Structuring a portfolio??

[percy]

Well thought out strategy KW....Nice to see.

I agree BIRMANBOY,however when I tried to add to KW's reputation,it said I had to add to someone else's.Appears I have commented on KW's reputation too often.!!!!!!!!!

[karen1]

Here's another slant on things.

Totally agree with percy!

Again, much as in Sparky's post, much of value in your post KW, and another one to be earmarked. Thank you.

[Ginger_steps_]

Hi KW, opening a separate portfolio in my case does make sense for my speculative stocks. Currently i use ASB- if i were to open another account with another bank is it a simple process to tranfer shares across?

Here's another slant on things. I have three portfolios. Each one has its own investing/trading strategy and rules. Each serves a different function. The aim of investing is to deliver the outcomes you want, which will vary according to each investors needs/wants. Figure out what you want/need and structure your portfolio(s) accordingly.

Portfolio 1: Income stocks. Good long term solid companies with a history of capital growth, with a dividend yield above the prevailing cost of credit. These stocks are the ones I rely on to deliver an income, regardless of what happens to my capital (ie. through market ups and downs, corrections, crashes, etc). I often reinvest gains from my other portfolio into this one as ultimately I want dividends to provide a fully self sufficient income stream that I can live on comfortably for the rest of my life. There are currently five stocks in this portfolio and I'm always looking for others to add to it as it only comprises 20% of my total capital at the moment.

Portfolio 2: Growth stocks. Stocks I believe have good long term growth prospects, that are all profitable and most of which also pay a dividend. The bulk of my money is in these stocks. And like the experts say, no matter how good you are, you will not be able to pick the outperformers 100% of the time (hey, I'm a SIV holder!) and often the ones that do perform well will be the ones that surprise you. This is because stocks that become market darlings will take off, regardless of whether or not their fundamentals justify it. I have approx 15-20 stocks in this portfolio. They require minimal attention, and I top up when market ructions present good buying opportunities. I sell them if they break their long term uptrend, but otherwise its a buy and hold portfolio and designed to achieve long term capital gains that beat the index (I aim for 15-20% returns a year). 60% of my capital is in this portfolio.

Portfolio 3: Speculative stocks. Stocks I believe that are on the cusp of rerating, have or are about to become cashflow positive and/or profitable, that present a quick trading opportunity etc. There are 10-12 stocks in this portfolio, and with these stocks I expect one or two to outperform, but I have no idea which ones will become hot copper plays, promoted by a newsletter, or purchased by a big investor, or which will discover the "next big thing" etc - whatever it is that will give the stock price wings. I just try to minimise my losses and ride the wave of the stocks that do perform. I have purchased stocks in this portfolio that I think are sure winners, only to see them go nowhere, and have passed up others as not being operationally or financially sound enough, only for those ones to go on to make massive gains. So I agree, can't pick em, don't try, spread your money around and wait to see what flies, then work it. This portfolio is for fun, something for me to do on a daily basis, and is a testing ground for trying out new trading strategies so that I can learn. I have about 20% of my total capital in this portfolio.

Anyone that thinks that holding 30-40 stocks is going to "average or mirror" the index is dreaming - there are around 2,200 stocks on the ASX, so I hold less than 2% of the market. Hopefully the better performing 2%

[Ginger_steps_]

Ah ok. I was thinking more along the lines of seperating portfolios into investment/trading in order to avoid paying capital gains tax on all my shares. Not sure if this is even possible with the NZ IRD.... can anyone else help out here? To answer your question, no i probably dont trade enough to qualify for an IB account. Thanks for your input KW

With your spec shares do you trade enough to qualify for a trader account with IB? If not, then its probably not going to make much difference which broker you use, so you might as well keep everything with ASB. I'm not sure how the NZ market works but on the ASX you can transfer CHESS sponsorship of shares to different brokers. Havent tried it myself, someone else might know more.

If its not about brokerage, but simply quarantining spec shares, then just use Yahoo Finance to track each individual portfolio and their performance. The actual broker you use doesnt matter, its more important to keep an eye on each stock and make sure you follow your specified strategy for each one.

[Harvey Specter]

With your spec shares do you trade enough to qualify for a trader account with IB? .

who is IB, or is it just any investment bank like JBWare? What's the commission on a trader account?

Ah ok. I was thinking more along the lines of seperating portfolios into investment/trading in order to avoid paying capital gains tax on all my shares. Not sure if this is even possible with the NZ IRD..

there is no tainting with shares so no need for separate portfolios. However, from an evidentiary perspective, I would use something that recorded you intentions at the time you make it and can't be changed (ie. Provided an audit trail). As such, the likes of google finance probably aren't enough as you could change it after the fact without leaving a history. Something like Sharesight that time stamps comments or even use google finance but back up with an email to yourself that is time stamped would also work.

[Ginger_steps_]

Thanks Harvey and KW - havent checked this thresd for a while with xmas and all - appreciate your thoughts and suggestions.

[percy]

My 2c worth.

Put no more than 20% of your "invested capital" into one stock, when you know that there is a wonderful growth opportunity that can outperform most other stocks. This is when there is a clear case of price irrationality. Note the use of "invested capital" - I view profits in the portfolio differently to the original capital put in. It is the original capital which I seek to protect.

I ascribe to the Monish Pabrai school of thought which is "Few bets, big bets, infrequently made" (see his excellent book the Dhandho Investor). Pabrai is a disciple of Warren Buffett, and manages the successful Pabrai Funds in the USA. So, for example, I bought up a LOT of Ryman back when they were $2.50-$3.20 (that Ngai Tahu placement was a gift!). But that involved meeting with company people, analysts and visiting Ryman villages around NZ over 2012. So lots of homework to justify the holding. You need to be overweight in your winners for extended periods if you want to make some good money from them.

Or, put it another way, you need to go hard in a couple of stocks when you know the odds are with you. Having 20 different stocks with 5% each is mindless. You would be better to give your money to Milford or Fisher Funds, or buy 4 or 5 ETFs instead. The only way you can get significant portfolio outperformance is by going overweight when you are prepared to risk on the odds you assess. And please don't think I mean "odds" like gambling. Rather, I refer to a considered assessment of price and the likelihood of strong gains over time based on the pricing irrationality you can take advantage of. (Refer Ryman back in early-mid 2012).

Conversely, I don't seek to have lots of little bets everywhere - too hard to manage. My smallest holding is around 2.5% of my portfolio (a US company). My second smallest is a North American ETF of around the same value. I look to top up my smaller holdings on pricing weakness as more capital becomes available. My largest holding is 31.5% of my portfolio, a NZ company. I have 13 holdings at present, but intend to see that increase over 2014 to maybe 15 or 16 if I can find the right plays at the right price. Maybe more if Australia or Europe beckons (I hold no funds in AUD or EUR).

As a rule, I have bigger investments in NZ than in other countries, partly because the NZ story is good, and because I like to visit my investments and talk to the people at those companies. Can't do that with US companies anywhere near as easily.

Obviously, diversification is useful - but don't think of diversification as lots of stocks in a portfolio. Think of it as non-correlation - e.g., owning RYM, DIL, CAV and PEB because retirement stocks aren't linked to SaaS, and biotech isn't linked to slow moving consumer goods like carpets. You don't panic about owning Xero and Summerset, or Auckland Airport and Briscoes. So a good diversified equity portfolio might still have only 5-8 stocks.

Thank you Sparky,Christchurch library is ordering a copy of Dhandho Investor,which I am sure I will learn a lot from..