7. Learn how to manage your stock portfolio
In the earlier discussions we had, you have learnt how to analyze a particular stock in the market, identify its key performances and have invested in them if the valuations are cheap and performances and financial strengths remain strong. Next, you have learnt when to sell a particular stock when its outlook changes negatively from when you first buy it. We have been talking about a single stock/ company all this while but in reality, a stock investor may have multiple stocks in his or her portfolio. It is here that I will give you some advice on how to manage them all together.
Basically, to manage a portfolio efficiently, there are a few things you would need to do. First, you will need to monitor existing stocks in the portfolio to make sure that he or she is updated with the latest quarterly performances and valuations of the company to give yourself the most up to date information for you to make a decision whether or not to sell these stocks. Next, I assume here that your capital will continue to increase through your savings from a day job. With more capital, you would have to find additional stocks to invest in. Therefore, you would need to go through the analysis process again to find new attractive stocks. Alternatively, you could buy more shares into your existing stocks if they remain attractive. Think of the portfolio management process as an extension of the analysis process itself. The following diagram helps to explain this concept.
As a general guideline, you should not rely on one single stock to bring profits to your portfolio. Sometimes, unforeseen circumstances might happen that may negatively affect a group of stocks in a market. Therefore, it is always good to always have a few stocks in the portfolio to diversify away some of the unique company risk that the portfolio has. However, the more stocks that you own, the more time consuming it will be to keep updates for every one of them. I would suggest that if you have a day job and are only investing part-time, it is best to limit yourself to a range of between 3 to 10 stocks at any point in time. The benefits of this strategy are that:
1) You will still have a certain level of diversity,
2) The less stocks you own, the less brokerage fees you pay, ultimately increasing your portfolio's performance, and lastly
3) A cap of 10 stocks will allow you to spend more time in monitoring these stocks to a deeper degree, thereby giving you more information to help you make better investment decisions.
Ultimately, if you have more time and are able to cope with a larger number of stocks, go ahead with it. However, when you first start out, give yourself more time to get use to the analysis process and get some experience in how to read the financial statements and analyst reports. Once you get the hang of it, slowly build up your stock portfolio. Be disciplined and stay updated with your existing stocks so that you can make a better decision whether or not to hold or to sell them while still keeping in the lookout for new/ better opportunities through the resources that I have discussed. Stay on the path and continue to invest more capital into your portfolio. In no time, you will reap the rewards of a healthy interest return annually which might potentially help to generate passive income for you on top of your day job, ultimately giving you financial independence in the future.
Follow my analysis of stocks in the market. This includes my personal
opinion of stocks which are either already in my portfolio or those which
are currently in my watchlists.