Thursday, 12 September 2013

Reasons and tips to stay on top of your existing investments

I was recently looking at the stocks in my share portfolio and I noticed one thing.  Although I remembered exactly why I entered most of them and what I thought the value was at the time of entering them, for some of the stocks in there I had no idea what they were currently worth, whether I still wanted to hold onto them and whether they were still good value.

I think this is a problem that many people face they invest.  They put a lot of effort in up front but very little into maintaining and interest in those stocks once they are in the portfolio.  

In my case I have almost all of the examples I can think of
  1. Stocks that have performed exactly how I wanted them to and they hit the share price that I was forecasting for the reasons I was forecasting
  2. Stocks that have outperformed for reasons other than why I thought they would outperform and now I have no idea whether my original thesis still holds
  3. Stocks which have significantly underperformed for reasons that I had not forecast and I still expect them to perform
  4. Stocks which have underperformed and I do not know if they still offer good value
  5. Stocks that I think are still decent value but I've held them for a very very long time and they have made me no money
If I can have all of this going on in a portfolio which only contains 16 stocks (4 of which are index funds) then I'm sure people with more diverse portfolios have much larger problems.  

One of the hardest things to do as an investor is stay interested in your OLD ideas

Old ideas are not sexy, fun or offer the same potential as new ideas, however in terms of what drives your overall portfolio performance and value, this is where the bulk of your invested share capital is and theoretically should be where your attention is.  Keeping up with your old stocks is boring though, especially if nothing is happening.

I have several stocks which have not had particularly bad news, nor particularly good news and it means that they go to the bottom of priority pile.  What happens though is that I get 2 - 3 years down the track and realise that I know very little about this stock.  Further, I now have to go and re-evaluate my decision to actually be in the stock (which is almost like starting from scratch) for a stock which may not offer as compelling potential as other ideas that you may have.

Concentrated portfolios of direct bets make it easier to keep on top of your investments

Although some people advocate it quite strongly, I am not advocating a totally concentrated portfolio.  Indeed diversification offers increased returns for the same
level of risk taken on.  However I think you can achieve diversification in your portfolio through the use of things like index funds which are a cheap and easy way to access the whole share market return.  Further because you are not seeking to outperform (and you cannot under perform by definition) you can set and forget these investments.

A separate part of your capital base can then be allocated to direct share investments to enhance your returns and it is these investments which you need to keep on top of.  However as I indicated above, it is hard to do this and it is very easy to get behind so it is probably a good idea to have only a few of your best ideas in these types of investments.

Keep on top of your investments

If you are going to invest directly you need to keep on top of your investments.  As mentioned above, it is easier to do this if you do not have too many.  If it has already gotten out of hand for you or if (like me) you have stocks that you do not know a great deal about, it may be worth going through your portfolio - looking at the stocks you know nothing about and asking yourself whether you would enter the stock at the current price with the current outlook if you were looking at it from scratch.

Evaluate this decision versus your other investment ideas to work out if you should still be in that stock and perhaps consolidate your positions into your best ideas if you have too many on foot.  After you have a more manageable portfolio that you know and trust then keep on top of every announcement and development that the company makes.

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