10 principles to manage your stock portfolio

Over the last few months, I shared some of my portfolio management principles on Twitter for new investors and realised it’d be helpful to also put them together in one single post for you all, and elaborate a little more for extra clarity. If you’ve read my blog before you know I try to keep it useful yet lighthearted – life is too short to be too serious!

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Anyhow… I learned some of these principles while studying finance at UNSW here in Sydney, others I picked up along the way while investing and operating companies and one or two were invaluable lessons I learned from mistakes… Since I finished articulating these, I rarely digress; they have proved to be very helpful. So I hope they serve you too. Here they are:

  1. FACE TO FACE: Ideally, meet the management in person, especially for small to mid-sized companies; many investor conferences offer free or discounted access to conferences where you can talk to executives directly. If not feasible, read everything you can about their track record, not only what they say in their website but investigate further. LinkedIn, for sure, but go beyond. You may be surprised what you can find that can help your analysis.
  2. SKIN IN THE GAME: CEOs must be really in, not just options but shares. And a relevant amount. Ideally not less than other directors, but it is alright if it’s less if they are not founders.
  3. TEAM UP: Good management will find good assets/products. Poor management… not likely. Follow good teams as they may do well a second/third/etc time.
  4. NO TIPS: Don’t take stock tips from anyone, unless you know them well enough (meaning in real life, ideally in person), and their investment criteria & risk profile is the same as yours. And even then, run the tip through your own principles.
  5. DO YOUR HOMEWORK: Be contrarian but based on your research. Identify value that the market has not yet seen, get prepared and go in when others are selling out. Once the price is too high, you’ve lost most of the upside opportunity
  6. I SAW THE SIGN (yes, this is an Ace of Base reference, remember them?): Buy when the price is below the 50day simple moving average. This is a sign that this is a good price for this stock, at this particular moment. If you are increasing your position, the new average ideally must still be under this figure.
  7. KISS*: Do not over-diversify. 8 to 16 stocks are enough for most portfolios.
  8. SET A GOAL: When you start monitoring a company, set a buy range, and regularly review it, or even better, set price alerts. When you buy, set a sale range.
  9. SIGN NUMBER TWO: Sell when the target is reached (or deterioration of fundamentals) and aim to be above the 50day simple moving average.
  10. INSIDER CONUNDRUM: Monitor insider transactions. Keep an eye out for directors & management heavily buying -or selling-. If they are buying, chances are they believe in the company’s prospects so it is a great sign. If they are selling, beware! And run like the wind, Forrest!

And one bonus one… although this one applies for lots more than investing – don’t forget to have fun! Let me know if these are of help and would love to hear about your own, here on my blog or on Twitter.

Happy investing!

Paola

*KISS – keep it simple… smart investor!

My name is Paola Rojas. I am an investment professional, CEO & co-founder of Synergy Resource Capital. Follow me on Twitter to see what’s up!

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