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Stock Portfolio – Competition among Stocks

stock portfolio
stock portfolio

How do you manage your Stock Portfolio? was one of the queries in my mailbox which caught my attention. After i started “Stocks” section on my blog, i am receiving a lot of queries on my Stock Portfolio. Off late i was not able to update my post on “My Stock Portfolio” due to very hectic schedule. I promised myself that from now onwards, i will update it once a week as i am aggressively churning my stock portfolio. Obviously, the main reason is volatility and fast changing dynamics of the stock market. On top of it, i personally believe that you should always search for best stocks for your stock portfolio. A recent example is of DCB Bank, this bank was darling of investors and there was unanimous “BUY” rating from stock analysts. The bad Q1 results and concerns on asset quality turned the tables for this stock. The stock market is unforgiving. The harsh reality is that winners take it all. IndusInd Bank has replaced DCB Bank as a 2nd choice after strong numbers. The 1st choice is Axis Bank for most of the analysts.

Now to answer the query of my readers on how i manage my stock portfolio. To be very honest, key to success is the stock selection. It is both very complex and easy process depending on the investment philosophy. I will cover stock selection in my future posts. To start with, it is imp to know how to manage existing Stock Portfolio. In my case, after the stocks are shortlisted, i create a position in the stock. Before you create a position in the stock and include it in your stock portfolio, it is imp to finalize the lot size. Depending on the size of the portfolio, lot size in terms of absolute value should be fixed. Assuming, you are planning to invest 20 lac. Ideally weight age of each stock in the stock portfolio should not be more than 10% i.e. 2 lac. In my opinion, it is difficult to follow this rule. If you equally distribute portfolio then you are doing injustice as you should invest only in winning horses. Therefore, just to start with i will follow this rule and shortlist 10 stocks initially to diversify the portfolio. Rather investing the lump sum amount, i will take SIP route and invest in 4 installments of Rs 50,000 each. As and when i will finalize the stock for my stock portfolio, i will create an initial position of Rs 50,000. For example, If the stock A is of Rs 200 then i will buy 250 shares and if it is of Rs 1000 then quantity will be 50. As i mention that Stock Selection is more rapid and frequent process to create better alternatives for existing 10 stocks in the stock portfolio. Let’s check out how to do this

Stock Portfolio – Competition among Stocks

After creating a position, you should wait for at least few days to pitch newly added stock in the stock portfolio for competition. For example, recently i added BPCL to my portfolio. I gave time to this stock to perform. For initial 2 days, it was below the purchase price but the 3rd day it jumped 2.5%. After an initial honeymoon period, you should start a competition among 10 stocks in the portfolio or pitch a newly added stock against existing stock portfolio. You can create a portfolio either online on 3rd party sites or in an excel sheet. I am assuming that all stocks in the stock portfolio are carefully selected after proper fundamental and technical analysis. Even after thorough analysis, all stocks in the stock portfolio will not perform as per expectation. The basic idea is to earn max profit & follow the basic principle of Perform or Perish. A very simple way to check the results is to check the relative performance of the stocks.

If you want to keep it simple, just check the Overall % Gain of each stock. Now you must be wondering when to invest or increase holding and when to exit. As i mentioned that you should invest only in winning horses therefore after creating an initial position, you should fix the triggers to invest and exit (Stop Loss). In my case, Trigger to invest is 5% overall gain and Stop Loss is 2% Loss.

By creating competition among the stocks, you will only invest in stocks which are on the uptrend. As i mentioned in my post Why it is Imp to Book Profits in Stock Market? that you should only average out and invest only in stocks which are showing positive movement. By doing this, after a period of time you will have the majority of performers in your stock portfolio. Currently, many investors are averaging out Tata Motors only in the hope of fortune reversal. By doing this, these investors are accumulating more losses. In the same space, it makes more sense to average out Eicher Motors which is on upward trend. In this stock portfolio model, you will increase your exposure only in performing stocks.

In layman terms, each stock in your stock portfolio will fight for your money or wallet share. Assuming, Stock A with an initial investment of Rs 100 per share is now up 5% i.e. Rs 105. Initially, you created position by buying 500 shares for Rs 50,000. After 5% increase, you invest another Rs 50,000 and buy 476 shares. The another advantage of keeping lot size fixed is that you buy less when the price increase, therefore, follows the principle of value investing. After the investment, you will have 976 shares at an average of Rs 102.45. The gain will reduce from 5% to 2.45%. Now in order to be eligible for next round of investment, the share price should move from Rs 105 to Rs 107.58. You can again invest Rs 50,000 at this price point and bring down gain %. In a nutshell, you will only invest when the share price will move towards specific levels. For performing stocks, you should always fix the trail stop loss. For example, when my Stock A move to Rs 107.58 then my trail stop loss should be Rs 104 so that i book profits. When it will move to Rs 110 the trail stop loss will be Rs 108.

In case, the share price is reducing then you may sell such stocks from the stock portfolio at 2% stop-loss. This stop loss is only for stocks, which never gained 5% after being added to the stock portfolio. If you offload any stock from your stock portfolio, but its fundamentals and technical data points are strong. In this case, you can keep track, add in your watch list and re-enter at the right price. Based on your study and research, you can keep adding stocks with an initial lot of Rs 50,000 to a stock portfolio. By creating competition among stocks, you can build a healthy portfolio over a period of time. To summarize, retain the performers and offload the laggards.

Imp Note: All the examples quoted in this post are only for an illustration purpose and only to explain the concept. Readers should consult their financial adviser. The concept explained in this post is designed by me for my personal investment and it is not binding on readers to follow the same.

Disclaimer: Among all stocks discussed in this post, i have positions in Axis Bank and BPCL. The objective of this post is only to create an awareness.and educating investors about the Subject matter. The views and opinion expressed on this website are my personal views and is NOT an investment advice/Stock Tips whether to buy, sell or hold the shares of a particular stock. All investors are advised to consult their investment adviser and/or conduct their own independent research into an individual stocks before making any decision. I am not responsible for any loss or implications arising out of any decision taken by the readers after reading my post.

Copyright © Nitin Bhatia. All Rights Reserved.

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