A Guide to Basic Portfolio Management

When managing portfolios, an investing protocol can vary depending on the sector covered, on the duration of the portfolio picks, and on a bottoms-up or top-down approach. I am an expert portfolio manager for consumer staple stocks and spent over 20 years developing and implementing systems that have allowed her to gain success with high conviction positions both on the long and short side.

I offer basic advice for managing portfolios and what it takes to determine the action, thesis, catalysts, valuation, and sentiment, important variants that can impact a return at a specific time while understanding the potential risk.

Portfolio management can be more of an instinctive art than an exact science, although it can be done either passively or actively. Index investing is passive portfolio management which, quite simply, is the monitoring and tracking of a stock and its performance over time.

Active management often involves an extremely well-versed team or, in some cases, an individual who makes every attempt to beat the market based on research, valuation analysis, and market sentiment.

I am an active manager and, with over the past 20 years, I’ve established an ability to read cues to better assess what a particular stock could do. My goal is to interact with management teams, sellside analysts, and even other buy side portfolio managers and analysts to better understand sentiment of a particular stock.

The strongest way to build a portfolio of stocks with high conviction is to do some of the following. Understand your sector and stay with it for years to build expertise, allowing you to pick up on nuances of names you know well and have honed a skill in recognizing when a stock is oversold and too expensive. Curry ongoing relationships with top managements so you can recognize when body language, a change in tone, or willingness to meet and speak is a warranted concern for your position.

Build your own quarterly and annual financial models. This is vital to enable you to spot any line items that may give a company issue and allows you to have more in-depth conversations with management companies. The companies know when you build your own models versus using one from the sellside. Without investing your own time maintaining models and making estimates, you might have a lower conviction on names in your portfolio because you have not done the bottoms-up work to better know and understand the specific variables that could impact a company.

Finally, don’t look at any one position in a vacuum. Rank order the stocks in your universe against each other. This takes the emotion out of where a company may rank on a p/e basis, ev/ebitda, short interest, or dividend yield, just to name a few. If you maintain a ranking of about ~100–150 stocks in your sector, you can see particular stocks that you watch move up or down the rankings, and those can be clues as to why a stock is performing (or not performing) and can offer areas to dig deeper.


The only true thing that any portfolio manager can attest to is that there is no way to predict with absolute certainty how well a stock will do over time. Having no one stock be an outsized position in the total portfolio helps mitigate risk. Having stocks in varied subsectors within a broader sector can also help address concentration. For example, if you are long both Coca-Cola (KO) and PepsiCo (PEP), you have double the exposure to soft drink companies and, if a bill were to pass that taxed sugary drinks, both stocks could be adversely impacted, which would have a multiplier effect on your portfolio. If you are short two companies that have high short interest as a percent of the float if risk is on and stocks are bid up, both of those stocks could see a short squeeze. Always look to add positions that have varied durations, and catalysts, which will enable you to capture returns throughout the year, not just during the four-times-a-year earnings season.

Stay on Top of Trends

It’s essential to stay on top of the news and trends that come from any companies within your particular universe. For me, as my focus is consumer staples, I like to spend time talking to sellside and buy-side analysts to gauge the temperature of the market and stock sentiment and build a complete picture of the stock prior to adding a consumer staples position to my portfolio.

Build Your Own Quarterly and Annual Investment Models

It’s been my experience that many investment managers and novice portfolio management associates tend to rely on quarterly and annual models that they obtain from sellside analysts within their sector.

You cannot build a portfolio of high conviction stocks if you borrow sellside models and merely adjust some of the line items. It could be more difficult to follow and track changes to topline, margins, or earnings if relying on someone else’s estimates and assumptions.

When you take the time to build your own models and re-evaluate them each quarter, it allows you to have an intimate understanding of patterns within the models. You can have greater confidence that the numbers you’re seeing reflect the fundamentals and valuation of a stock.

Maintain Lifelong Relationships

When you take the time to build company models quarter in and quarter out, you can naturally build a strong relationship with company managements. Once you delve deeply into earnings for your companies, you ask more thoughtful and precise questions to management. Top managements appreciate the knowledge of their companies that you display when you build your own model and take time to meet with them.

I would never have a position in the portfolio without first speaking to and/or meeting with the top managements of a company I’m interested in adding to my portfolio. Companies also appreciate sector specialists, as they tend to have a deeper understanding of the space, versus a generalist who may only be interested in their stock for a short period, potentially causing trading volatility. Finding every opportunity to meet with managements at consumer conferences and investor days and setting up quarterly calls with management companies helps familiarize c-suite executives with your approach, style, and depth of knowledge regarding their company.

Focus Your Attention on One or Two Related Sectors

Part of the reason that I’ve been so successful for the past 20 years in finding high conviction stocks is that I’ve been able to learn, adapt, and utilize my particular approach in finding these stocks within consumer staples. When you focus your attention on a small sector, you’re able to develop a nuanced approach to trades.

I chose consumer staples because I found it exciting. There is always the potential for robust returns, particularly from companies who exhibit a healthy cash flow and generally have a lower beta. My advice would be to find a sector and stick with it over the course of at least a decade. Jumping to the next exciting and new sector will make it harder to be an expert in any one sector.

Don’t Be Afraid to Ask For More

As a young associate, I chose to ask for as many opportunities as I could to help grow my expertise in and around my sector. It’s essential that you ask for more when it comes to the people and team that you work with.

You will spend much of your career advocating for companies for your portfolio, but it’s essential that you choose to also advocate for yourself.

About Sandy Chin

Sandy Chin has covered consumer staple stocks for over 20 years. She ran the hedge fund Tidal Bore Capital with her colleague and mentor, Bill Leach. She attended NYU Stern School of Business and Columbia University. She’s worked with Bank of America, Donaldson, Lufkin & Jenrette, Visium Asset Management, SAC Capital Management, and Moore Capital Management.

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