How to Balance Long term portfolio

pkjha30 · #1 23rd May 2006, 12:54 PM

Hi members

We have threads on technicals and fundamentals, emotions, humours,jokes and much despised tips.

I always felt a need to know how to balance one's porfolio. Most of the forum give buy and sell advice on various factors. But none tell us what to do to make a good long term portfolio and how to make entry calls and exit calls based on one's total holding and one's inclination.

Investible money is small incase of retail investor. I came to stock market for investment in the wake of 17th may crash. Future was even more bleak as there was much uncertainty in the market about the policies of new govt. But I was bullish( optimistic.) I made calls wrong and right ones. Every thing seemed wrong with my portfolio when market was zooming. I was afraid of bottom picking not knowing true valuations. But slowly it become solid. It has so far withstood shock of this crash. One of my stock hit upper circuit four days in a row when market was dropping in the abyss. I have analysed my emotions all through holding of my portfolio. I did not sell one single stock and no forced selling for me to cover losses. Yes it is down but not out.

During one talk with forum member I was shocked to know that he was holding about 70 stocks for sum as low as Rs. 5 lakh. It would take lot of time and effort to track those stocks. I had gone through some lessons in investing available on ICICI website ( for anybody, in research corner perhaps). Some extract I will put in my own words here later tonight, if response is favourable. The time to balance your portfolio might be coming soon( or has it come already, would like to wait and watch)

This sets me thinking that if portfolio balancing advice is given investors would benefit more.I request all knowledgeable members to contribute from this perspective also.

What do you say..???

Pankaj

nkpanjiyar · #2 23rd May 2006, 01:05 PM

Quote:

Originally Posted by pkjha30

Hi members

We have threads on technicals and fundamentals, emotions, humours,jokes and much despised tips.

I always felt a need to know how to balance one's porfolio. Most of the forum give buy and sell advice on various factors. But none tell us what to do to make a good long term portfolio and how to make entry calls and exit calls based on one's total holding and one's inclination.

Investible money is small incase of retail investor. I came to stock market for investment in the wake of 17th may crash. Future was even more bleak as there was much uncertainty in the market about the policies of new govt. But I was bullish( optimistic.) I made calls wrong and right ones. Every thing seemed wrong with my portfolio when market was zooming. I was afraid of bottom picking not knowing true valuations. But slowly it become solid. It has so far withstood shock of this crash. One of my stock hit upper circuit four days in a row when market was dropping in the abyss. I have analysed my emotions all through holding of my portfolio. I did not sell one single stock and no forced selling for me to cover losses. Yes it is down but not out.

During one talk with forum member I was shocked to know that he was holding about 70 stocks for sum as low as Rs. 5 lakh. It would take lot of time and effort to track those stocks. I had gone through some lessons in investing available on ICICI website ( for anybody, in research corner perhaps). Some extract I will put in my own words here later tonight, if response is favourable. The time to balance your portfolio might be coming soon( or has it come already, would like to wait and watch)

This sets me thinking that if portfolio balancing advice is given investors would benefit more.I request all knowledgeable members to contribute from this perspective also.

What do you say..???

Pankaj

Very nice question thrown Pankaj. I would say Portfolio Management goes hand in hand with any trade/invest. I would definitely ask that guy to reduce the number of stocks from 70 to less than 15. Having too much in portfolio is killing your overall returns.

Apart from this real Portfolio Management requires little mathematical and statistical calculation. But for easy understanding and as a thumb rule: don't diversify too much. Stick with good stocks (in terms of past performance, profit margin etc) and not with the big names always. Have a time frame or profit frame and exit without having much sustained greed temptation.

We will discuss on this more in detail later. Appreciate your posts.

cheers,
nkpanjiyar

murthymsr · #3 23rd May 2006, 01:32 PM

hi pankaj,

quote:
But I was bullish( optimistic.) I made calls wrong and right ones. Every thing seemed wrong with my portfolio when market was zooming. I was afraid of bottom picking not knowing true valuations.
:unquote

were you telling your story or mine?

the beginning of most of our stories is the same.

now is the time for retrospection.

it's good that we share our darker side too, without inhibitions.

murthymsr

srinivasud · #4 23rd May 2006, 01:38 PM

Quote:

Originally Posted by pkjha30

Hi members
During one talk with forum member I was shocked to know that he was holding about 70 stocks for sum as low as Rs. 5 lakh. It would take lot of time and effort to track those stocks. I had gone through some lessons in investing available on ICICI website ( for anybody, in research corner perhaps). Some extract I will put in my own words here later tonight, if response is favourable. The time to balance your portfolio might be coming soon( or has it come already, would like to wait and watch)

This sets me thinking that if portfolio balancing advice is given investors would benefit more.I request all knowledgeable members to contribute from this perspective also.

