Investing for Survival
Take emotion out of it You should look over your portfolio two to four times a
year. In my own case, I follow a very structured process. I take all of the
investment ideas that I have gathered up since my last portfolio pruning, and
rate them on valuation, momentum, and accounting quality to arrive at a
composite measure of their overall desirability. I compare these ideas to the
companies that are already in my portfolio.
This sounds complicated and so it is. But exactly how you
do your ranking is less important than having a system for comparing the stocks
in your existing portfolio to the alternatives that the market is offering you.
Your goal should to take some of the emotion out of investing. You don’t want
to fall in love with the companies that you already own. To avoid this, I try
to pinpoint what companies in my ideas list are better than the median idea in
my portfolio. These become purchase candidates and I do further research
on them.
I also look at the companies in my portfolio that are below
the median in desirability, and I ask why I’m keeping them. In many cases, the
companies are less desirable because they’ve gone up in price and are no longer
as cheap as the once were. In other cases, they’re less desirable for the
opposite reason— the company’s business has deteriorated and shows no signs of
turning around. Every three to four months, I typically sell two or three
companies from my 35-stock list and replace them with more promising companies
from the ideas list. I
typically hold a stock for three years. Many of my ideas go against me at
first, but often turn and make money for me later.
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