The Current Situation of my Portfolios
Please visit my ‘Portfolios’ Page to get a clearer view on how my Portfolios are built up, but in essence I hold 3 Portfolios:
On top of these I use Spreadbetting for Leverage but this is a ‘Mirror’ in effect of most of the Stocks I hold in my Trading ISA and my Income Portfolio, so I am not really addressing the Spreadbet stuff in this discussion - whatever the outcome of my thinking over how many and what Stocks to hold, this will get Mirrored in my Spreadbets. For full details on how I do Spreadbetting, please click the ‘Spreadbetting’ Category on the Blog Page.
Regular sufferers of my Blogs, Website and Tweet ramblings will know that I have this utterly fanciful notion that I want to create the ‘WD40’, which is an aim to get my Trading ISA to hold a mere 40 Stocks. At the time of writing I have 45 Stocks and I am ever so gradually getting it down. My current thinking is that if I can get to this 40 Stocks then it will help reduce the possible over-Diversification problem. However, over time I might then need to refocus the Sectors so I am more tuned to the ones that are going up - this last step I have not really thought through yet.
Below are some Screenshots from ShareScope which show the ‘List Screens’ for my Trading ISA and shows the different Sectors where I have exposure. I was hoping to show a Pie Chart but when I tried doing it, it looked rubbish - I think this is because I do not use ShareScope to record all the Actual Financial Transactions that occur in my Portfolio - but you can use it in this way if desired - it is probably a very good way of Tracking a Portfolio and I know a lot of people use it this way - it even automatically enters your Dividends as well.
Obviously this List just shows the Sectors I am in - it does not reflect the Weightings to each Stock and therefore Sector. However, my ‘Portfolios’ Page does given an indication of Weightings across the Stocks. Hopefully it should give a good idea of how diversified my Holdings are.
The Screen below has some more Stocks and a FTSE100 Position which I just hold as Spreadbets (ignore the reference to CFDs - I don’t tend to use them these days much).
And this lot are ones I hold which are AIM mainly - I split them out because I hold these in a TDDirect Account rather than with iDealing.com like most of my stuff. Remember these are the real life Screens I work with every day on my ShareScope workbench.
The Screenshot below shows the Sector Splits for my Income Portfolio:
My Unit Trusts basically consist of 2 Tech Funds with a heavy US bias, a similarly biased Health Fund, a US Growth Fund and a European Growth Fund. On balance, these Funds are massively biased to the US.
Snakes and Ladders
Part of my Approach is to ‘Add to/Feed Winners’ and ‘Cut/Starve Losers’ - I think the reality is that this really helps Returns but it also lowers Risk - this is because of the Momentum Effects (the ‘Big Mo‘) whereby Downside Risks build on themselves and Upside Risks do similar.
What I am getting at is that Stocks that are going up tend to keep going up - and Stocks that are going Down tend to keep going Down - so I want to be on the Up Escalators and not on the Down Escalators. This means that Overweight Positions on Winners become more Overweight and Underweight Positions on Losers become even more Underweight as they fall - they are a diminishing problem.
These Effects are profound and staying on the Uptrends will keep you largely out of trouble. So my ‘Add Winners, Starve Losers’ approach reduces Risk - thus removing part of my need for Diversification to lower Risk. I am of the view that this technique has massively helped my Overall Portfolio Returns this year.
Do I Trade too Much?
This is something that has been playing on my mind for quite a while and I was considering writing a Blog about it as a subject in its own right. However, on balance I don’t think there is a enough to make a Blog so it got shoved in here.
My thoughts got prompted by looking at the ‘Trades’ Page of my Website - it just hit me that I do a helluva lot of Trades really. When you consider that each Trade might cost around £35 with In and Out Commissions, the Spread and Stamp Duty it means I am running up huge Costs that perhaps could be reduced if I calmed down a bit and stopped doing so many Trades.
I have taken a simple step to try to reduce this possible problem (I say ‘possible’ as I have not really decided if I do Trade too much or if it is inevitable as part of my overall Approach) by making a Decision that I will only ever buy a Minimum Trade Size of 1% of my Total Portfolio Exposure - I think in the past I used to sometimes drop below this level. I am already following this new Rule but I need to think about raising it to maybe 1.5% or 2% even. This would not stop me building up Stakes slowly as I could buy 2 or 3 lots of 2% to build a Big Position, but it might cut out a bit of avoidable Cost.
I fully believe that building Stakes in Chunks is the Safest Approach and by reducing Risk in this way I am boosting Overall Returns. Such Stake Building (‘Scaling In’ and ‘Scaling Out’ in effect) really plays into the Momentum stuff I was wittering on about earlier - in practice I buy an Initial Chunk and add to it if it starts to move up - so I am over-weighting a Stock with Upward Momentum. If I buy the Initial Chunk and it falls, I do not Add so I am under-weighting a Stock with Downward Momentum. I can then Add again to the Upward Moving Stock and of course if the falling one ever gets its act together and starts to trend upwards, I can then Add to that Position, assuming the Fundamentals stack up as per the Blog I did some time ago on Averaging Down. Sometimes the Add to the Stock may take the form of a Spreadbet but my intent is to always ‘Mirror’ with my Spreadbet Portfolio.
To explain this further - in theory I could just do a single Buy of perhaps 5% of my Portfolio Exposure in one Stock - but the Risk of doing so massively outweighs the possible £50 or so I might save in Trading Costs - such an Approach might cost me £000’s. Looking at it this way, maybe I should just accept that my Method means I do Trade a fair bit.
A few things covered in there, I hope it all made some sense, cheers, WD.
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