Chapter 21: How to Build and Manage a Stock-Picking Portfolio

This is Chapter 21 of my book Mastering Value Investing: Practical Strategies for Real-World Results. Go there for links to the other chapters.

Most value investors spend enormous amounts of time asking one question: What stock should I buy? But finding an undervalued company is only the beginning. The harder question is what happens after you buy it.

How many stocks should you own? When should you sell? And perhaps most importantly, what should you do when markets fall and your carefully selected stocks fall with them?

My approach starts from a principle that differs from conventional portfolio theory. I build my portfolio stock by stock, based on business fundamentals and the gap between price and value. I am more concerned about permanent loss of capital than short-term volatility.

But conviction does not mean betting everything on your best idea.

I control risk through position sizing and diversification across geography, sectors, company sizes and different types of investments. I review the portfolio quarterly rather than reacting constantly to market movements.

I also treat cash as an investment decision. When bargains are scarce, I am prepared to hold cash rather than lower my standards. When markets become distressed, that same cash becomes dry powder.

Perhaps the biggest lesson, however, is that portfolio management is as much about managing yourself as managing your stocks.

The full chapter shows how I put these principles into practice using an actual portfolio tracked through changing markets - not a back test or theoretical simulation.

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Disclaimer & Disclosure

I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

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