What do you say..???

Pankaj

Hi Pankaj,

Thank you very much. I am one of the nonsense guy who is holding around 58 stocks in 10 8 different sectors. I started the learning based on your suggestion in the Chat. I am very happy to learn more from you to maintain Longterm Portfolio.

Srini

vedhaas · #5 23rd May 2006, 03:51 PM

Hi Pankaj,
A Good thread and a needed one and at the correct hour.

Being optimistic,.... everybody goes through the phase, but once we learn the ropes, and move ahead... things work out fine.

whoever is holding 70stocks should be having a nightmare managing it. I basically feel, the guy is trying to spread his investment into all sectors and all... thinking he will minimise his risk. At least he has invested 5 lacs. I know of a person who has invested 50 thousand in 15 stocks. (I think he will be holding 5, 10,and ... of shares).
Whatever be the basis of the stock pick, TA or FA, we need to stick to a few stocks. Exit when you hit your predetermined profits.
I think we need discipline, discipline and more discipline. nothing else.
Discipline to not get greedy and exit. Discipline to have a mental stop loss in case of long term,Discipline to review the portfolio and exit even if booking loss instead of waiting for a miracle to happen.
If you are a long term investor, checking your portfolio everyday is not needed and of course is injurious to health(In today's volatility) but a weekly thorough review.

Views and tricks on managing is really needed more than tips.

cheers,
veda vyas.

ganeshhity · #6 23rd May 2006, 04:50 PM

Quote:

Originally Posted by vedhaas

Hi Pankaj,
A Good thread and a needed one and at the correct hour.

Being optimistic,.... everybody goes through the phase, but once we learn the ropes, and move ahead... things work out fine.

whoever is holding 70stocks should be having a nightmare managing it. I basically feel, the guy is trying to spread his investment into all sectors and all... thinking he will minimise his risk. At least he has invested 5 lacs. I know of a person who has invested 50 thousand in 15 stocks. (I think he will be holding 5, 10,and ... of shares).
Whatever be the basis of the stock pick, TA or FA, we need to stick to a few stocks. Exit when you hit your predetermined profits.

cheers,
veda vyas.

Diversifying portfolio...man, rubberband has a strechlimit...hope you understand....

I know a guy who invested 5000 rs in 50 different stocks for two years...he did that for learning...and now, now he's invested in 5-6 stocks with a capital of 5 lacks..that's how he learnt...

ganeshhity

pkjha30 · #7 27th May 2006, 08:51 PM

Hi

The Topic we are going to explore is balancing your portfolio so that you can be comfortable with it. So that it does not give you anxious moments and when time comes your exit routes are not altogether sealed by the turn of events.

The idea is not to give theoretical grounding but to provide signposts pointing to various directions one can go. I may not be able to answer all your querries. Members are rquested to reply if they know the answer. Members may also correct me if something wrong is stated.

This is aimed at pure novice who would like to set up a portfolio not at veterans and experts. As far as possible technical language would be avoided.

Quote:

How to build a portfolio:

1. Decide how much money you have available as surplus.
2. What is your age?
3. How much risk you are willing to take?
4. What is your own are of expertise?
5. What are the sources of revenue? and
6. What are the future expenditures that you have (capital expenditure such as education, buying a house, marriage, foreign trips, family obligations, medical bills ) Assesment only .

Set up your objective:

Clarity in objective is very much required. It provides directional thrust to your management os portfolio. In absence of any defined objective, your portfolio will just drift. The objective need not be static. Actually it is dynamic and keep on changing with times and situation.

Few examples are:

Whether you want to provide for additional source of income coupled with growth in your holdings

You want only growth without any regular cash returns.

You want to provide for Risk factor (like illness or death) coupled with growth.

Assess your risk profile:

It simply means how much money you can afford to loose.

If you are young and have a stable job with small monthly investible surplus you will have moderate risk profile.

If you are Young with high surplus cash flow, your risk profile will be high.

If you are old or about to retire or have retired then your risk profile will be low. i.e. you can't afford to loose money.

It will also mean if you have some emergent need would you depend on selling off your asset/investment to meet the requirement.

Just rate yourself on the basis of how much money you can afford to loose.

Asset Classes:

1. Land, houses

2. Fixed deposit, small savings, Recurring deposits, NSC, Provident Funds, Pension Funds

3. Insurances, both with risk cover only and with regular returns.
The regular returns gurantee returns from different sources. Some of them are from equity/MF or Govt. Bonds etc.

4.Equity and mutual Funds.

There are other examples as well.

A Balanced portfolio will have different asset classes included depending on the factors stated above.

Tomorrow we will deal with the Fund allocation based on the objectives, profile and availability.

