Approach and attitude for PORTFOLIO INVESTING:
The KEY TO SUPERIOR RETURNS with ADEQUATE DIVERSIFICATION:
Don’t think this is some hi-fi, hni type, academic or finance-jargon!
In our view, portfolio investing is simply a strategy, or attitude or approach towards investments. For example, you want to invest. And by that we don’t only mean investment in equities (stock-markets). We mean, with stocks, investment into debt, real estate, mutual funds, commodities, local/indigenous businesses (we will explain this letter on).
Now this is a portfolio of investment. In finance/investment many people call it asset allocation and then diversification and may be some other names that we’re not yet aware of! Some also call it diversification. Ultimately it’s a portfolio of something, here investments.
Here we want to explain portfolio investing for equities.
But, at the first place why it is so important that we want to talk about ‘portfolio investing’?
It is very important to read the answer for this.
Many of you invest in anything (here, stocks) in complete isolation. Meaning thereby you pick a stock and invest in it. Sometime later you pick another stock and buy it. Let’s not talk about how you pick it.
Are you getting it?
Most of you most of the times, invest in one stock at a time. (of course, unless and until you are investing in a mutual fund scheme). Thus you are always feared and prone to one or many of the
ahead listed say, ‘overconcentration’, ‘over-diversification’, ‘inferior returns’, and so on.
Thus, less than average people out of you lose money in the medium run, and generate inferior returns or worse capital loss in the long run. Say, you may have invested in Reliance Communication at 600 or 800 Rs. and now what is the price? Rs.200, not even 200! But, suppose, you didn’t had any idea about bubbles, valuations, bull and bear runs, or never believed in market timing; and still have diversified into a certain number of limited stocks with inter sector diversification. And may be with a good valuation for some of them; if you were either lucky or intelligent enough to do so. Then in that case you may have saved yourself from the losses you generated due to ‘investing in one stock in isolation’, as well as getting no benefit of the following bull market.
Please note here, we are not and have never advocated for mutual fund schemes (except for some extremely good schemes and schemes for which substitute in secondary market is not available, or for a very small investor, investing through SIP route for a very longer duration). Everyone have known how and why mutual fund AUMs are coming down despite rosy conditions in the stock market and les schemes have been able to even recover what they lost in last crash.
Thus PORTFOLIO INVESTING is opposite to investing in isolation in any one stock, and rather looking at any stock as a constituent to you whole ‘equity portfolio/special sub portfolio’ or ‘theme’ within the equity portfolio.
For example, in our opinion, a normal investor’s ideal portfolio should consist largecap, midcap, smallcap, as well as penny stocks too. These are generalized classification, as far as we are concerned we use many different classifications and approach. Even among these popular classifications, we sometime define them differently than what usually market participants do.
So, you have understood that each stock should not be bought and looked at in isolation, but as a constituent of a portfolio. This is what we call PORTFOLIO INVESTING attitude and approach. It’s the art and science of right trade-off between concentration and diversification that make this method (its not a method but an approach and style) successful.
In fact, knowingly or unknowingly, successful investors become successful due to the working of this approach.
One thing also to keep in mind is that when we say that a stock is a constituent of a portfolio and is not looked or invested in isolation. It is always certain proportion to the portfolio. This basic logic is what makes it a constituent and an important constituent of a portfolio. There are more quantitative and qualitative logics to it.
OUR ‘Ready-to-Invest’ PORTFOLIOS: are also the child of the same approach.
These portfolios have been formed by us over the two years of research.
The portfolios are very specific as to,
- The number of stocks
- The expected holding period
- The expected return in percentage
- The theme/core argument/logic/objective orientation of the portfolio, say ‘investing for 5-10 yr. long, or ‘small cap portfolio’, or emerging companies portfolio’.etc.
- Regular monitoring of the portfolio, if any changes are required, if due to anything any of the above listed things are distorted or would be potentially distorted/threatened.
Please visit the below link, to learn and buy our various Ready-to-Invest portfolios,
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