Which Stocks are not Worth a Spot in Your Portfolio Anymore?
July is a good time to do your mid-year portfolio review and identify the winners to hold and the losers to ditch. This is a long-form step-by-step guide to do just that.
Folks, how often do you review your entire portfolio? How regularly do you clean up your watchlist?
Machine Learning for Algorithmic Trading | Data Driven Investor
When a friend of yours uploads your new beach-body photo on Facebook and the platform suggests to tag your face, it is…
For me, it happens at least twice per year. In December, I published my 2018 Castaways portfolio. We went through the Stock Card’s universe and got rid of the companies that were not worthy of our time and attention any more. As we go through July, it is time to step back again and get a sense of how things are going.
The goal is to make sure that the stocks we own are still worth holding, and the stock in our watchlists are still worth our attention. During July, as I go through my semi-annual clean-up, you will hear a lot form me and my Roll with Our CEO portfolio.
Here is the 4-part checklist I will be following to complete my July’s clean-up:
- Do I believe that the companies that have grown the most in my portfolio can continue to grow? Or, is it time to sell and pick other stocks?
- Do I have the reasons to hold the companies that have lost the most in my portfolio? Or, should I sell them, use the losses for tax purposes, and pick other stocks?
- Do I have enough cash on the side to take advantage of any possible market downfall?
- Which companies on my watchlist have proven to be operationally strong to add to my portfolio?
- Which companies on my watchlist have shown their operational weaknesses enough that they are not worth my time anymore?
Are you ready to do the same for your own portfolio?
In the last section, we talked about July as the month to review our portfolios and watchlists to identify what’s worth our attention, and which stocks have lost their luster. I shared with you a four-part checklist. And, the first two questions in the checklist are about which winners in our portfolios are worth holding, and which losers are not worthy of our time anymore.
In this section, I’d like to share our approach to answer the first two questions of the checklist. This is a long-form email that goes through the step-by-step process we are using to conduct our July’s portfolio clean-up. Let’s get to it.
There are 94 stocks in my Roll With Our CEO portfolio. First, I wanted to identify the winners and losers based on their total return in comparison to the overall market. I have all such information available to me on Stock Card. If you go to Track Your Performance page, the last column in each portfolio shows your stocks’ gain over the S&P 500 market index. I used that column to group my stocks into overperforming (winner) and underperforming (loser) stocks. This is how the results turned out:
Note that an underperforming (loser) stock may have grown higher, but not just faster than the overall market. While not losing money is great, overperforming the market matters the most. If they are underperformers, you’d want to dig deeper to figure out whether you can see a reasonable path for the company to surpass the market. Otherwise, it needs to get casted to free up cash for stronger picks.
The next step I took was to group the stocks in my Roll With Our CEO portfolio based on their market potential and operational strength. Again, such information is available on the Track Your Performance page. Looking at the Stock Card’s 2X2 thumbnails (on All Stock Card page), as you know, the top two colors represent “market potential” and “company strength”. If both market potential and company strength categories were yellow, grey, or red, indicating a potential weakness in the market or operations of the company, I tagged the company as a stock that needs a “Review.” Here’s how the results turned out:
Now, let me take the analysis one step further to figure out how many stocks are real concerns because not only they have “Underperformed” the market, but also they need a “Review”. This is the part I’m very excited about. It’s a map of my portfolio based on where I need to pay the most attention:
In the next few weeks, I will share a detailed review of the 20 stocks in my portfolio that have underperformed the market, and also have shaky market potential and operations. The Stock Cards of those companies will get a comprehensive review and update, and you will be notified if any of them are either worth adding more to or getting rid off. Stay tuned for the next update.
NEXT STEP FOR YOU:
Now, it’s your turn to start your July portfolio review. How many of your stocks have underperformed the market? And, which ones have a combination of shaky market and operations?