Pankaj

rajesh.sadhanala · #8 27th May 2006, 10:50 PM

Quote:

Originally Posted by pkjha30

Hi

The Topic we are going to explore is balancing your portfolio at that you can be comfortable with it. So that it does not give you anxious moments and when time comes your exit routes are not altogether sealed by the turn of events.

The idea is not to give theoretical grounding but to provide signposts pointing ton various directions one can go. I may not be able to answer all your querries. Members are rquested to reply if they know the answer. Members may also correct me if something wrong is stated.

This is aimed at pure novice who would like to set up a portfolio not at veterans and experts. As far as possible technical language would be avoided.

Tomorrow we will deal with the Fund allocation based on the objectives, profile and availability.

Pankaj

Hi Pankaj,

A very much needed information on portifolio maintenance. Thanks for starting it and lot of points will be covered atleast for me.

Thanks once again

Raj

pkjha30 · #9 28th May 2006, 12:25 AM

Quote:

Originally Posted by rajesh.sadhanala

Hi Pankaj,

A very much needed information on portifolio maintenance. Thanks for starting it and lot of points will be covered atleast for me.

Thanks once again

Raj

Hi Raj

Glad that you think it will be useful. As Krthik said people are intereted in free tips like buy xyz at abc cmp ppp sl LLL intraday or something like that.

So this thread will end up like an art movie or perallel cinema.

I can not claim the carity and wisdom of SAINT nor analytical skill of AMIT or flow of NKP or depth of Karthik's relief

.

But if even one person finds it useful it is worth it.

Pankaj

pkjha30 · #10 28th May 2006, 09:53 PM

Hi

Let us Begin

Quote:

Objectives of Investment:

1. Capital appreciation:- Generally For those who are relatively young
2.Steady source of income:- Generally post retirement planning
2.Risk coverage :- Young to middle age group people

It could be a composite of all three.

Profile:

Group 1. High Risk taking capacity

a. Young age group(18-35)
b. Surplus money available, not required for other purposes.
c.Attitude

Group 2. Medium Risk Taking capacity

a. Middle age group(35-45)
b.Limited funds
c. planned obligatory expenditures
d.Need to have additional source of income.
e. wants to have some capital appreciation

Group 3.Low Risk Taking capacity

a. Higher age group(45-60)
b.Surplus funds available
c. Need to have steady source of income to supplement or provide for extra expenditure.
d.Saving for rainy days
e.If appreciates no problem. But capital should not be erroded.

Group 4.Lowest Risk Taking Capacity(60-above).Group

a. Limited fund
b. No assured source of income( may be pensions)
c.No savings.
d. Available money need to generate assured income.
e. Limited obligatory expenditure.

Age group is only indicative. Risk taking capacity varies from person to person. So determine you are in which group. A person with higher age profile may have hish risk taking capacity and a young person may have lower risk taking capacity. The guiding principle is are you willing to loose money , if yes then how much, what time frame.

Fund Availability and its type

1. Monthly availability

Regular saving habit can bring wonder to you financial plannings. It is always a good idea to save from your regular income for future expenses.

2. Yearly availability:

You get bonus, arrears, pay raise, additional profit from your business,
Generally infrequent in nature and could be used for corus of investment.

3. Capital availability

Large sums available.
Post retirement benefits, VRS benefits, payouts. Redemptions of your earlier investments Accruals are capital in nature and generally not linked with expenditure.

Decide what is the fund available and its nature. Some people augment funds by taking loans. Though it may not be a good idea in most cases.

Investment Pattern

I will assume here the investible surplus of Rs. 1 lakh and say monthly savings of Rs. 5000.Nothing said here applies to those who can afford cigars made of Dollar paper currency.

I will start with Low risk profile group : (Objective is to provide for 6-10 % of returns , inflation is beaten by 2-6 % on the record )

Investment options are

1. Various savings schemes offered by the government such as nsc, kvp, RD, FD in banks and postoffices, Government bond,POMIS of postoffices. These wil generate steady income and will be augmenting your income. The augmentation could be monthly quarterly or annually.FD /RD on maturiy is in the nature of capital appreciation.

2. Avoid MFs as there is risk of capital depreciation.

3.Stocks etc a strict no.

4. If in higher age group, insurance options will not be available or if offered it will charge hogh premium with low return

5. Requires limited monitoring of investment.

5. If in lower/middle age group, buy yourself a good insurance policy with risk cover and capital appreciation. either as a one time charge or on annual basis.
6. Lower age group or middle age group could also invest in house or plot. It will provide capital appreciation with limited risk.Loan repayments could be met out from monthly surplusses.

7.Gold deposit schemes of banks.

Oh people thought that investment could mean only one thing shares and shares and more shares. There is a world out there.

Well running out of time. Tomorrow rest of the groups will be covered.
If Boring , please avoid reading.

Pankaj

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