Managing money is a process involving continuous decisions which have to be taken at the frequency suited to each investor. Every week, every month…you decide.
The first step is to determine the investment scenario and evaluate which assets classes are most likely to benefit. The outcome of this step is usually a multiple set of scenarios. Start with the one with the best odds. The lower probability ones will also be used.
The second step is selecting stocks for each scenario. If the main scenario reflects a strong economy, then a high percentage of your portfolio should be in commodity-sensitive companies. If one of the scenarios is a slower economy, then some money should be allocated to, for instance, financial stocks.
The third step is allocating money to each stock reflecting the odds of success assigned to each sector. A chart showing the graphs comparing the price of all the stocks is an invaluable aid. Capital should be allocated according to the relative strength and financial appeal of each stock as it compares to the S&P 500.
The fourth step, probably the most important, is to evaluate the performance of your portfolio by looking at the change in the balance of your portfolio and at the chart showing the relative performance of your stocks. You have to decide how often you want to do it.
Are you making money? Is most of your money in the strongest sectors and the strongest stocks? What are the scenarios you are considering? You need to change your portfolio according to this new evaluation.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
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