Observations

Shannon is a sharp and willing-to-learn young lady. She has a very intuitive mind and is ready to take new assignments. Her interest is in the process of stock selection within strong sectors.

We decided to look at the consumer non-durables sector. These stocks become attractive when the growth of the money supply rises. This is the time when the foundations are being set for a stronger economy.

She read Chapter 7 of my new book and plunged with enthusiasm into the assignment. We met after one week and she presented the most attractive stock alternatives.

She did a good job. As she was talking, I thought about the process of becoming a portfolio manager. What skills will she have to develop?

She will have to have the personality, background, and response-time to withstand the pressure when the overall market goes against her.

Investors can have great stocks in their portfolio, but if they are not astute portfolio managers they will do poorly. Experienced portfolio managers are able to change their portfolio to weather any financial storm by taking into account the downside risk at all times.

It is important to have a stock-picking discipline. Try to improve it. Always. With no exceptions. Try to learn from mistakes. Use what you learn to improve how you select stocks.

The main objective, however, is performance with low volatility. It is no easy task. Only discipline and focus on your total portfolio performance matter. And be able to adopt the maxim of Taoism: “When in doubt, act!”

Picking stocks is the easy part. Applying a strategy to the whole portfolio is where the challenge lies. Listening to what the market is saying. Act, do not wait. It may be too late. It may be too costly. Not too fast. You may be caught off balance. This is what goes through my mind every day. You read the outcome of this process twice a month.

Shannon has a lot to learn. I know she has the talent to do well.

(This Observations appeared in the 5/10/04 issue of The Peter Dag Portfolio)