Every so often, around once or twice a year, you should take a look at your investment portfolio to make sure you’re happy with its performance and composition. When you started investing, you picked specific companies for certain reasons. So when evaluating your portfolio, you should ask if each company you own continues to represent your core beliefs to continue being a fit for your investment goals. For example, you may want to ask yourself: has it lost market share to a competitor? Or is your company taking over the market? These are some important questions to ask when reassessing you holdings.
So how do I keep tabs on my money? Here’s how I record my figures: I check the current price of the stock, round the price to the nearest dime, and make notes. I’ve created a database, on my laptop, that calculates percentage gain, dollar gain, shares purchased, shares held, total paid for shares, average cost of shares and a host of other information. Allow me to go into detail about each item.
How I Manage & Maintain My DRIP & Individual Stock Portfolio
#1 Percentage Gain vs Dollar Gain
Sure, Itʼs fun to say you made a $500 gain on your investment, but the truth is, not many people like hearing how much money youʼve made. It stinks of bragging. The market channels all talk about percentages. So, get used to talking in terms of Percentage Gains. Think about it: would you rather talk to the guy who made $5,000 on his investments or the guy who doubled his money? If, after a few years, your stock is growing at less than 7% to 8% annually, you might want to consider pruning it away.
#2 Shares Purchased vs Shares Held
This is an excellent tool that I use as part of my portfolio health check. I can instantly look at my spreadsheet and see, for instance, that I paid $750 dollars for 40 shares of ABC company, and now I hold 50. How cool is that, right? Not only did the company, essentially, GIVE me 10 free shares, but they will continue to offer me additional shares as long as I hold those stocks. They’ll keep paying dividends (and I’ll keep earning them) as part of their Dividend Reinvestment Plan.
#3 Total Paid and Dollar Cost Average Contributions
These numbers help me determine whether I’m on track. If I held ABC company for 3 years, and faithfully invested $50 every month for those 36 months in a solid, growing company, then my total contributions should be lower than the amount I’d pay if I bought the same number of shares today. I expect my average price per share to be lower than the current price. Of course, at times, I could actually be paying more than a stock’s fair value, but by spreading out my $1,800 over 36 months and then averaging out the price, I should be in good shape. This is especially the case if there is an automatic contribution process in place, such as what’s offered in a DRIP (Dividend Reinvestment Program) or with dividend paying stocks which allow for the reinvestment of stock dividends on a regular basis.
Analyzing A Sample Stock Portfolio
Let’s assess a sample stock portfolio. What follows is information from a hypothetical portfolio that utilizes sample stock symbols:
*3-1 stock split, ** Spin-Off
Understanding The Investment Data
By reviewing your investments, you may notice a need to make changes based on your portfolio’s performance over a given time period. So let’s do a little analysis and see what we can learn. What I’ve presented is a portfolio that may need some pruning and adjustments due to less than satisfactory returns.
Now, as someone who plays the market, I like looking at the leaderboard. Glancing at the bottom line first helps set the mood for the task at hand. The ﬁrst thing I see, is that this portfolio holds over 600 shares, and my “out of pocket” money is about $11,000. Of these 607 shares, that $11,000 purchased 380 of them. Thatʼs like getting 220 “FREE” shares! Furthermore, I see that my holdings are worth over $21,000 at current levels. That’s a gain of 95%. Sounds nice, but let’s take a closer look. That percentage return needs to be checked against the length of time taken to make that gain, as well as against market indexes that are similar to the basket of stocks in this portfolio. Doing so will show you how well individual stocks stack up against their corresponding index.
Is there room for improvement for our sample portfolio? I want to maximize my working capital. Scanning the % Gain column, I see that some positions are doing better than others. ABC and EFG are both up 22% and 16% respectively. At ﬁrst blush, this looks good. But when you see that I have “held” them now for nearly 5 years each, you’ll realize that these two companies are not getting the job done, especially since I aim to double my money every 5 years.
JKL, on the other hand, recently underwent a 3-1 stock split. As a result, my hypothetical holdings and percentages have exploded. This potentially presents an opportunity for me to take a profit, but I’ll need to look at the big picture first before I make decisions. MNO has also been in this portfolio for 4 years now and should be showing a near 100 percent gain. Instead, it’s returned a measly 6%. We’ll need to assess other company fundamentals as well: let’s say this company has seen no change in management or future outlook. With declining revenue and poor product prospects, this company gets the axe.
PRS is our darling stock. It’s the first stock bought for this portfolio. Nonetheless, if it doesnʼt meet my expectations, I wonʼt hesitate to cut it out, too. Thankfully, that is not the case. This company has consistently grown dividends, revenue, and share price over the years. This company even yielded a spin-off, so it will stay.
PUV looks to be another easy cut. But wait. This is a new stock that was purchased less than a year ago. It was also purchased at a high point in the trending channel. Prices have since stabilized near the 52 week moving average. Other than that, I still believe in the core fundamentals of this company and its sector. While it looks like a loss and an easy cut, we may instead consider this stock as a buying opportunity, and a chance to add to an existing position.
XYZ is another laggard, returning 7% over a 3 year period. Itʼs a steady grower with a solid plan, but is in a sector that I no longer favor. I see changes in the near future, and will be needing some capital for new investments. So XYZ gets pruned in this case.
Finally, let’s check the spin-offs. ACD, EFH and PRM are all spin offs from their parent companies, ABC, EFG and PRS. ACD and EFH were both spinoffs to help reduce debt in the parent companies. These companies are still young, and struggling to solidify their positions in the marketplace. So I will sell them because I’m not ready for the risks they pose. On the other hand, PRM is a spin-off that allowed its parent company to refocus on its core business (beverages). The spin-off is a healthy, growing company in its own right. It simply became too big to handle within the parent company. So based on fundamentals, this one’s a keeper.
Ultimately, my decision is to sell ABC, EFG, MNO, XYZ, ACD and EFH in order to raise nearly $5,000 in capital. As market fundamentals change, so too, should my investments. I’ve made similar decisions of the sort in the past years. By making these types of changes to my portfolio in 2007, I began to acquire energy and oil companies that had DRIPs in place, using money I was able to free up. I also began investing in precious metal miners, as I believed this was where the market was heading. Now, it’s time to take my portfolio out to lunch!
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