One of the most neglected aspect do-it-yourself investors is performing a realistic assessment of their portfolios. I have adopted a very disciplined approach to make sure I follow my quarterly regime of reviewing the progress. First step was to check out the status. Second step is to understand risk, and third step is to make changes (or execute or re-balance if necessary).
In earlier post, I presented the progress update of TIPBlog portfolio. The next step is to analyze risk in the context of my personal risk profile parameters. The objective of this risk analysis is to make sure that TIP portfolio is not exposed to any particular event, or company, or any other aspect that will affect portfolio performance.
My portfolio management process has a risk management process in which I try to:
- Maintain pre-determined asset class allocation;
- Maintain pre-determined diversification, any sector should not exceed 10%;
- Any single stock should not exceed 7% of the portfolio; and
- Dividends from a single stock should not exceed 5% of total dividend cash flow.
The 3Q2009 can be summarized as quarter of recovery. In my post 
In an earlier post, I mentioned that I use XIRR as one of the metrics for measuring the individual stocks performance in my portfolio. In simple terms, XIRR is the interest rate you would need to make the same money from any interest bearing account (with same investments). While XIRR can be extended at portfolio level, in today’s post, I am only discussing how I use XIRR at individual stock level.
I am not a fan of IPOs. I do not consider them an attractive opportunity for my investment objectives. In general, companies or organization come to the market with IPOs to generate capital. Their objectives are to generate as much capital as possible with minimum possible dilution. Companies usually choose opportune time frame to offer it to open public so that sufficient premium can be added to fair value (or book value). I do not find fault with the company. They are doing what they are supposed to do. They are attempting to meet their objective to get maximum possible value from the market.
In my last post, I discussed about two important but overlooked aspects about dividend investing. Today, I am discussing few tidbit that I have learnt over the years. 
Measuring Progress – XIRR as Personal Rate of Return
In this context, I use few different monitoring and/or performance metric. Earlier, I have talked about yield on cost as one metric to determine cash flow (or dividends) received from my original investments. YOC is a very good metric to measure the growth of your dividend based cash flow over a period of time. However, it has a drawback. It does not take into account the variability of capital invested. The price of the stock does not remain static. It keeps changing over a period of time.
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