Perfect Stock Market Portfolio

  • How to build a perfect portfolio
  • How to manage a stock portfolio
  • It is all about portfolio risk reward

STOCK MARKET PORTFOLIO

Investing in stocks means you end up with a portfolio as having only one stock is too risky because you never know what might happen. Today, we’ll discuss MY PERFECT PORTFOLIO and 5 things to watch when building a portfolio in 2018!

Do you have a good investment portfolio?

Do you know what is portfolio management?

How to manage your portfolio?

Can you take advantage of market opportunities?

Is your portfolio hedged in a way?

Here is the video version of the article if you prefer:

I’ll try to answer those questions by showing how I go about portfolio strategy and the 5 key factors to watch when building a portfolio!

Best stock portfolio for 2018

We often discuss stocks, news, certain sectors but what is the perfect stock market portfolio in 2018? As I am building a Model Portfolio for my Stock Market Platform, I think an article on how to build a portfolio today would be really good. We don’t talk enough about portfolio management and how would my perfect portfolio look at this point in time!

What is a great stock portfolio?

A stock portfolio is a combination of various stocks that will lead you to satisfying investment returns no matter what happens in the economy and financial markets.

We are now in a goldilocks period, economic growth is strong, unemployment is low and stocks markets continue to go up. But as would ray Dalio say:

ray dalio

According to Dalio, there is a 60% chance for an economic slowdown prior to the next elections and we have seen Trump already preparing for that by putting the blame on the FED and higher interest rates.

So, a stock market or investment portfolio should be prepared for the financial world changing. Further, technology is changing the relationship between inflation and growth which is also something to think about when analyzing your finances and investments.

New interesting technologies include 5G, electric vehicles, data, etc. etc. So, apart from what might go bad, I also want to be open to what might go right in the next decade.

5 key portfolio management things to watch

Whether you only have a google finance portfolio or an actual money portfolio this exercise will help you understand the risk and reward you’re your stock market investments.

  • Focus on value investments

In an environment of low inflation, sky high stock prices, a long term investor has to keep his focus on value. What will be the things people will use also in a recession and what will be the technologies that will grow no matter what. Having value gives you protection from inflation and in case that stock prices drop you know you can easily buy more. A good example of such investments is where the price to tangible book value is around or below one. This means that the stock is trading at below what the company spent on its assets.

  • Portfolio valuations is key

Your long term returns depend on the earnings the stocks you have in your portfolio generate. The higher is the price to earnings (PE) ratio of your portfolio, the lower will be your earnings returns. The PE ratio of the S&P 500 is at 24.3 that implies a 4.11% earnings yield (100/24.3 = 4.11).

pe ratio

Historically, PE ratios have been lower, around 15, and this is why stocks market returns were higher than 6% in the last century.

stock market portfolio

So, if you can build a portfolio with better valuations but great assets, you will reach great financial results! Fortunately, there are great investing opportunities if you are willing to look for them.

  • Long term portfolio risk management is key

The stock market is usually very volatile, especially if you look at specific sectors. That is why you have to give yourself time to buy and prepare a portfolio. A few years, a healthy economic cycle, some market panics should do the trick. So, what I am doing with my model portfolio will take a bit to set up as it is a process and we have to wait for investment opportunities to come to us. Chasing stocks and buying just because it looks nice in a portfolio, simply increases the risk and lowers long term portfolio returns.

  • My Perfect portfolio exposure

The perfect portfolio exposure depends on volatility and risk and also hedges! It also depends on the risk reward of each position at the current moment so it is really a process through time, real portfolio management. But to give you an idea of how I see this at this moment in time, here it is:

GREAT BUSINESSES ACROSS:

20% DEVELOPED markets and global

8% LATAM

8% CHINA

8% ASIA (incl. Russia)

8% HEDGES & GOLD

8% REAL ESTATE

15% COMMODITIES

25% CASH AND OPPORTUNITIES

This will be around 20 stocks and a lot of those would be mixes. Further this does not include the cash balances in each position depending on the current opportunities and risk reward. Some stocks get hit extremely hard during a recession, while some simply continue to grow thanks to their amazing technology.

  • Portfolio risk and reward

In the long term, when it comes to stock market investing and portfolio management, even if only 5 things of 10 things only go right – the point is that you can make so much money on those five, if you do things properly, that you will not care about the losses. It is not rare that good stocks go up 10 or 50 times in a decade or two (multibagger stocks) that are the drivers of your portfolio returns. Careful risk reward portfolio management allows you to take advantage of such stocks.

Portfolio management – it is about risk reward and value

To conclude, with stocks and also with hedges – it is all about where can I get the most value for the smallest investment risk – that is what investing is all about.

For example, the risk reward of a portfolio hedge – a hedge is usually cheap when it is worth the most and the opposite way!

This is how I am going about building a stock market portfolio in 2018. Other things that matter are also your personal circumstances, the safety of your job, your monthly income, business, pension, country, wealth, healthy etc.

If you enjoyed this article please subscribe as I’ll continue with the portfolio management series where we still have to talk about things like:

  • Economic situation
  • Risk reward of investing at the moment
  • Likelihood of what might happen (technology, monetary easing)
  • Commodities (long term fair values)
  • Countries (some are cheap some expensive)
  • Sectors (some will implode some explode)
  • Portfolio weights (in the current environment)
  • Portfolio hedges
  • Currencies
  • Developed/emerging markets

It is all about buying when it is the best time to do so, selling around the positions when overvalued, or just reducing the portfolio exposure etc. at the and it all boils down to buying great businesses at the right time – the rest will take care of itself when investing.

Now, I will be opening positions when I find stocks that give me a 15% business return with limited downside and huge potential upside! For now, in my model portfolio, we have had one in commodities, one gold miner hedge, and two in Latin America with some more riskier plays in China.

2 thoughts on “Perfect Stock Market Portfolio

  1. ALEX M CHAYA July 30, 2018 / 1:34 pm

    I love you SVEN! Where have you been all of my life? It would have been nice if you could have popped up on the internet 10-15 years ago. You make me dream of a luxurious life style… not necessarily with you, though! As much as I do love you, I love my wife way more. (don’t take this the wrong way though! Jealousy is a very ugly emotion for your information! 🙂

    • svencarlin July 30, 2018 / 5:18 pm

      HAHA! Thanks!!!!

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