Proper Portofolio Management

Q & AProper Portofolio Management
Chee Leong Go asked 4 years ago

Dear Peter,
May i ask how do a new investor should allocate his investment monies in percentage? What do you think how much should be investor in each stocks and how much should be in cash in different situation, should we allocate equal cash amount to each stocks and how many stocks? For e.g. if economy is not good how the allocation be like and when equities have risen quite a far bit how the allocation should be like? do we sell winners? or looser? The above questions also lead to how to know when should we hold more cash than equities? What number should we see to get a feel of the economies
 
thank you
Chee Leong

1 Answers
Peter Lim Staff answered 4 years ago

Hi Chee Leong,
A good start is the percentage you feel comfortable. Back then i started with only RM 3k in stocks (the rest in unit trust). Gradually, the amount as well as percentage in stocks increased as my knowledge and experience increased. Then it become fully stocks (and almost none in unit trust). For the past many years, i’m more than 100% in stocks, if you exclude the value of my own house as asset.
But that is not what i would recommend, especially if you’re new. Start with a percentage you feel comfortable sleeping at night even when your stocks or the entire market drops by 40% or so.
Unless all stocks in your portfolio have the same attractiveness (which is extremely unlikely), i would suggest investing more on your best idea, followed by 2nd most in your 2nd best idea and so forth. Its not unusual for me to have 25% of my assets in my best idea at any one time. I don’t put an “amount” to each stock as it depends on how much a person have. If i say RM 100k in a stock, it might be too much or too little depending on a person’s networth. Thus, viewing as a % is more accurate.
Buffett recommends not more than 6 stocks, while Munger says 3 is more than sufficient. I’m usually at the range of 5 to 8 stocks.
I’ll sell stocks when 1) i’ve made a mistake in my evaluation, or 2) the stock is selling close to its intrinsic value, or 3) a better opportunity arises on where to allocate the money, or 4) the business condition or management does some questionable things which i don’t agree.
As for economy, i don’t spend time looking at it. I’m a bottoms up investor. If i discover a good stock runs by good management at an attractive price, i buy, regardless whether economy is good or bad.
Also, i don’t have a feel for economy. 🙂
Hope i cover all your questions.