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Portfolios
A portfolio is much more than just a collection of financial
investments. A properly structured and balanced portfolio is
stronger than any of the individual investments that make it up.
Each investment should contribute to the portfolio’s objective.
A balanced portfolio will have different and offsetting risks or
exposures. A portfolio will contain investments from different
business sectors and industries. Not all sectors and industries
perform the same, so when one investment in a rising industry is
increasing in price another investment from a different industry
may be declining in price. These offsetting price changes reduce
the volatility of the overall portfolio.
Portfolios must have boundaries. A Panhandle Portfolio is
limited to no more than ten investments with an equal amount in
each investment. There are two reasons for this. First, I can
not know which investment will outperform another, so I equally
weight them. And second, a 10% allocation is enough so that if
the investment does well, it will have a measurable and positive
impact on the overall performance of the portfolio.
Independent investment research is an important part of our
portfolio process. Our investments are thoroughly analyzed. It
is important the value of our research be put into the
portfolio. Limiting the number of investments to no more than
ten guarantees the research is in the portfolio.
A rigid rule about the number of investments in the portfolio
also produces a strong sell discipline. A newly researched and
outstanding potential new investment candidate for the portfolio
cannot be added until an existing portfolio investment is sold.
This forces us to be enthusiastic and certain of the benefits
and contribution of this new investment and that it exceeds the
value of one of the portfolios existing investments.
Panhandle Portfolios are actively managed. The portfolio’s
income orientation means we will continually receive interest
and dividend payments. Cash will accumulate and the portfolio
will be rebalanced regularly. Panhandle Portfolios will have, on
average, one transaction a week and many more in some weeks.
Performance
Performance is where the investment rubber meets the road. It is
the measure of your effectiveness as an investor and shows how
much you have increased your wealth.
Your investment plan is your roadmap. Regular performance
reviews is the important process and discipline of checking to
see if you are following the path you set out for yourself, and
measuring your progress.
When we travel, we do not monitor our progress constantly, but
every now and then. Performance measurement is the same way.
Panhandle Portfolios provides performance monthly, but only a
full analysis and commentary of performance will be provided
quarterly.
The capital markets provide pricing on a continuous basis, so it
is possible to measure the value of your portfolio every minute.
Many investors do this.
Long term investors measuring their performance daily is one of
the great anomalies in the marketplace. I have found this is a
huge distraction and can easily get you off your investment
path. It is also a huge waste of time.
Performance is important. It is just as important to measure it
regularly and infrequently.
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