My Portfolios – Portfolio strategy

The tool My Portfolios gives an overview of the stocks you own or follow, and is well suited for regular portfolio status checks. The tool offers the opportunity to register purchases and sales, and provides return calculation, quick access to analyses of the portfolio stocks, and graphic portfolio analysis.

Most investors will benefit from articulating an investment strategy. The strategy should contain guidelines that describe how the portfolio should be built in terms of risk and return possibilities, criteria for sales and purchases, and guidelines for how often to follow up on the investments.

Appropriate strategies can be based on Today’s Case, Top50, rising trends, other of Investtech’s stock picking tools and combinations thereof. Study the Model Portfolio to see Investtech’s concept for building portfolios for medium size investors.

The news media cause a great deal of the portfolio fluctuations. This can be unfortunate in the short term, but will normally even out in the long term. Portfolio strategy is about having probability and statistics on your side, in order to achieve good long term return and low risk for short terms falls. Investtech’s graphic portfolio analysis is a visual tool for understanding the risk aspects of the portfolio. Green charts are positive and red are negative.

Number of stocks

The most important parameter for overall portfolio risk is the number of stocks in the portfolio. High weight on a few stocks gives high portfolio risk. In order to maximise upside in relation to risk, many investors benefit from having a portfolio of five to 15 stocks, fairly equally weighted. In order to get the highest possible return, it is necessary to have few stocks, so that the best stocks are highly weighted. At the same time, this causes a great downside risk if the wrong stocks are selected. The portfolio will be less exposed to fluctuations in specific companies if it consists of a bigger number of stocks, but at the same the great upside will be lost.

Low risk: Good distribution of capital reduces portfolio risk.	High risk: Focusing on few stocks gives a high risk portfolio, vulnerable to changes in any single stock, but with great upside.

Sector mix

In addition to the number of stocks, the portfolio sector mix should be taken into consideration. A portfolio with ten stocks will be high risk if all ten stocks are in the same sector, e.g. all offshore stocks or all finance.

Technical assessment

Another important risk factor is the technical condition of the portfolio stocks. Investtech’s research into trends, which are the most important contribution to the stock’s technical assessment, shows that stocks in rising trends historically do much better than stocks in falling trends (see the research report on buy signals from rising trends). However, stocks that already are technically positive tend to have risen quite a bit. Consequently the bottom has been missed and much of the upside lost. Especially for long term investors, though, it is still considered important to keep technically positive stocks. This strategy is the basis for the Model Portfolio.

Technically positive portfolio: Green fields are technically positive stocks, where investor psychology and trend development signal further rise.	Technically mixed portfolio: A portfolio can be made up of some solid long term positive stocks, while betting on some stocks that give early signals of a trend reversal. This is often the case for Investtech’s Trader Portfolios for the Norwegian and Swedish markets. It gives relatively high risk, but also a good upside.	Technically negative portfolio: Red fields are technically negative stocks. These are generally in falling trends or have triggered technical sell signals.

Individual stock risk

The individual risk of each portfolio stock is important for the overall portfolio risk. Individual risk is measured in volatility risk (stock fluctuations day to day) and liquidity risk (stock turnover). High upside requires stocks with high volatility. This also gives a big downside! Low overall risk requires individual stocks with low risk. This also gives a smaller upside.

Low risk: Low fluctuation (volatility) and good turnover (liquidity) give low risk.	High risk: High fluctuation gives high risk. Be especially aware of the “Extreme” group, where one single stock can have major effect on overall portfolio return.

Insider trades
Norwegian and Swedish stocks are ranked by insider trades. In companies that are positive on insider trades, board members or key employees have bought stocks. This signals that the insiders feel the stock is fundamentally cheap. Similarly, insider sales signal that the stock may be expensive.

The insider analysis of the portfolio indicates whether you are in agreement with the insiders. A green chart indicates that insiders are buyers in the portfolio stocks, while a red chart indicates that they are selling.

Positive insiders: Insiders have bought stocks in most of the portfolio companies. This indicates that the companies are cheap based on fundamental criteria, and that the insiders are expecting the price to rise.	Negative insiders: Insiders have sold stocks in most of the portfolio companies. This may be a signal that they think the risk is too high or that they are expecting the price to fall.