BUILD YOUR PORTFOLIO...

5 small steps for your equity portfolio

Published: Saturday, Dec 22, 2012, 2:18 IST 
By Arjun Parthasarathy | Place: Mumbai | Agency: DNA

Constructing and maintaining an equity portfolio the right way will go a long way in improving its performance.

There are five rules that can help optimise the performance of your portfolio. These are:

1. The purchase price does not matter. What matters is the current market price that gives you current weight of each stock in the portfolio and also gives you the current valuation. Hence, always look at your portfolio in relation to current market price.

2. Good stock analysis should reflect stock weights in the portfolio. For example, if you are positive on stock X but it forms only 1% of your portfolio, it will not do much for overall portfolio returns.Stocks that you are confident of performing should have enough weight in your portfolio to boost returns.

3. Sector weights, too, should reflect your analysis. Sectors you are positive on should have high weight in your portfolio while sectors you are negative on should have less or zero weight.

4.Stick to stocks and sectors that you are comfortable with and do not venture into unknown territory without doing enough due diligence. Many of you are familiar with a certain industry or sector(s) and you will automatically deviate towards such sectors when you are investing. It is the right method to follow as your expertise will tell you if a stock is worth investing in or not.On the other hand investing in stocks that you are not familiar with exposes you to much greater risk.

5. Adding stocks to the portfolio on the basis of the belief that equity markets will go up and all stocks will do well is a sure way of making your portfolio underperform. Positive views on the markets can be executed in fewer and more well analysed stocks and such stocks will outperform the rest. Add more weight to existing stocks in the portfolio rather than adding on more stocks.

http://www.dnaindia.com/money/report_5-small-steps-for-your-equity-portfolio_1780367