Managing Your Portfolio.


Having decided to build an investment portfolio it is vital that you manage it properly. The most important rule for successfully managing your portfolio is diversity. Spread your investment across several stocks to minimise exposure to one company or sector suffering a major downturn. The simplest way of doing this is to split your investment between equities and cash; indeed some investment managers advise setting up your portfolio to perform this equity/cash switch automatically. If starting from scratch the standard model for portfolio creation would be to have a near 50-50 split and around 12 different stocks giving the portfolio manager 24 positions; any more and the portfolio becomes difficult to manage, fewer and you are significantly exposed to localised difficulties.
From the outset, too, the actual investor must set the limits of loss that they would be willing to incur from initial investment. Experience would suggest that most managers set a fall of c. 8% - 10%; once this fall has occurred managing your portfolio orthodoxy would strongly suggest you to sell. This is not Gospel; little is in portfolio management. Similarly there are many varying theories of when managing your portfolio should move towards a sell position and as many ways to instigate this sale. After a first sale at a gain, sell when the stock falls to starting price. In a multiple sale situation sell when the price has fallen to 50% of the stocks’ maximum price, etc. Though many differ in practice, in nature most investment portfolio management plans will be designed to minimise loss before maximising return. Just by having a portfolio implies that you expect to beat other non-stock market related capital investments. As the return is assumed to be higher it makes sense to defend against the possible losses.
The sensible management of a portfolio should also take heed of prevalent market conditions. Selling a stock that is rising is not necessarily a bad option. If the entire market is rising, you will merely exchange one gaining stock for another. Similarly buying in a falling market will be an intrinsic part of managing your portfolio. If your holdings are particularly cash heavy you should be looking to buy equities; but in a bearish market there is nothing wrong with moving away from prospective falls in the stock markets.
In a professionally managed portfolio you may also have the opportunity to invest in foreign markets. There will always somewhere where local differences will add shine to an existing British financial condition. This option is becoming less attractive though as positive correlation (international markets generally move in the same direction) in the markets evens out the global differences.
Investment management is not simple but the basics are not complex. There are very few multi-billionaires playing the market and most are not as wealthy as the millionaires of a century ago – Warren Buffet is worth less than 1/5th of 1% of Global GDP for 1 year. So, when managing your portfolio, you must realise that it is not just you who is not an expert but also most of the experts as well.
Also the art of successful management is to realise your own weaknesses as well as your strengths – it is your money. If you are happier/more confident with your capital in property or gilts and bonds invest there. Portfolio management should always be about doing what the portfolio investor abides. And don’t forget the golden rule – make no decisions on the above information before contacting your portfolio manager.



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