18 Managing your portfolio

Introduction

The notion of a blue chip company is one of size and reliability with its products and services in demand through good times and bad; growing steadily, if not dramatically, and with a dividend stream that investors can rely on.  Regrettably, in our modern age, there is no such thing as a nice, safe, blue chip company.

We have covered a lot of ground in previous chapters leading up to selection methodologies for funds and shares, covered in some detail in Chapter 13 and 14.  The present chapter seeks to translate the findings into a practical guide for developing a sound, personal strategy to suit the individual retail investor – taking account of his aspirations, interests, risk appetite and temperament, and how much time and energy he is prepared to spend researching companies and following the markets.  It aims to advise him on organizing his portfolio and proactively managing his investments.

The emphasis is on investing – not trading – and  on a proactive buy and hold approach, in that you should follow your investments closely, with a view to selling underperforming investments and reducing your exposure to market losses in response to deteriorating market conditions.

Warren Buffett has based his immensely successful investment approach on identifying value and taking a long-term view.  Significantly, he is a big enough player to influence the direction of companies that he has invested in.  Keep in mind that he is investing huge sums of money at a time, and he does not want to be jumping in and out of shareholdings, though he will if he has to, Tesco being a recent case in point.  The retail investor will not be able to influence the management of a company, but will be in a much better position to make judicious adjustments to his portfolio than a major investor such as Warren Buffett.

It is important to recognize that globalization and relentless technological advances have affected the fortunes of many companies.  New Internet titans have emerged, some stumble and fall, some stumble and recover, many go from strength to strength.  Others have suffered from fierce new competition, sometimes in the form of disruptive technologies such as the digital camera, hit in turn by the camera […]