 1-2% of your portfolio holding these new ideas and they aren't going to move your overall NAV by much.

Of course, I am implicitly assuming that I have hit the optimal amount of stocks which my portfolio can hold. But more importantly, I have to be convicted that the new stock is really good and not just a simple valuation metric such as the P/E is lower, etc.

Let me share my view

The total number of stock to hold is restricted to 10 for me, might not necessary always on 10, but should not be more than that. The reason is focus, time is not enough

If I am convince that the new stock is better than the existing one, i will trigger the switching, might not do it overnight, but over the suitable time frame.

[uginlai]

hi there

Would like to ask all for opinions on investing in bonds for asset allocation?

[yeokiwi]

If you have a hobby when you were young (or even now), collecting stuff like Stamps, Coins or Trading Cards (younger generation), somehow, you'd have bothered to read and research on what's rare and valuable and what's almost like junk and worthless. You'd then try to collect more of the rare and valuable ones, especially if you can get it at attractive prices.

For stocks, I adopt the same approach. When you are new (or new stock), you have to do your research. Over time, thro' scientific means (number crunching) plus non-scientific means (mgmt, moat,..) you get a good feel of what's good and what's rotten (many get emotional here and hang on their rotten stuff in the hope of a miraculous recovery). You'd then add to your portfoilio for the good ones during times when it's going for a discount or for those that continue to appreciate in value (Growth), it'd be ok to pay a higher price whenever you have the spare cash.

The confidence to add is also proportional to how well you know the stock. So, add or reduce to the level you don't lose sleep.. Very easy to say, but hard to practise as we are after all not machines..

I run my portfolio like a company. Every quarter i will take the ones that are under performing as compared to the rest and think through it. After serious consideration and coming to the conclusion that the under performing ones are not going to give me a reasonable return in the next few years, I will divest away.
The divested fund will either stay idle or reinvested into those that are high in my desired list of stocks.

So, I practiced a certain attrition rate to my long list of stocks(longer than most people). It does help to recycle the fund for new investment or back into current investment.

It may only be practical if you own a long list of stocks though.

[Temperament]

If you have a hobby when you were young (or even now), collecting stuff like Stamps, Coins or Trading Cards (younger generation), somehow, you'd have bothered to read and research on what's rare and valuable and what's almost like junk and worthless. You'd then try to collect more of the rare and valuable ones, especially if you can get it at attractive prices.

For stocks, I adopt the same approach. When you are new (or new stock), you have to do your research. Over time, thro' scientific means (number crunching) plus non-scientific means (mgmt, moat,..) you get a good feel of what's good and what's rotten (many get emotional here and hang on their rotten stuff in the hope of a miraculous recovery). You'd then add to your portfoilio for the good ones during times when it's going for a discount or for those that continue to appreciate in value (Growth), it'd be ok to pay a higher price whenever you have the spare cash.

The confidence to add is also proportional to how well you know the stock. So, add or reduce to the level you don't lose sleep.. Very easy to say, but hard to practise as we are after all not machines..

I run my portfolio like a company. Every quarter i will take the ones that are under performing as compared to the rest and think through it. After serious consideration and coming to the conclusion that the under performing ones are not going to give me a reasonable return in the next few years, I will divest away.
The divested fund will either stay idle or reinvested into those that are high in my desired list of stocks.

So, I practiced a certain attrition rate to my long list of stocks(longer than most people). It does help to recycle the fund for new investment or back into current investment.

It may only be practical if you own a long list of stocks though.

Most professionals do what you do.
Only thing is they do it more often. Because they are always in the market.
i am trying to learn a bit from them.

[mrEngineer]

Hi yeokiwi,

Do you have a limit on how long your list of stocks should be? Care to share the rough number on the list? 10, 20, 30? Thanks