Building Portfolio – II

In my previous article, I have talked about how I go on about building a portfolio. However, there is more to that. After you have identified certain companies and have built a portfolio your work has just begun.

The focus then turns towards how to allocate your capital to earn the highest possible return within your risk range. I have read many articles on the subject. However, nothing beats the Buffet wisdom where in he advocates to back your instincts heavily once you are convinced of the opportunity.

Also, I have recently come across the idea of buying stocks that are their hitting 52 week high. Now it sounds a bit scary, however we are in a Bull run since 2008-10. The stocks have went on to make higher highs and higher lows from their 2008 levels. Moreover, after reading “The Reminisces of Stock Operator,” I think this is a good strategy to use.

A special mention for stocks that are either over $100 or $200 or more, they continue to fetch you greater returns. For some reason, there is a bias towards stocks that are more than $100, as most investors (or beginners) tend to view it as expensive. I would highly recommend to value the stocks on their business rather than a numerical point of view. A stock which is worth $10 would not be a good investment, purely on the fact that you can buy more of it. I would recommend to look at it from a percentage gain point of view.

In the past few months, I have done just that! I have added to my positions for Dollarama, CCL Industries, etc.

Also, I have come to realize there is no one method that will fetch you great returns. Whatever that method is, it must first agree with your personality. As investing is also about the psychological makeup of your personality. What I mean by that is, do you panic often? How do you deal with high pressure situations? What is your first response when you see a stock dropping in value? How would that response differ when it is a stock that you own?

Moreover, there are different templates available to reach a certain level of return. Hence, it is important to compartmentalize the securities you are holding. All of those holdings will not have a same story or must not have the same reason as to why you bought them in a first place. The basis of an opportunity for a greater return would be different. This was something that I learnt from Charlie Munger. Simple idea but very powerful if used correctly.

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