The overall interest in investing in stock market is back with full swing. Almost everybody is talking about bonds, IPOs, real estate as if they have been invented recently. Having said that, I love the passion behind it when they talk about it. When folks talk with passion and fire in their bellies, a newbie coming right of the college thinks, wow! that’s the way to go. Recently, a distant family acquaintance was asking me about my opinion about recent surge in IPOs, bonds, and stock market rise. This kid will be graduating next summer (note: next summer, i.e. 2011) from an engineering school and has already got a decent job through campus recruitment. The salary cash flow has not started, and he is already planning to “get-in the market”. He was “researching” what are different methods to make successful “bets” in the market. Continue reading rest of this article…
Learning Points for a Newbie Investor
Risk Analysis of TIPBlog Portfolio 3Q2009
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.
Number of Stocks in Long Term Portfolio
There are two questions that will always haunt any long term investor. One is about what is a right asset allocation, and second is how many stocks one needs in a long term portfolio. I do not think there is any boiler plate type of answer to these questions. I believe while it is absolutely necessary to have an optimum asset allocation and multiple number of stocks, the actual percentage allocation or number of stocks will depend upon individuals risk profile, willing to learn, willing to spend time reading about companies, etc. In addition, these two aspects cannot be generalized and it cannot be a static numbers. These have to be dynamic and should change with the investing time period. Having said that following is my thought process for my long term portfolio.
My Investment Risk Profile
Attempting to determine our own investment risk profile is very subjective aspect. This is because of personal bias creeping into our analysis, natural tendency to be perennial optimistic, and biasing due to business media projections. I believe that risk profiling is very much individualistic (i.e. one individual or one family). Every individual will have a unique risk definition. Now it is possible that qualitatively, the risk profile could be classified in similar groups. However, quantitatively it would be different for each individual. Continue reading rest of this article…
Stock Market for 2010: What’s Your Prediction ?
As year 2009 is nearing completion, I have been reading new predictions and themes for year 2010. It is quite amusing to read what folks have to say. I always wonder do any of these forecasters follow their own advice. Could we take a peek at their portfolios? Here are few excerpts: Continue reading rest of this article…